In 2014, Firm Z elected to expense the $8,000 cost of a machine, which it reported as the only item of equipment placed in service that year. This year, the IRS audited Firm Z’s 2014 return and discovered that it had incorrectly deducted a $10,000 expenditure. According to the IRS, Firm Z should have capitalized this expenditure as the cost of depreciable equipment with a 5-year recovery period.

Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.