| limited to the lease amount for a vehicle
with the base value as determined above, with substantiating documentation
as specified in §355.105(b)(2)(B)(iv) of this title. Luxury vehicles
must be depreciated according to depreciation guidelines in this paragraph.
Expenses for passenger luxury vehicles will be allowable if the contracted
provider maintains adequate mileage logs substantiating the use of
the luxury vehicles to transport clients, contracted provider staff
or provider supplies. Refer to §355.105(b)(2)(B)(iii) of this
title for requirements for the maintenance of mileage logs. The base
value does not include specialized equipment, such as wheelchair lifts,
added to assist clients.
(ii) The estimated life of a previously owned (used)
vehicle is the longer of the number of years remaining in the vehicle's
depreciable life or three years. For example, if a 2013 van were purchased
in 2014, it would have four years remaining in its five-year depreciable
life and that would become the depreciable life for the used vehicle.
If a 2013 minivan were purchased in 2014, it would have two years
remaining in its three-year depreciable life and the depreciable life
for the used vehicle would then be three years.
(iii) Specialized equipment added to a vehicle to assist
a client should be depreciated separately from the vehicle. Wheelchair
lifts have an estimated useful life of five years.
(D) Depreciation for the first reporting period. Depreciation
for the first reporting period is based on the length of time from
the date of acquisition to the end of the reporting period. Depreciation
on disposal is based on the length of time from the beginning of the
reporting period in which the asset was disposed to the date of disposal.
(E) Planning and evaluation expenses. Planning and
evaluation expenses for the purchase of depreciable assets are allowable
costs only where purchases are actually made and the assets are put
into service in the provision of care by the provider for contracted
services.
(F) Gains and losses. Gains and losses realized from
the trade-in or exchange of depreciable assets are included in the
determination of allowable cost. When an asset is acquired by trading-in
an asset that was being depreciated, the historical cost of the new
asset is the sum of the undepreciated cost of the asset traded-in
plus any cash or other assets transferred or to be transferred to
acquire the new asset. Losses resulting from the involuntary conversion
of depreciable assets, such as condemnation, fire, theft, or other
casualty, are includable as allowable costs in the year of involuntary
conversion, provided the total aggregate allowable losses incurred
in any cost-reporting period do not exceed $5,000 and provided the
assets are replaced. If the total aggregate allowable losses in any
cost-reporting period exceed $5,000, the total amount of the losses
over $5,000 is recognized as a deferred charge and treated as follows:
(i) If a depreciable asset is destroyed by an involuntary
conversion beyond repair, then the amount of the loss over $5,000
must be capitalized as a deferred charge over the estimated useful
life of the asset which replaces it. The allowable loss for a total
casualty is the undepreciated cost of the asset, less insurance proceeds,
gifts, and grants from any source as a result of the involuntary conversion.
If the unrepairable asset is disposed of by scrapping, income received
from salvage is treated as a reduction in the amount of the allowable
loss. Conversely, where additional expense is incurred in the scrapping
operation, such cost would be added to the allowable loss of the destroyed
asset.
(ii) If a depreciable asset is partially destroyed
or damaged as a result of an involuntary conversion, a reduction in
its cost basis is assumed to have taken place. Therefore, the cost
basis of the asset must be reduced to reflect the amount of the casualty
loss, regardless of whether the loss is covered by insurance.
(I) The amount of the casualty loss is the difference
between the fair market value immediately before the casualty and
the fair market value immediately after the casualty; however, for
cost-reporting purposes, the allowable loss is limited to the percent
of loss in fair market value applied to the net book value of the
asset at the time the casualty occurred. This method of calculating
the allowable loss recognizes the actual reduction in the cost value
of the asset rather than the reduction in replacement value.
(II) Any loss over $5,000 must be capitalized as a
deferred charge and amortized over the useful life of the restored
asset.
(III) The fair market value generally can be ascertained
by competent appraisal. If no appraisal is made, the cost of repairs
to the damaged property is acceptable as evidence of the loss of value
if the repairs restore the property to its condition immediately before
the casualty and, as a result of the repairs, the value of the property
has not been increased. The amount of the allowable loss is then deducted
from the cost basis of the asset before the casualty, to arrive at
the adjusted cost basis of the asset. Any insurance proceeds received
or recoverable must be deducted from the amount of the casualty loss
to determine the gain or the loss.
(IV) Actual costs incurred in the restoration of an
asset are added to the adjusted cost basis of the asset to arrive
at the revised cost of the restored asset and capitalized over the
remaining useful life of the restored asset.
(V) When the repairs materially improve or add to the
value or utility of the property or appreciably prolong its useful
life, the repairs must be depreciated over the estimated life of the
repairs.
(VI) When the contracted provider maintains a self-insurance
reserve fund, the amount of the casualty loss recognized as an allowable
cost is limited to the lesser of the decrease in fair market value,
as adjusted, of the damaged or destroyed asset or the amount of cash,
and/or investments, comprising the accumulated balance of the self-insurance
reserve account.
(VII) When an asset is sold before the end of its useful
life and a gain is realized (the sales price is greater than the remaining
allowable depreciation), no additional depreciation or expense is
allowed.
(11) Interest expense. Reasonable and necessary interest
on current and capital indebtedness is an allowable cost. In the case
of allowable interest incurred on a loan, in order to be determined
necessary, the loan must have been made to satisfy a financial need
for a purpose reasonably related to contracted client care.
(A) For cost-reporting purposes, allowable interest
expenses are limited to that net portion of interest accrued which
has not been reduced or offset by interest income. Refer to §355.104(5)
of this title (relating to Revenues). To be allowable, the following
requirements must be met:
(i) the loan must be supported by evidence in writing
of an agreement that funds were borrowed and that payment of interest
and repayment of the funds are required and systematically made. Refer
to §355.105(b)(2)(B)(ii) of this title;
(ii) the loan must be made in the name of the contracted
provider entity as maker or comaker of the note; and
(iii) the proceeds of the note or loan must be used
for allowable costs.
(B) Interest expense on a demand note is allowable
if the loan is the result of an arm's-length transaction.
(C) Where the lender is a related party, allowable
interest is limited to the prevailing national average prime interest
rate in effect at the time at which the loan contract was finalized,
as reported by the United States Department of Commerce, Bureau of
Economic Analysis, in the Survey of Current Business.
(D) Interest costs incurred during the period of construction
or enlarging of a building must be capitalized as part of the cost
of the building.
(E) Reasonable finance charges and service charges,
together with interest on indebtedness, are allowable costs.
(F) Other fees associated with obtaining an allowable
loan, such as broker's fees to solicit financing, lender's fees, attorney's
fees, and due diligence fees, are allowable costs.
(G) Interest expenses on funds borrowed for purposes
of investing in operations other than contracted services, on loans
pertaining to unallowable items, and on borrowed funds creating excess
working capital are unallowable costs.
(12) Tax expense and credits.
(A) Generally, taxes assessed against the contracted
provider, in accordance with the levying enactments of Texas and lower
levels of government and for which the contracted provider is liable
for payment, are allowable costs. Tax expense based on fines and penalties
are unallowable costs.
(B) Employment-related taxes such as Federal Insurance
Contribution Act (FICA), Workers' Compensation and Unemployment Compensation,
are allowable costs. Refer to paragraph (1) and (1)(A) of this subsection.
Cont'd... |
