IRS Extends Time to Request Automatic Consent for Changes Relating to Tangible Property Regs

(Parker Tax Publishing January 2017)

The IRS has extended the time for requesting automatic IRS consent to make automatic accounting method changes relating to the (1) tangible property regulations, and (2) the MACRS depreciation and disposition regulations. Specifically, the IRS waives for one year the rule which limits automatic consent requests where the taxpayer has made or requested a change for the same item during any of the five tax years ending with the year of change. Notice 2017-6.

Background

Between 2011 and 2014, the IRS implemented revamped tangible property regulations providing rules on the tax treatment of amounts paid to acquire, produce, or improve tangible personal property (referred to as "the final tangible property regulations"). The rules generally apply to tax years beginning on or after January 1, 2014, or, at the option of the taxpayer, to tax years beginning on or after January 1, 2012.

In August 2014, the IRS issued final regulations under Reg. Secs. 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8. These regulations provide guidance on accounting for property depreciated under the Modified Accelerated Cost Recovery System (MACRS) provisions of Code Sec. 168, and for dispositions of MACRS property (i.e., referred to collectively as "the final depreciation and disposition regulations"). These rules also generally apply to tax years beginning on or after January 1, 2014, or, at the option of the taxpayer, to tax years beginning on or after January 1, 2012.

Accounting Method Changes to Comply with Final Tangible Property Regs

A change to comply with the final tangible property regulations and the final depreciation and disposition regulations is a change in method of accounting to which the provisions of Code Sec. 446(e) and Code Sec. 481 and the accompanying regulations apply. A taxpayer seeking to change its method of accounting under these regulations must obtain IRS consent in accordance with Reg. Sec. 1.446-1(e), and must follow the administrative procedures under Reg. Sec. 1.446-1(e)(3)(ii).

Rev. Proc. 2015-13 provides the general procedures under Code Sec. 446(e) for a taxpayer to obtain the automatic or non-automatic consent of the IRS to change a method of accounting. Rev. Proc. 2016-29 provides the list of automatic accounting method changes to which the automatic change procedures of Rev. Proc. 2015-13 apply.

Rev. Proc. 2016-29 provides for certain automatic changes to use the final tangible property regulations. Section 6.14 of Rev. Proc. 2016-29 provides for automatic changes to permissible methods of accounting for depreciation of MACRS property under the final depreciation and disposition regulations. Sections 6.15 through 6.17 of Rev. Proc. 2016-29 provide for automatic changes related to dispositions of certain MACRS property under Reg. Sec. 1.168(i)-1 and Reg. Sec. 1.168(i)-8.

Section 5 of Rev. Proc. 2015-13 provides certain eligibility rules for a taxpayer applying for automatic IRS consent to change a method of accounting. It provides that a taxpayer is not eligible for the automatic change procedures if the taxpayer has made or requested a change for the same item during any of the five tax years ending with the year of change (i.e., the eligibility rule).

However, in order to facilitate the transition to the final tangible property regulations and the final depreciation and disposition regulations, Rev. Proc. 2016-29 waived this eligibility rule for taxpayers changing methods to conform to the tangible property regulations and the depreciation and disposition regulations. Under Rev. Proc. 2016-29, the eligibility rule does not apply to such taxpayers for changes for any tax year beginning before January 1, 2016.

One Year Extension of Waiver of Eligibility Rule

According to the IRS, taxpayers are continuing to request consent to change their methods of accounting to use the final tangible property regulations and the final depreciation and disposition regulations. To ease taxpayers' transition to the final regulations and to reduce the administrative burden that would result from requiring taxpayers to apply for non-automatic changes of accounting methods for such changes, the IRS has issued Notice 2017-6 which modifies Rev. Proc. 2016-29 to extend the waiver of the eligibility rule in Rev. Proc. 2015-13 to obtain automatic consent to change to the final regulations for one year to any tax year beginning before January 1, 2017.

Specifically, the sections of Rev. Proc. 2016-29 that waive the eligibility rules for making automatic changes under the final tangible property regulations and the final depreciation and disposition regulations are modified by replacing the references to the date "January 1, 2016," with the date, January 1, 2017." These modifications also apply for purposes of the concurrent automatic changes that are specifically referenced in those sections.

Procedures to Follow If Form 3115 Requesting a Non-automatic Change Has Already Been Filed

If, before December 20, 2016, a taxpayer properly filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13 requesting the IRS's consent for a change in method of accounting relating to the tangible property regulations and tangible depreciation and disposition regulations discussed above, and the Form 3115 is pending with the IRS National Office on December 20, 2016, the taxpayer may choose to make the change of accounting method under the automatic change procedures in Rev. Proc. 2015-13 by following the requirements and procedures in Subsection .02(1) of the EFFECTIVE DATE section in Rev. Proc. 2016-29 with the following modifications:

(1) the references to the date, "May 5, 2016," are replaced with the date "December 20, 2016"; and

(2) the references to the date, "June 6, 2016," are replaced with the date, "January 19, 2017."

For a discussion of the accounting method change rules for changing accounting methods to conform to the tangible property regulations and the depreciation and disposition regulations, see Parker Tax ¶99,525.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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