Transportation Newsletter - Winter 2013 by Smith Moore Leatherwood

WINTER 2013

Attorneys at Law

TRANSPORTATION NEWSLETTER

Inside This Issue P. 2

The Continued Extension of Regal-Beloit

P. 4

Team Updates

P. 6

Bright Lines are Hard to Find: The ADA and “Disabled” Employees

P. 6

New Tangible Personal Property Regulations

On Eovember 19, 2012, Zob Moseley was appointed to ATZ/ Zesearch Advisory CommiƩee and will serve a twoͲyear term starƟng :anuary 2013.

Members of the TransportaƟon Team liven up the ,alloween oĸce party in Greenville! (Wictured leŌ to right: Fredric MarcineŬ, :oseph Zohe, <urt ZoǌelsŬy, and Zob Moseley.)

FMCSA IMPLEMENT ENHANCEMENTS TO SAFETY MEASUREMENT SYSTEM On December 3rd, FMCSA announced that changes to the CSA program applying to a motor carriers’ Safety Measurement System (SMS) scores. AŌer a public comment period that began in March 2012 and input from 19,000 motor carriers and 2,900 law enforcement personnel, FMCSA has implemented 11 “enhancements” to a motor carriers’ monthly SMS scores. /n general, the SMS uses all aǀailable inspecƟon and crash data to prioriƟǌe carriers for interǀenƟons. SMS ƋuanƟĮes onͲroad safety performance of carriers to idenƟfy the speciĮc safety problems the carrier eǆhibits and to monitor whether performance is improving or worsening. The most recent enhancements are designed to improve FMCSA’s ability to idenƟfy and taŬe acƟon against motor carriers with safety and compliance concerns. According to FMCSA, the enhancements to SMS, and the basis for the revisions, are as follows: 1. Strengthening the Vehicle Maintenance Behavior Analysis and Safety /mprovement Category (BAS/C) by incorporaƟng cargoͬload securement violaƟons from the CargoͲZelated BAS/C. The purpose of this enhancement is to address a perceived bias that carriers hauling open trailers are subject to greater scruƟny with respect to the CargoͲZelated BAS/C because their numbers of load securement violaƟons per inspecƟon are evaluated against operators that eǆclusively operate closed van trailers, where load securement violaƟons are oŌen not visible. 2. Changing the CargoͲZelated BAS/C to the ,aǌardous Materials (,M) Compliance BAS/C to beƩer idenƟfy ,MͲrelated safety and compliance problems. Due to the fact that ,M increases the conseƋuences of a crash, this revision is intended to reduce the liŬelihood of such conseƋuences by prevenƟng ,M cargo release and increasing the ability of emergency responders to miƟgate the ramiĮcaƟons of a ,M spill. CONTINUED ON PAGE 2>>

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3. BeƩer aligning the SMS with Intermodal Equipment Provider (IEP) regulaƟons. SMS does not currently include any roadside violaƟons associated with an IEP trailer disƟnct from the motor carrier; this enhancement is designed to aƩribute some of these violaƟons to the motor carrier. In cases where a driver conducts a preͲtrip inspecƟon and the violaƟon is of the type that should be idenƟĮed during a preͲtrip inspecƟon, that violaƟon will now be aƩributed to the motor carrier. 4. Aligning violaƟons that are included in the SMS with Commercial Vehicle Safety Alliance (CVSA) inspecƟon levels by eliminaƟng vehicle violaƟons derived from driverͲonly inspecƟons and driver violaƟons from vehicleͲonly inspecƟons. This enhancement was suggested in an eīort to address concerns that vehicle violaƟons that fall outside the scope of an inspecƟon could bias the Vehicle Maintenance BASIC results. 5. More accurately idenƟfying carriers that transport signiĮcant quanƟƟes of ,M. In general, the SMS methodology applies more stringent intervenƟon thresholds

for ,M carriers. FMCSA is now aƩempƟng to idenƟfy carriers that haul ,M as a minimal part of their businesses so as to focus intervenƟon resources on carriers involved in the majority of placardable ,M transport. Now, for a carrier to be subject to the ,M threshold due to ,M inspecƟon acƟvity, the carrier must have : (1) at least two ,M placardable inspecƟon within the past 24 months, with one inspecƟon occurring within the past 12 months, and (2) at least 5й of total inspecƟons that are ,M placardable inspecƟons. 6. More accurately idenƟfying carriers involved in transporƟng passengers due to the higher standard for passenger carrier as opposed to nonͲpassenger carriers. 7. Modifying the SMS display to: (1) change current terminology, “inconclusive” (i.e. carriers that do not have enough inspecƟons, but too few violaƟons to warrant being considered for an intervenƟon) and “insuĸcient data” (i.e. carriers that do not have enough inspecƟons to produce a measure suĸcient enough to even be assessed); and (2) separate crashes with injuries from crashes with fataliƟes.

8. Zemoving 1 to 5 mph speeding violaƟons. This change will apply to the prior 24 months of data and data moving forward. 9. Lowering the severity weight for speeding violaƟons that do not designate the mph range above the speed limit. The severity raƟng will now be 1 for all such violaƟons. 10. Aligning the severity weight of paper and electronic logbooŬ violaƟons for consistency purposes. 11. Changing the name of the FaƟgued Driving (,oursͲofͲ Service (,OS)) BASIC to the ,OS Compliance BASIC due to the fact that violaƟons within this BASIC do not necessarily indicated faƟgued driving or driving in eǆcess of allowed hours. FMCSA has stated that “[t]hese SMS enhancements reŇect FMCSA’s commitment to listening to our staŬeholders and researching and analyǌing enhancements in the name of safety. By strengthening our cornerstone enforcement program, we are conƟnuing to raise the bar for trucŬ and bus safety.” FMCSA is encouraging motor carriers to be proacƟve and checŬ their safety data at hƩp:ͬͬai.fmcsa.dot.govͬsmsͬ to determine if, and how, the SMS changes may have impacted their SMS results.

The Continued Extension of Regal-Beloit The landmarŬ Supreme Court case of Kawasaki Kisen Kaisha Ltd. v. RegalBeloit Corp., 130 S.Ct. 2433 (2010), conƟnues to be applied and eǆtended in the lower courts. One such eǆample is the recent case of Norfolk Southern Railway Co. v. Sun Chemical Corp., 2012 Ga. App. Leǆis 1019 (Nov. 29, 2012). In Sun, Sun Chemical hired an ocean carrier, Compañia Sud Americana de Vapores (CSAV), to transport two containers of inŬ manufactured by Sun from <entucŬy to Braǌil. hnder a through bill of lading, CSAV tooŬ Ηresponsibility for the enƟre

(intermodal) transportaƟonΗ of the inŬ from the place of receipt to the place of Įnal delivery, and retained Ηthe right to use the services of other Precarriers andͬor Oncarriers and any mode of transport to accomplish the same.Η The through bill also states that “custody and carriage of the Goods during the intermodal transportaƟon are subject to the tariīs and terms of the relevant bills of lading andͬor contract of carriage andͬ or other transport documents adopted by the Precarrier or Oncarrier. Sun also authoriǌed CSAV to Ηsubcontract on

any terms the whole or any part of the handling and [c]arriage of the Goods and any and all duƟes whatsoever undertaŬen by [CSAV] in relaƟon to the Goods.Η hnder the authority granted it in the through bill of lading, CSAV subcontracted with Ziss Intermodal, Inc., a freight forwarding company, to arrange inland transportaƟon, which in turn hired NorfolŬ Southern to transport SunΖs inŬ to Savannah. The intermodal transportaƟon agreement (ISA)

between Ziss and NorfolŬ Southern, which provided that it was Ηfor the sole beneĮt of [NorfolŬ Southern] and Ziss,Η incorporated NorfolŬ SouthernΖs rules circular governing such transport, which oīered customers a choice between ΗstandardΗ and ΗCarmacŬΗ liability provisions. The rules circular stated in boldface capitals that Ηunless language eǆpressly selecƟng ΖCarmacŬΖ is included in the original shipping instrucƟons, any tender of freight for transportaƟon . . . will be accepted under 'standard' liability coverage provided and not under 'CarmacŬ' coverage.Η The ISA and the rules circular gave Ziss the opƟon to impose CarmacŬ liability on NorfolŬ Southern if Ziss complied with certain addiƟonal procedures and paid a higher rate. By contrast, the standard provision stated that NorfolŬ Southern Ηwill not be liable for any loss, damage, or delayΗ to any party Ηother than the Zail Services Buyer.Η There was no evidence that Ziss chose, paid for, or otherwise selected CarmacŬ liability under the ISA or the rules circular. In September 2001, NorfolŬ Southern cars carrying Sun's inŬ containers derailed while traveling through Washington County, Georgia, destroying the inŬ. Sun Įled a claim with ConƟnental Insurance Company, which paid Sun $60,593.44. Sun and ConƟnental then sued NorfolŬ Southern for that amount plus interest and liƟgaƟon costs. The trial court granted Sun's moƟon for summary judgment on the ground that NorfolŬ Southern was strictly liable under CarmacŬ. NorfolŬ Southern appealed, arguing that it is not subject to CarmacŬ liability and that Sun should be bound by its agents' rejecƟon of CarmacŬ coverage. In a detailed and well reasoned opinion, the Georgia Court of Appeals ruled in favor of NorfolŬ Southern and reversed the trial court. AŌer discussing the Supreme Court’s decisions in RegalBeloit and Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 h.S. 14 (2004), the Court of Appeals noted that Kirby, to a large eǆtent, governed. ,owever, the court noted that Kirby did not address one quesƟon raised by the facts of the Sun case: whether the

CarmacŬ Amendment's imposiƟon of strict liability on receiving and delivering rail carriers preempted Sun's eǆpressed intent to allow downstream carriers to maŬe their own liability arrangements. To answer this quesƟon, the Court turned to Regal-Beloit. In Regal-Beloit, the Court framed the quesƟon before it as Ηwhether [the] CarmacŬ [Amendment] applies to the inland segment of an overseas import shipment under a through bill of lading.Η 130 SC at 2440. Sun argued that under the plain language of the CarmacŬ Amendment, NorfolŬ Southern was a Ηreceiving rail carrierΗ to which CarmacŬ liability must apply, regardless of any arrangements made by Sun's downstream carriers. In Regal-Beloit, however, the Court seemed to permit, in a case involving a through bill of lading for land and sea transit of goods, a domesƟc rail carrier not in privity with the owner of the goods to maŬe alternate contractual arrangements with the owner's agent to avoid CarmacŬ’s applicaƟon. ,owever, Regal-Beloit eǆplicitly declined to address the fact paƩern at issue in Sun ͲͲ that is, one in which Ηgoods are received at a point in the hnited States for eǆport,Η 130 S.Ct. at 2444 (although one federal court has discussed this issue, ƐĞĞ ,ĂƌƞŽƌĚ &ŝƌĞ Ins. Co. v. Expeditors Int'l of Washington, 2012 h.S. Dist. LEyIS 96974 (S.D.N.z. :uly 9, 2012)). Despite this, the Sun court held that Kirby's and Regal-Beloit's “objecƟves of promoƟng eĸcient mariƟme contracƟng . . . eīecƟvely . . . require[] us to uphold the bargainedͲ for terms of the through bill of lading before us, including its binding of Sun to its downstream agent Ziss's refusal of the CarmacŬ liability oīered by NorfolŬ Southern.” With this in mind, the Sun Court easily found that the bill of lading was a mariƟme contract not subject to CarmacŬ. Sun, the owner and shipper of the inŬ at issue, hired CSAV, an ocean carrier, to transport that inŬ by sea from Sun's <entucŬy facility to Braǌil. Sun was then issued a through bill of lading by CSAV, which then made arrangements to transport the inŬ from <entucŬy to the port of Savannah, where it would

begin the greater part of its journey to Braǌil. Sun gave eǆplicit permission in the through bill of lading issued to it that CSAV could Ηsubcontract on any terms the whole or any part of the handling and carriageΗ of the inŬ; that CSAV had Ηthe right to use the servicesΗ of other subcontractors Ηand any mode of transport to accomplish the sameΗ; and that the terms set further down the stream of commerce could render the subcontractor's liability Ηless than the liability of [CSAV]Η concerning the sea leg of the transport. ,aving thus been granted the authority by Sun to reach its own terms with subcontractors, Ziss declined NorfolŬ Southern's oīer of a right to assert a CarmacŬ claim against it, choosing a less eǆpensive liability regime instead. The court therefore concluded that NorfolŬ Southern “cannot be subject to CarmacŬ liability because the bill of lading issued by CSAV is a ͚mariƟme contract’ to which CarmacŬ liability should not apply and because Sun authoriǌed downstream carriers to reach their own terms as to liability, which Ziss did when it declined NorfolŬ Southern's oīer of CarmacŬ liability.” The Sun case therefore illustrates the conƟnued eǆpansion of Regal-Beloit, applying its holding to freight that is outbound from the hnited States on a through bill of lading. Furthermore, it shows that courts are conƟnuing to give shippers and carriers greater freedom to contract for parƟcular terms and parƟcular levels of liability that may be diīerent from those provided for in CarmacŬ and other governing statutes. Contracts, therefore, are becoming more important than ever before. As we have wriƩen before, carriers should always have good contracts with broŬers and shippers, and they should always be aware of what terms are included in upstream contracts entered into by shippers, broŬers, and forwarders. Finally, carriers should emulate NorfolŬ Southern and maintain tariīs whose terms can be used to structure their relaƟonships with their partners in the transportaƟon supply chain.

The Road Ahead ͻ

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On :anuary 3rd, Zob will be tesƟfying on behalf of the SC TrucŬing AssociaƟon regarding a proposed regulaƟon promulgated by the SC Department of Employment and WorŬforce relaƟng to independent contractors. Anyone have quesƟons they want to asŬ him while he is under oath͍ Best wishes to ScoƩ Murray, longƟme friend and VP of Safety for the SC TrucŬing AssociaƟon. ScoƩ maŬes his reƟrement oĸcial in :anuary. Please accept our thanŬs for a job well done. On :anuary 10th, Zob Moseley will aƩend the LegislaƟve CommiƩee MeeƟng of the NC TrucŬing AssociaƟon in Greensboro to discuss the upcoming legislaƟve agenda. :anuary 13Ͳ14th marŬs the winter meeƟng of the Conference of Freight Counsel in Dallas. Zob and Fredric will be aƩending, trial schedules allowing. Marc TucŬer, :oseph Zohe and Zob Moseley will be aƩending the Chicago Zegional MeeƟng of the TransportaƟon Lawyers AssociaƟon in Chicago on :anuary 25th. <urt ZoǌelsŬy will be presenƟng at the South Carolina TrucŬing Law Conference in Columbia, SC on February 21, 2013. Zob will teach TransportaƟon Contracts presented by the SMC3 in Atlanta on February 26th. To register, go to hƩp:ͬͬ www.smc3.comͬsmc3ͬacademyͬcoursesͲcontractlaw.htm. Type ΗmoseleyΗ in the discount boǆ for $75 oī the registraƟon cost. <urt ZoǌelsŬy will parƟcipate in a panel discussion on ΗTips for Defending the TrucŬ Driver and Safety DirectorΗ at the ABA TransportaƟon Megaconference in New Orleans, LA on March 6Ͳ8, 2013. Zob will be teaching an undisclosed and top secret subject on freight claims at the TIDA sŬills meeƟng in Atlanta on March 20th.

Making Tracks ͻ ͻ

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Zob Moseley aƩended the SCTA Board of Directors Zetreat at Wild Dunes near Charleston on October 1Ͳ2nd. Moseley taŬes a chance every Ɵme he goes to Charleston that The Citadel will repossess his ring and diploma. Zob Moseley went north of the border (not to NC), but to the 26th Annual TransportaƟon InnovaƟon and Cost Savings Conference in Toronto, Ontario, Canada on October 3rd. ,e prepared his remarŬs in French but then realiǌed that was the wrong province. They had a hard enough Ɵme understanding his southern dialect. October 7Ͳ8th marŬed the ATA Management Conference and EǆhibiƟon. Zob shared the stage with Marc Blubaugh of Benesch's Columbus (Ohio, not GA) in presenƟng the ΗTop 10 Legal Issues Facing TrucŬing.Η Marc TucŬer and <urt ZoǌelsŬy aƩended the TIDA Annual MeeƟng in Dallas, Teǆas on October 10Ͳ12th. Andrea CarsŬaͲSheppard presented at the Pilot Freight Services InternaƟonal Compliance Seminar in Zaleigh October 11th. She spoŬe on the risŬ related to eǆporƟng and conducƟng business internaƟonally, including internaƟonal contracts, hS and Canadian Customs, compliance the FCPA, the hS Trade SancƟons and eǆports control and the compliance programs. On October 15th, Zob led a webinar on broŬer liability issues for the ATA's Safety Management Council. Zob Moseley taught a TransportaƟon Contracts Seminar, presented by SMC3, in Atlanta on October 16th. <urt ZoǌelsŬy and :oseph Zohe aƩended the DZI Annual MeeƟng in New Orleans, LA on October 24Ͳ26th. <urt presided over his last meeƟng as Chair of the TrucŬing Law CommiƩee and received an interesƟng parƟng giŌ that must be described in person. The SCTA presented a oneͲday seminar in Columbia on October 24th. This meeƟng focused on legal issues facing trucŬing. :acŬ Ziordan served on a liabilityͬaccident panel, and Zob Moseley presented on publicly available informaƟon on trucŬing companies. Fredric MarcinaŬ aƩended the TLA's TransportaƟon Law InsƟtute in Nashville on November 9th. By the way, Zob is 1Ͳ0 as Įll in chaplain for The Citadel football team who beat Furman hniversity on November 17th aŌer a moƟvaƟng devoƟonal from Zob. Zob aƩended the SC TrucŬing AssociaƟon Board meeƟng on December 5th in Columbia. Andrea CarsŬaͲSheppard aƩended the Council meeƟng of the InternaƟonal SecƟon of North Carolina Bar AssociaƟon on December 6th. <urt and Zob signed up to provide refreshments for the oĸce birthday party in December. Of course, Zob wasn't around, leaving everything to <urt. Some things never change.

Bright Lines are Hard to Find: The ADA and “Disabled” Employees If ever there were a reason to maŬe sure you have qualiĮed ,uman Zesources professionals worŬing on your personnel problems, managing the complicated overlap between worŬer’s compensaƟon, the FMLA, DOT regulaƟons and the ADA is certainly one of them. The “Leave it to Beaver” days of the 1950sͲ60s are over. It is no longer a safe pracƟce to require that sicŬ or hurt employees stay out of worŬ unƟl they are “100й” or able to return to “full duƟes.” Nor is it safe to assume that once an employee has been out for 12 full weeŬs, he may be automaƟcally discharged. If there is one issue about which both poliƟcal parƟes agree, it is that employees belong on an employer’s payroll and not on the government’s payroll. In short, unƟl and unless a company can show undue hardship, it is eǆpected to “accommodate” an employee’s worŬ limitaƟons due to disability. And proving a hardship can be harder than you thinŬ.

TrucŬing companies using “bright line tests” such as “12 weeŬs and you are out” are in the news paying large seƩlements for allegedly not doing enough to Ŭeep disabled employees employed. ChecŬ your employee handbooŬ. If you don’t have an employee handbooŬ, puƫng one in place is the Įrst step to avoiding large dollar Įnes later. If you do have one, what does it say about how you will handle health limitaƟons͍ In addiƟon to standard language about reporƟng worŬer’s compensaƟon claims as soon as they happen, a short statement about sicŬ leave and, if you are 50 employees or larger, a longer secƟon on the rights and responsibiliƟes of an employee requesƟng a 12 weeŬ FMLA leave, what do you say about reasonable accommodaƟon of employees with disabiliƟes͍ Do you have an established way of managing these issues͍ The EEOC is alive and well. It is receiving more funding than it has at some Ɵmes in its past, and it is invigorated. If you

combine this fact with one or more disgruntled current or former employees with health issues or complaints, you have the potenƟal for a charge of disability discriminaƟon. And, once EEOC is in the door on a charge, there is liƩle to prevent it from audiƟng your company more broadly. BoƩom line: Put a policy and pracƟce in place to consider individual requests for the accommodaƟon of health restricƟons. If a requested accommodaƟon would consƟtute a true undue hardship to the business (e.g., the employee would not be able to perform essenƟal funcƟons of the job even with the adaptaƟon or the adaptaƟon would change the nature of the service provided), you may be able to saƟsfy ADA requirements without returning the employee to worŬ. ,owever, without this type of assessment, you most assuredly will not do well with the EEOC or in the courts.

NEW TANGIBLE PERSONAL PROPERTY REGULATIONS In December 2011, the Internal Zevenue Service (“IZS”ͬ”Service”) and the Treasury Department released new Temporary regulaƟons ʹ over 200 pages commonly referred to as the “Tangible Personal Property” regulaƟons ʹ which primarily impact taǆ code SecƟons 263(a) and 162(a). zou might be asŬing: how does this impact me͍ The following are some Ŭey highlights: ͻ

Generally speaŬing, these rules address whether taǆpayers must capitaliǌe their tangible property costs under taǆ code SecƟon 263(a) or whether they can deduct them under SecƟon 162(a). Therefore, if you own or lease longͲlived property (e.g., buildings, parŬing lots, leasehold improvements) and you or others within your organiǌaƟon

rouƟnely maŬe capitaliǌaƟon versus eǆpense decisions with respect to this type of property and associated costs, then you are directly impacted by these rules. Zegardless of your federal taǆ proĮle (e.g., you annually generate federal taǆable income or you have current or recurring federal taǆ losses), the new rules can have current andͬor longͲterm taǆ implicaƟons impacƟng the return on investment of your Įǆed assets. They contain provisions that liŬely restrict your ability to deduct certain eǆpenditures as “repairs” and mandatorily apply new “parƟal disposiƟon” concepts that can create unintended taǆ consequences with negaƟve implicaƟons for the unwary. zou will need to Įle at least one

accounƟng method change in order to comply with this new law and doing nothing is deemed an aĸrmaƟve acƟon by the IZS thus allowing the Service to dictate your new methodology. Such inacƟon will result in a higher taǆ burden today and an unintended taǆ burden upon the eventual sale of the underlying property. The new law contains some opƟonal compliance methods which you may be able to taŬe advantage of to generate near term posiƟve cash Ňow and maǆimiǌe your return on investment. The Service considered the impact of the relaƟvely restricƟve nature of the new rules as compared to the old rules and thus, provided taǆpayers with favorable alternaƟves to consider when

implemenƟng their new capitaliǌaƟon policies. The temporary rules originally became eīecƟve for your Įrst taǆ period beginning on or aŌer :anuary 1, 2012. Zecently, Taǆ NoƟce 2012Ͳ 73 altered the eīecƟve date to :anuary 1, 2014. ,owever, the IZS has granted taǆpayers the opƟon of applying the new rules based on the original :anuary 1, 2012 eīecƟve date. Therefore, taǆpayers should ensure their capitaliǌaƟon policies are compliant with these new rules and where applicable, taŬe advantage of some of the favorable opƟons and taǆ beneĮcial opportuniƟes available with a fully considered and opƟmally implemented plan of acƟon. Example: Taǆpayer owns a terminal building that it purchased ten years ago for $1M. Today, taǆpayer incurs $100,000 to replace the roof on the terminal building. Assume the original roof cost (liŬely embedded in the $1M building cost) was $75,000 but due to depreciaƟon deducƟons taŬen over Ɵme now has an adjusted basis of $50,000. Old rules: TradiƟonal capitaliǌaƟon policy Ͳ The taǆpayer would have followed their eǆisƟng capitaliǌaƟon policy and capitaliǌed the $100,000 new roof. As such, the cost of the new roof would be depreciated over 39yrs and the cost of the original roof ($75,000) would also conƟnue to be depreciated over the remaining depreciable life (29 years) of the original building. Old Zepairs methodology ʹ If the taǆpayer had Įled a “Zepairs” accounƟng method change, Taǆpayer would liŬely have deducted the new

roof cost of $100,000 as a qualifying repair eǆpenditure and would have conƟnued to depreciate the cost of the original roof ($75,000) over the remaining life of the building. New rules: TradiƟonal capitaliǌaƟon policy Ͳ If no acƟon is taŬen, Taǆpayer has no choice and the new rules would require Taǆpayer to capitaliǌe the new roof cost ($100,000) and would presume that the remaining adjusted basis in the original roof ($50,000) would be wriƩen oī as a loss deducƟon ʹ whether or not the adjusted basis was actually wriƩen oī by Taǆpayer. Without the retroacƟve General Asset Account elecƟon (discussed below), Taǆpayer’s tradiƟonal capitaliǌaƟon policy would not recogniǌe the loss deducƟon on the deemed disposal of the old roof resulƟng in the building’s basis being eroded by $50,000 without the taǆpayer beneĮƟng from the commensurate depreciaƟon deducƟonͬwrite oī. hpon the eventual sale of the terminal building, Taǆpayer would recogniǌe more gain than eǆpected as the IZS would calculate the building’s adjusted basis to have been reduced by the $50,000 and thus, taǆpayer would have to recogniǌe $50,000 more gain and a higher taǆ liability. New “General Asset Account” (“GAA”) elecƟon ʹ By Įling the new, “ZetroacƟve GAA ElecƟon” method change, Taǆpayer has a choice on how to handle both the new roof cost and the adjusted basis of the old roof: Choice η1 (Status Yuo) ʹ Taǆpayer can ignore the applicaƟon of the new rules and simply capitaliǌe the

new roof cost and conƟnue to depreciate the old roof cost as well without incurring the presumpƟve disposiƟon loss and erosion of basis in the building as described above under the “TradiƟonal CapitaliǌaƟon policy”. Choice η2 (Zepair Opportunity) ʹ If the new roof qualiĮes as a repair eǆpenditure under the new more restricƟve rules, Taǆpayer can adopt the new Zepairs methodology via an accounƟng method change and treat such eǆpenditures as a current eǆpenseͬdeducƟon ($100,000) and conƟnue to depreciate the original roof costs. ŚŽŝĐĞ ηϯ ;WĂƌƟĂů ŝƐƉŽƐŝƟŽŶ KƉƉŽƌƚƵŶŝƚǇͿ ʹ If not a qualifying repair eǆpenditure, Taǆpayer can elect to follow the new “ParƟal DisposiƟon” methodology via an accounƟng method change. The new roof cost ($100,000) would be capitaliǌed and Taǆpayer would account for the parƟal disposal of the old roof as a current deducƟonͬ loss by wriƟng oī the adjusted basis of the old roof ($50,000). The GAA and ParƟal DisposiƟon method changes would allow Taǆpayer to property account for the parƟal disposal of the old roof thus allowing Taǆpayer to recogniǌe the beneĮt of the $50,000 deducƟon. We at Smith Moore Leatherwood would be pleased to discuss the various federal taǆ ramiĮcaƟons of the new Tangible Personal Property rules and further dialogue with you regarding speciĮc acƟon steps you should be considering with respect to these new rules.

Contributor to this issue:

Brian Lemon Zaleigh, NC

ƌŝĂŶ >ĞŵŽŶ ŝƐ KĨ ŽƵŶƐĞů ŝŶ ^ŵŝƚŚ DŽŽƌĞ >ĞĂƚŚĞƌǁŽŽĚΖƐ ZĂůĞŝŐŚ ŽĸĐĞ ĂŶĚ Ă ŵĞŵďĞƌ ŽĨ ƚŚĞ ĮƌŵΖƐ dĂǆ 'ƌŽƵƉ͘ ƌŝĂŶ ƉƌĂĐƟĐĞƐ ŝŶ ƚŚĞ ĂƌĞĂƐ ŽĨ ĨĞĚĞƌĂů ƚĂǆĂƟŽŶ͕ ĂŶĚ ĨĞĚĞƌĂů ƚĂǆ ĐŽŶƚƌŽǀĞƌƐŝĞƐ ŽŶ ďĞŚĂůĨ ŽĨ ĐŽƌƉŽƌĂƟŽŶƐ͕ ƉĂƌƚŶĞƌƐŚŝƉƐ͕ ĂŶĚ ůŝŵŝƚĞĚ ůŝĂďŝůŝƚǇ ĐŽŵƉĂŶŝĞƐ͕ ĂŶĚ ĂůƐŽ ĂĚǀŝƐĞƐ ŽŶ ƚŚĞ ĨĞĚĞƌĂů ƚĂǆ ŝŵƉůŝĐĂƟŽŶƐ ŽĨ ŵĞƌŐĞƌƐ ĂŶĚ ĂĐƋƵŝƐŝƟŽŶƐ ĂŶĚ ŽƚŚĞƌ ĐŽƌƉŽƌĂƚĞ ĂŶĚ ďƵƐŝŶĞƐƐ ƚƌĂŶƐĂĐƟŽŶƐ͘ ,Ğ ŚĂƐ ŽǀĞƌ ϭϳ ǇĞĂƌƐ ŽĨ ĞǆƉĞƌŝĞŶĐĞ ĐŽŶƐƵůƟŶŐ ǁŝƚŚ ƉƌŝǀĂƚĞ ĂŶĚ ƉƵďůŝĐ͕ ĚŽŵĞƐƟĐ ĂŶĚ ŵƵůƟŶĂƟŽŶĂů ĐŽŵƉĂŶŝĞƐ ĂĐƌŽƐƐ Ă ǁŝĚĞ ƐƉĞĐƚƌƵŵ ŽĨ ŝŶĚƵƐƚƌŝĞƐ͘

Transportation Industry Team We represent both large and small trucŬing companies as insureds on behalf of numerous naƟonal insurance companies and as selfͲinsureds. In addiƟon, the Įrm has served for many years as outside General Counsel for a naƟonally recogniǌed commercial vehicle insurer and is eǆperienced in all aspects of transportaƟon law including issues involving federal and state statutes and regulaƟons promulgated by the former Interstate Commerce Commission (ICC), the successor Surface TransportaƟon Board, the Department of TransportaƟon and the Public Service Commission. As part of the array of transportaƟon services provided to Įrm clients, an aŌerͲhours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.

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