IRS Issues Procedures to Obtain Automatic Consent for Accounting Method Changes Related to Final Repair Regulations

Information on the final repair / capitalization regulations issued by IRS was provided in the Marcum Tax Flash of December 16, 2013. The new rules will require most taxpayers with capitalized assets to make changes to their existing capitalization methods and policies in order to comply. There may also be opportunities for tax savings available by taking advantage of some of the elections and safe-harbors provided by the new rules.

The final regulations are effective for tax years beginning on or after January 1, 2014, but taxpayers also have the choice of voluntarily applying either the final regulations or the 2011 temporary regulations for tax years beginning after 2011 but before 2014.

The new regulations note that any accounting method changes required by the new regulations will require the consent of the IRS Commissioner before the taxpayer will be permitted to make the changes. This applies even if the taxpayer is seeking to change from an incorrect method to a correct method as provided by the new regulations.

Under normal circumstances, Forms 3115 are require to be filed prior to the end of the tax year for which the change is requested, a user fee must be paid, and the change cannot be made until written consent is received from the IRS. The exact due date and user fee depend on the type of accounting method change requested. As we noted in our earlier Tax Flash, the IRS estimates that each taxpayer will be required to file 4 to 6 Forms 3115, Application for Change in Accounting Method, in order to comply with the new regulations.

Fortunately, as promised in the Preamble to the final regulations, the IRS has recently issued Revenue Procedure 2014-16, which provides details on the procedures to follow in order to obtain automatic consent for the accounting method changes related to the implementation of the new capitalization regulations.

The new revenue procedure modifies previously issued, Revenue Procedure 2011-14, which provides a list of accounting method changes qualified for automatic consent, to include all accounting method changes required by either the final capitalization regulations or the 2011 temporary regulations in the list of changes qualifying for automatic consent. In general, Revenue Procedure 2011-14 provides that automatic consent can be acquired by preparing and filing Form 3115 with the taxpayer’s timely filed tax return (including extensions) for the year of change and filing a separate duplicate copy with the IRS National Office. Additionally, no user fee is required for automatic consent changes.

Complying with the new regulations and taking full advantage of available tax savings opportunities will require detailed planning. It is strongly recommended that taxpayers contact their tax advisors as soon as possible in order to identify and take advantage of any potentially favorable elections and method changes in a timely manner.

Should you have any questions related to the new regulations and the need to capitalize costs, etc., please contact your Marcum Tax Professional.