In several states across the country, including Arizona, plaintiffs’ lawyers are bringing lawsuits against businesses for alleged violations of the Americans with Disabilities Act (the “ADA”). Businesses can easily avoid the headache and expense of such a lawsuit by ensuring that their facilities comply with the ADA before a lawsuit is filed. The federal government encourages voluntary compliance by providing financial assistance to small businesses that make required changes to older facilities.
Under Section 44 of the Internal Revenue Code (the “Code”) a business generating one million dollars or less in annual gross receipts or having less than 30 or fewer full-time (30 hours per week) employees and that spends at least $250.00 in eligible expenses may qualify for a credit against its income tax liability. The credit is allowed for 50% of eligible expenses in excess of $250.00 up to a maximum of $10,000.00 that are incurred to comply with the ADA. The credit is available in each taxable year that the business makes eligible expenditures. This means that a small business can get a credit against federal income tax of up to $5,000.00 in each year it spends more than $250.00 on eligible expenses. That can go a long way toward paying for improvements that make a facility more accessible and that avoid a potential lawsuit. A business can take advantage of the credit by filing either form 3800 or 8826 with its federal income tax return. Note that any amount with respect to which the credit is claimed cannot be included in the owner’s basis in the remediated property.
Eligible expenditures must be (i) related to alterations of existing facilities that are placed in service before November 5, 1990 (as opposed to new construction), (ii) reasonable in amount, and (iii) meet established ADA standards. Examples of eligible expenditures include removing physical or transportation barriers that limit accessibility to disabled persons, providing equipment to assist visually impaired persons, and providing interpreters or similar equipment for hearing impaired persons.
As an alternative, a business may take a deduction of up to $15,000 per year under Internal Revenue Code section 190 for expenditures to remove architectural and transportation barriers that are expensed rather than capitalized. However, to the extent that a business applies this deduction, it will not be eligible for the credit under Code section 44.