The IRS recently released Revenue Procedure 2014-16, providing the procedural rules taxpayers follow to make “automatic” accounting method changes under the Final Repair Regulations. This revenue procedure modifies Rev. Proc. 2011-14 and supersedes Rev. Proc. 2012-19 regarding certain changes for amounts paid to acquire, produce, or improve tangible property.
IRS PROCEDURE 2014-16
The automatic accounting method changes covered include:
- Repair and maintenance amounts, amounts paid or incurred for improvements to tangible property
- Regulatory accounting method
- Non-incidental materials and supplies
- Incidental materials and supplies
- Non-incidental rotable and temporary spare parts
- Optional method for rotable and temporary spare parts
- Commissions and other transaction costs that facilitate the sale of property (dealer).
- Commissions and other costs that facilitate the sale of property (non-dealer)
- Capitalizing acquisition or production costs
- Costs for investigating or pursuing the acquisition of real property
While many tax professionals were hoping the IRS would consolidate the number of accounting method changes taxpayers must consider, the Final Regs. list ten potential method changes as compared to the eleven changes introduced under the Temp. Regs. The IRS eliminated the method change that was required to apply the “de-minimis rule under the Temp. Regs.
As a reminder, the IRS made significant changes to the rules related to Dispositions and Retirements. Those rules were issued on September 13, 2013 in proposed form and are expected to be finalized as soon as March of 2014. Once finalized, additional automatic accounting method changes will supersede the existing changes found in Rev. Proc. 2012-20.
CAUTION: Closing window of time to address building retirements!
Rev. Proc. 2012-20 (under Temp. Regs.) allows taxpayers to go back as far as you want on 2012 and 2013 tax returns to claim missed retirement losses on components and may be a windfall of missed deductions.
However, under the new proposed rules for retired building components, taxpayers must make a “partial disposition election” on a timely filed tax return in the year the component is retired. This eliminates the opportunity to claim prior year building component retirements for 2014 tax returns and thereafter.
ACTION NEEDED: For 2013 tax returns, taxpayers need to identify all prior year retirements that are still being capitalized. This generally occurs anytime an existing building or machine is improved or renovated as older components are demolished or removed to accommodate new ones. KBKG recommends reviewing your fixed asset schedules where renovation or improvement costs exceed $500,000. Even if a cost segregation study has already been performed, additional deductions are available. In addition to claiming immediate retirement deductions, this process will also eliminate paying recapture tax on 1245 & 1250 building components that no longer exist. » Read our case study on the retirement of structural components
Author: Gian Pazzia, CCSP
Find out if the new Repair vs. Capitalization regulations will benefit you