IRS Releases Method Change Procedure for Final Tangible Property Regulations

Jan. 30, 2014

On Jan. 24, 2014, the IRS released Revenue Procedure 2014-16, which provides implementation guidance for taxpayers filing method changes to comply with the final tangible property regulations that were issued on Sept. 19, 2011. The regulations generally are effective for tax years beginning on or after Jan. 1, 2014, and taxpayers will need to assess the effect of implementing the final rules.

The revenue procedure supersedes Revenue Procedure 2012-19 and deals with changes to the final and temporary regulations. All of the method changes outlined in the guidance qualify for automatic consent.

The revenue procedure:

  • Eliminates the requirement to comply with Section 263A in order to qualify for an automatic method change
  • Allows taxpayers to combine method changes on a single Form 3115, “Application for Change in Accounting Method”
  • Provides taxpayers with flexibility regarding the timing of filing method changes to comply with the regulations, including the ability to early adopt the temporary regulations
  • Provides taxpayers with flexibility regarding grouping of Section 481(a) adjustments
  • Provides small taxpayers with the ability to simplify the filing of the Form 3115
  • Waives all scope limitations for tax years beginning before Jan. 1, 2015
  • Allows banks and other taxpayers that capitalized certain costs to foreclosed other real estate owned (OREO) to file an automatic method change to deduct those costs

Taxpayers should evaluate this guidance to determine how best to implement the new regulations and address costs capitalized to OREO properties.

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