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IRS Hints at Simplification of Temp Capitalization Regs; Delays Effective Date to 2014
(Parker's Federal Tax Bulletin: December 19, 2012)

The temporary capitalization regulations may be revised in a manner that might affect, and in certain cases simplify, taxpayers' implementation of the rules when the regulations are issued in final form and, thus, the IRS delayed the effective date of the temporary regulations from 2012 to 2014. Notice 2012-73; T.D. 9564 (12/16/12).

On December 27, 2011, the IRS issued temporary regulations (T.D. 9564) for determining whether amounts paid to acquire, produce, or improve tangible property must be capitalized. The temporary regulations were generally effective for tax years beginning on or after January 1, 2012. After issuing the temporary capitalization rules, the IRS issued Rev. Proc. 2012-19 and Rev. Proc. 2012-20 to assist taxpayers in obtaining automatic IRS consent to change to methods of accounting provided in the capitalization rules.

Implementing the new rules requires a fair amount of work for both taxpayers and practitioners. For example, to implement the regulations for 2013, there are some things taxpayers must do in 2012. First, to obtain automatic IRS consent under Rev. Proc. 2012-19 or Rev. Proc. 2012-20 to change to one of the methods in the new capitalization rules, a taxpayer must currently be using a Code Sec. 263A methodology. If a taxpayer is not currently in compliance with Code Sec. 263A, the taxpayer must first file a Form 3115 requesting an accounting method change to bring the taxpayer into compliance with Code Sec. 263A before the taxpayer can file a Form 3115 to take advantage of the automatic accounting method changes in Rev. Proc. 2012-19 or Rev. Proc. 2012-20.

On December 17, 2012, the IRS revised the effective date of the temporary regulations. Rather than applying to tax years beginning on or after January 1, 2012, the temporary regulations apply to tax years beginning on or after January 1, 2014. However, taxpayers can choose to apply the provisions of the temporary regulations to tax years beginning on or after January 1, 2012, and can continue to rely on the procedures in Rev. Proc. 2012-19 and Rev. Proc. 2012-20.

Also on December 17, the IRS also issued Notice 2012-73, in which it said it recognized that taxpayers are expending resources to comply with the temporary regulations and it wants taxpayers to be aware that certain sections of the regulations may be revised in a manner that might affect, and in certain cases simplify, taxpayers' implementation of the rules when the regulations are issued in final form. Specifically, the IRS mentioned the de minimis rule under Reg. Sec. 1.263(a)-2T(g), the rules relating to dispositions in Reg. Sec. 1.168(i)-1T and Reg. Sec. 1.168(i)-8T, and the safe harbor rule for routine maintenance in Reg. Sec. 1.263(a)-3T(g), as rules that may be revised.

For a discussion of the temporary regulations as they apply to amounts paid to improve tangible property, see Parker Tax ¶99,535.

(Staff Editor at Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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