The Internal Revenue Service has been actively auditing golf course owners and residential golf community developers since the middle 1990's. In early 1999, the IRS produced a draft Audit Techniques Guide (ATG) for the golf course and club industry which was shared with the industry. In summary, the draft ATG provides a "road map" that generally must be followed by IRS field examiners. The ATG targeted the industry for further examinations to be selected at the District level, reiterated its 1955 position that all golf course land improvements (excluding man-made items such as cart paths, irrigation, etc.) were nondepreciable land improvements, challenged the taxability of membership deposits and continued its position that excess costs of golf courses cannot be allocated to lots sold. In May of 2000, a District Court case in Detroit, Charlevoix Country Club vs. Commissioner, held, in summary judgment, in favor of the IRS's position that such costs cannot be allocated to lots being sold.
Since the summer of 1999, Bill Ellis has concentrated his practice to representing the golf course owners and developers interests and has represented the industry's position that many of the ATG conclusions did not consider current industry facts and/or did not consider all relevant authorities. Bill formulated, proposed and led an engagement of KPMG LLP with the National Golf Course Owners Association (NGCOA) in January 2000 to represent the industry in efforts to modify the out-of-date depreciation position of the IRS to one that more closely follows the current facts of modern golf course construction. The NGCOA Depreciation Initiative was also selected for the new Industry Issues Resolution (IIR) pilot program of the IRS. On November 29, 2001, the IRS issued Revenue Ruling 2001-60 which provides for the depreciation of modern greens constructed with integrated drainage systems. The IRS issued additional guidance to extend the ruling to other golf course land improvements with similar integrated drainage systems.
Revenue Ruling 2001-60 (PDF)
IRS Field Directive 2/7/02 (PDF)
IRS Audit Directive 2/25/02 (PDF)
In connection with these efforts, Bill coordinated several meetings with high-level IRS representatives focusing on the depreciation and other issues addressed in the ATG. These meetings have included agents, engineers, and representatives from the Office of Chief Counsel, District Director, Appeals, and National Office Examination, among others. During these meetings he had the opportunity to discuss the issues and more fully understand the IRS positions and understanding of industry facts. Many additional areas of the draft ATG contained positions that were contrary to industry practices. For an example, 30 year initiation deposits were to be challenged in many respects. As a result of Bill's meetings and discussions with IRS representatives, the IRS has verbally assured Bill that the final ATG will be modified to reflect a general acceptance of the 30 year initiation deposits subject primarily to a review of the legal documents. The final ATG is expected to be issued in 2004.