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IRS Reverses Position on OREO

Over the past several years the IRS has been challenging banks during audits on the deductibility of Other Real Estate Owned (OREO) expenses. Banks have historically deducted expenses such as property taxes, insurance, and maintenance as ongoing operating expenses. Their position was that the acquisition of OREO property was a last resort of collecting the loan, and managing the OREO properties was merely an extension of the lending process. The IRS took the position that these expenses should be capitalized under Code section 263A, and deducted upon disposition of the property.

The Office of the Chief Counsel for the IRS just released a Memorandum which supports the banks’ position. While this may not be as authoritative as other documentation such as the Code or Regulations, it does document a reversal of the IRS position, and will probably reduce future disagreements on this topic.

Read full memorandum here.

Should you have any questions, please contact your AHP representative.

IRS Circular 230 Disclosure – As required by IRS rules, although this written communication may address certain tax issues, the issuer of this document did not intend nor write the advice to be used to avoid any penalty imposed by a taxing authority, nor may the user/recipient of this document use this document’s written tax advice for that purpose. Nor may it be used to promote, market or recommend to another party any transaction or matter addressed herein.