Much-anticipated guidance issued on accounting method changes for repair regs.

BY SALLY P. SCHREIBER
March 8, 2012

In December 2011, the IRS issued long-awaited temporary regulations on the treatment of tangible property repairs. On Wednesday, it issued two revenue procedures detailing how taxpayers may obtain IRS automatic consent to the accounting method changes required by the rules.

Rev. Proc. 2012-19 addresses repair and maintenance, materials and supplies, and related method changes resulting from the temporary regulations. Rev. Proc. 2012-20 addresses depreciation, disposition, and related method changes resulting from the temporary regulations.

Rev. Proc. 2012-19 separates the accounting method changes into the following categories:

  1. Deducting repair and maintenance costs (Temp. Regs. Sec. 1.162-4T) and changing the definition of units of property for purposes of determining whether amounts have been expended to improve a unit of property under Temp. Regs. Sec. 1.263(a)-3T(a)(3).
  2. Applying the regulatory accounting method for regulated taxpayers (Temp. Regs. Sec. 1.263(a)-3T(k)).
  3. Deducting nonincidental materials and supplies when used or consumed (Temp. Regs. Secs. 1.162-3T(a)(1) and (c)(1)). 
  4. Deducting incidental materials and supplies when paid or incurred (Temp. Regs. Secs. 1.162-3T(a)(2) and (c)(1)).
  5. Deducting nonincidental rotable and temporary spare parts when disposed of (Temp. Regs. Sec. 1.162-3T(a)(3)).
  6. Deducting rotable and temporary spare parts under the optional method (Temp. Regs. Sec. 1.162-3T(e)).
  7. Deducting dealer expenses that facilitate the sale of property (Temp. Regs. Sec. 1.263(a)-1T(d)(1)).
  8. Deducting de minimis amounts (Temp. Regs. Sec. 1.263(a)-2T(g) and Temp. Regs. Sec. 1.263(a)-1T(b)(14)).
  9. Deducting certain costs for investigating and pursuing the acquisition of real property (Temp. Regs. Sec. 1.263(a)-2T(f)(2)).
  10. Deducting amounts paid for routine maintenance on property other than buildings (Temp. Regs. Sec. 1.263(a)-3T(g)).
  11. Capitalizing costs to facilitate the sale of property by nondealers (Temp. Regs. Sec. 1.263(a)-1T(d)(1)).
  12. Capitalizing acquisition or production costs (Temp. Regs. Secs. 1.263(a)-2T(e) and (f)).
  13. Capitalizing improvements to tangible property (Temp. Regs. Sec. 1.263(a)-1T and Temp. Regs. Sec. 1.263(a)-3T).

Rev. Proc. 2012-20 establishes new automatic accounting method changes for:

  • Depreciation of leasehold improvements;
  • Changing from a permissible to another permissible method of accounting for depreciation of MACRS property;
  • Disposition of a building or structural component;
  • Dispositions of tangible depreciable assets (other than a building or its structural components);
  • Dispositions of tangible depreciable assets in a general asset account; and
  • General asset account elections.


Each of the above accounting method changes has separate detailed rules for implementing it. The changes share the requirement that the Form 3115, Application for Change in Accounting Method, be sent to the Ogden, Utah, office instead of the national office and the requirement to use a single form when making a concurrent automatic change.

The revenue procedures are effective for tax years beginning on or after Jan. 1, 2012.
    
Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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