IRS Changes Rules For A&E Firms: Window Closing To Claim 179D Energy Tax Deduction For Prior Years

Starting September 4, 2012, designers of government-owned buildings have one less option for retroactively pursuing missed Code Section 179D energy tax deductions. The IRS recently issued Revenue Procedure 2012-39 which prohibits designers from filing a Form 3115 (Application for Change in Accounting Method) to claim missed deductions.  Previous guidance appeared to indicate that architects and engineers could file a Form 3115 to claim missed deductions anytime without amending any returns. The new revenue procedure clarifies that designers taking the Section 179D deduction are making a permanent change in income; not a change in accounting method for which Form 3115 would be allowable.

Section 179D rewards architects and engineers who design energy-efficient government-owned buildings by allowing them to claim up to $5 per square foot in Federal tax deductions. A lack of awareness has caused many designers to miss out on claiming these tax deductions on previously filed tax returns. Without the Form 3115 option, the only way a designer can claim missed Section 179D tax deductions from a previous tax year is by amending that year’s tax return. Unlike changing an accounting method which doesn’t have a time limit, taxpayers can generally only amend tax returns within the 3-year Federal statute of limitations from when the original return was filed. Thus, designers are encouraged to act now to claim any missed deductions before their 3-year statute expires.

On the bright side, the IRS released guidance that added options for meeting the energy standards on improvements placed in service on March 12, 2012 and later.  Included in the options is an easing of the energy efficiency requirements for Section 179D tax deductions on heating, ventilation, air conditioning, and hot water systems.

KBKG has successfully secured Section 179D deductions for architects and engineers throughout the country and is a preferred provider within the design community.