Accelerate Deductions Under the Tangible Property Regulations

| 3/9/2017


Business taxpayers were required to adopt the tangible property regulations for tax years beginning on or after Jan. 1, 2014. However, not all businesses have correctly adopted the final regulations. As a result, the IRS issued Notice 2017-6 to give businesses another opportunity to automatically adopt the regulations.

The IRS allows businesses to automatically change certain methods of accounting by filing Form 3115, “Application for Change in Accounting Method,” with their timely filed income tax returns. However, businesses generally are prohibited from using the automatic change procedures if they have made a change in the same method of accounting in the past five years. Notice 2017-6 eliminates this scope exception for changes in method related to the tangible property regulations for tax years beginning before Jan. 1, 2017 (2016 tax years). This gives businesses a second chance to adopt or correct an adoption of the tangible property regulations with their 2016 tax return. The automatically authorized changes include:

  • A change from a permissible method to another permissible method of accounting for modified accelerated cost recovery system (MACRS) depreciation
  • A change in method of accounting for dispositions of a building or structural component of a building
  • A change in method of accounting for dispositions of tangible depreciable assets (including those held in a general asset account)
  • A change in method of accounting for tangible property under the final tangible property regulations

The regulations were challenging for many businesses to adopt and continue to be challenging to execute. Businesses might be realizing that they have not complied with the methods they previously adopted or that they have missed opportunities to accelerate expenses due to a failure to fully adopt the regulations. Qualifying businesses might be eligible for a favorable one-time adjustment to their taxable income and an acceleration of deductions.

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