Welcome to Luca!globe
 The CPA Journal Online Current Issue!    Navigation Tips!
Main Menu
CPA Journal
Professional Libary
Professional Forums
Member Services
Feb 1993

Tax provisions of the Americans with Disabilities Act. (Federal Taxation)

by Bullock, Reginald, Jr.

    Abstract- The IRC has three tax provisions designed to encourage individual and corporate employees to comply with the Americans with Disabilities Act (ADA). The first, available under Section 190, allows employers the option to deduct up to $15,000 of the expenses they had incurred for eliminating architectural and transportational barriers for tax years starting after Nov 5, 1990. Section 44 contains another tax incentive, a nonrefundable credit for expenses incurred while complying with the ADA requirement to make the work place more accessible to the disabled. A third ADA-related tax provision, under Section 51, offers a credit to businesses that employ individuals who belong to any one of the nine statutorily identified groups including the handicapped. Requirements to qualify for these tax incentives are briefly discussed.

Election to Deduct Architectural and Transportation Barrier Removal Expenses. A special deduction was created pursuant to IRC Sec. 190, to encourage individual and corporate employers to remove architectural and transportational barriers to the mobility of handicapped and elderly persons. Under IRC Sec. 190, an employer may elect to deduct certain amounts paid or incurred by him for qualified architectural and transportation barrier removal expenses. The election applies to expenditures paid or incurred during the taxable year which, but for the election, are chargeable to the business' capital account.

The deduction for tax years beginning before November 6, 1990, was more favorable than the new law's provision. Up to $35,000 of the expenses paid or incurred to make a facility owned or leased by the employer for use in his trade or business, more accessible to the handicapped and elderly were deductible. The maximum deduction is reduced to $15,000 for tax years beginning after November 5, 1990. Expenditures paid or incurred in a taxable year that are in excess of the amount deductible under IRC Sec. 190 for such taxable year, are capital expenditures and constitute additions to the depreciable base of a company's fixed assets.

An IRC Sec. 190 election is made by claiming the deduction as a separate item on the employer's income tax return for the taxable year in which such election is to apply. The return for that year must be filed no later than the time required by law--including extensions--for filing a return for the taxable year to which the election applies.

The employer must have available for the period in which the election was taken, all records and documentation, including architectural plans, blue prints, contracts, and any building permits, constituting all the facts necessary for a determination as to the amount of any deduction to which the employer is entitled by reason of the election, as well as the amount of any adjustment to basis made for expenditures in excess of the amount deductible under IRC Sec. 190. In sum, any employer claiming or intending to claim this deduction must keep detailed records from which the amount deductible under IRC Sec. 190 may be computed.

Finally, to qualify for this expense deduction, the remodelling done by or for the employer must bring his facility into conformity with the standards established by the Secretary of the Treasury on the advice of the United States Architectural and Transportational Barriers Compliance Board (See IRS Publication 907 for description of such standards). And, for purposes of this deduction, "elderly" refers to persons aged 65 or older, and "handicapped" refers to individuals who are blind or deaf or have difficulty walking or using their hands.

The Disabled Access Credit. The disabled access credit, provided through IRC Sec. 44 is a nonrefundable credit for an eligible small business that pays or incurs expenses after November 5, 1990, to make the business more accessible to persons with disabilities. An eligible small business is one that, for the preceding year, had gross annual revenues of no more than $1,000,000, or employed no more than 30 full time employees. An employee employed at least 30 hours per week for 20 or more calendar weeks in the tax year is considered full time.

The amount of the credit is 50% of the amount of eligible access expenditures for a year that exceed $250 but do not exceed $10,250. In other words, the maximum amount of the disabled access credit is $5,000 per year. However, a business may deduct, capitalize, or use the amounts that exceed the credit to figure other credits. A business may not take a double benefit for the amount of the credit, i.e., it may not take both the tax credit and the tax deduction for $10,000 spent on renovations, but amounts in excess of the $10,000 may be deducted.

Expenses eligible for the credit are those that enable a business to comply with applicable requirements under the Americans with Disabilities Act of 1990. These include amounts paid or incurred to 1) remove architectural, communication, physical or transportation barriers; 2) provide interpreters or other effective methods of delivering audio materials to individuals with hearing impairments; 3) provide effective methods of delivering visual materials to individuals with visual impairments; 4) acquire or modify equipment or devices for individuals with disabilities; and 5) provide other similar services, modifications, materials or equipment. Only expenses that are reasonable and necessary for facilities presently in service will qualify for the credit.

The credit is a component of the general business credit (which includes, for example, the investment credit and targeted jobs credit), and is effective for expenditures made after November 5, 1990. Unused credit amounts may be used in an earlier year or a later year. However, no credit may be carried back to a taxable year ending before November 5, 1990, and no double deduction is allowed. Additionally, the credit for any one year cannot be more than the business' tax liability for that year. Pursuant to IRC Sec. 39, the maximum number of years that an unused credit may be carried forward is fifteen years.

Because the disabled access credit is a part of the general business credit, if the employer has certain other business credits, the disabled access credit may be limited. The disabled access credit is one of several credits, including the targeted jobs credit (see below), that are added together to compute the general business credit. There is an overall limit on these credits.

As with the deduction for architectural expenses, the employer must establish to the IRS's satisfaction that the removal of any barrier, or the provision of services and/or equipment, meets the standards promulgated in regulations issued concurred with the Secretary of the Treasury and by the Architectural and Transportation Barriers Compliance Board.

The Targeted Jobs Credit. Under IRC Sec. 51, employers who hire members of certain groups may elect to take a credit of 40% of the first $6,000 of qualified wages paid to such individuals within the first year of their employment. The groups conferring such special treatment are statutorily identified as 1) vocational rehabilitation referrals, 2) economically disadvantaged youths, 3) economically disadvantaged Vietnam era veterans, 4) supplemental security income recipients, 5) general assistance recipients, 6) youths participating in a cooperative educational program, 7) economically disadvantaged ex-convicts, 8) eligible job opportunities and basic skills training employees, and 9) qualified groups (maximum of two) it has reason to believe the employee is a member of, and must certify that it made its determination of the employee's status in good faith. However, unless there is an extension of the targeted jobs credit, the current credit only applies to wages paid or incurred to an individual who begins work for an employer before June 30, 1992.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.