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December 27, 2016

IRS Extends Automatic Accounting Method Changes Related to the Tangible Property Regulations (article)

Taxpayers have another year to take advantage of automatic consent procedures for certain accounting methods changes related to the tangible property regulations. The IRS recently modified the scope of the 5-year eligibility limitation such that it would not apply to qualifying accounting method changes made for tax years beginning before Jan. 1, 2017. This gives affected taxpayers another year to take advantage of automatic change requests, such as a change to currently deduct repairs expenditures that are presently capitalized and depreciated.

Automatic consent procedures generally are available for taxpayers making a request to change an accounting method (using IRS Form 3115) to comply with the tangible property regulations. However, existing procedures under Rev. Proc. 2015-13 place limitations on when taxpayers can use the automatic consent procedures. These procedures provide that taxpayers making or requesting an accounting method change for the same item in the previous five years (which include the year of change) are ineligible to use the automatic consent procedures for a subsequent accounting method change request involving the item. 

The IRS had provided some initial relief involving this limitation for taxpayers adopting the recently revised tangible property regulations. Entities requesting accounting method changes related to these provisions would not be subject to the 5-year eligibility limitation for tax years beginning before Jan. 1, 2016. With the new procedures released Dec. 20, 2016, Rev. Proc. 2016-29 extends the waiver by an additional year, so that entities making one of the following accounting methods change requests are still eligible to use the automatic consent procedures, even if they made or requested an accounting method change for the same item in previous five tax years:

  • Accounting for repairs and units of property under the final tangible property regulations
  • Depreciation of MACRS property
  • Dispositions of a building or structural component
  • Dispositions of tangible depreciable assets other than buildings or structural components
  • Dispositions of tangible depreciable assets in general asset account

Concurrent with the 5-year eligibility waiver for an additional year, the IRS also waived a separate limitation concerning automatic requests for change in accounting method to comply with the final tangible property regulations during a taxpayer’s final tax year of business.  Such taxpayers may make such requests using the automatic consent provisions for tax years beginning before Jan. 1, 2017.

Any taxpayer now eligible for the waiver that has already filed its Form 3115 can use the automatic change procedures so long as the Form 3115 request is still pending. Further guidance on how to take advantage of the waiver is provided in Rev. Proc. 2016-29.

For More Information

If you have specific comments, questions or concerns about how this change affects your business, please contact your local CBIZ MHM tax professional.

Copyright © 2016, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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