On Sept. 28, the IRS released Revenue Procedure 2014-54, which provides implementation guidance on the final property disposition regulations that were issued on Aug.18, 2014, for taxpayers who are filing method changes. The revenue procedure also allows taxpayers to file method changes in order to apply the temporary tangible property disposition regulations issued on Dec. 27, 2011, or the proposed tangible property disposition regulations issued on Sept. 19, 2013. The guidance should be considered along with the other available method changes guidance related to the tangible property regulations.
The guidance provides the procedures by which taxpayers may obtain automatic consent to change their methods of accounting for tangible property dispositions. Many of the method changes can be made for only a limited time frame and require the filing of method changes with 2013 or 2014 tax returns in order to take advantage of the favorable tax rules.
Some significant provisions of the revenue procedure allow taxpayers to:
- Make a late general asset account election under the temporary or proposed regulations with a 2013 tax return, but the election applies only to assets owned by the taxpayer on the first day of the year of the change. Generally this method change applies only to fiscal-year taxpayers filing their 2013 tax returns.
- Revoke a general asset account election made under the temporary regulations. This provision requires a one-year income pickup for the recovery of basis attributable for unwinding the dispositions and can be done concurrently with a late partial disposition election resulting in a net zero Section 481(a) adjustment. This method change applies only to tax years beginning before Jan. 1, 2015.
- Make a late partial disposition election under the final regulations with a 2013 or 2014 tax return or under the proposed regulations with a 2013 tax return. The late partial disposition election does not apply to tax years beginning on or after Jan. 1, 2015.
- Make a late partial disposition election for the disposal of a portion of an asset when the basis of the asset has been adjusted by the IRS. This would apply when the IRS proposes an adjustment to capitalize an improvement to tangible property when the replaced portion of the property had been disposed of in the year under examination. This method change would be made in the current tax year and has no sunset provisions.
- Change in determining the unadjusted basis of disposed assets or portion of assets from an unreasonable method to a reasonable method or to using a taxpayer’s internal records to determine the unadjusted basis.
- Change from one permissible method to another permissible method for depreciating modified accelerated cost recovery system (MACRS) property under the final, temporary, or proposed regulations.
- Use a single Form 3115, “Application for Change in Accounting Method,” for multiple method changes covered by Revenue Procedure 2014-54, but a separate Form 3115 would be required for changes under other revenue procedures.
- Use simplified Form 3115 filing procedures for businesses with less than $10 million of gross receipts.
- Generally waive scope limitations for tax years beginning before Jan. 1, 2015.
Generally, the revenue procedure gives taxpayers the ability to adopt the final, temporary, or proposed disposition regulations with their 2013 or 2014 tax returns. However, the IRS has made it clear that taxpayers must be fully compliant with the final tangible property disposition regulations with their 2014 tax year. Taxpayers should consider the method changes provided in the revenue procedure as they implement the final regulations.