On May 5th, the Internal Revenue Service (hereinafter the “Service”) issued Rev. Proc. 2016-29, which outlines automatic accounting method changes and provides administrative procedures for electing them. Consequently, filers of Form 3115 entitled “Application for Change in Accounting Method” filed on or after May 5, 2016 must now follow this updated form of administrative authority. As it should be duly recalled, a revenue procedure is a statement of procedure that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code (hereinafter the “Code”). Similar to Revenue Rulings, Revenue Procedures are less authoritative than Temporary and Final Treasury Regulations. Regardless, Revenue Procedures are binding on the Service and taxpayers alike and should be adhered to for purposes of assessing tax return filing positions under the Code and Circular 230.
Scope & Application of Rev. Proc. 2016-29
As a synopsis, Rev. Proc. 2016-29 modifies, amplifies, and in part supersedes Rev. Proc. 2015-14 as well as other revenue procedures covering accounting method changes. This revenue procedure makes clean-ups, such as removing now superseded accounting method changes or eliminating reference to the now expired Proposed and Temporary Tangible Property Regulations. Moreover, Rev. Proc. 2016-29 provides new guidance for accounting method changes under the Final Tangible Property Regulations including, but not limited to:
• Section 6.01, relating to impermissible to permissible methods of depreciation or amortization, makes clear that depreciation changes are not automatic for property where the taxpayer has previously taken a federal income tax credit;
• Section 6.20, relating to the revocation of a partial disposition election under the remodel-refresh safe harbor described in Rev. Proc. 2015-56, is modified to provide that such revocation must be made, and the eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply, for any taxable year beginning after December 31, 2013, and ending before December 31, 2016;
• Section 11.08, relating to changes for tangible property, provides that the section does not apply to amounts paid or incurred for repair and maintenance costs that the taxpayer is changing from capitalizing to deducting and for which the taxpayer has claimed a federal income tax credit or elected to apply I.R.C. § 168(k)(4); and
• Section 11.10, relating to the remodel-refresh safe harbor described in Rev. Proc. 2015-56, is modified to provide that the eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply for any taxable year beginning after December 31, 2013, and ending before December 31, 2016.
Rev. Proc. 2016-29 can be accessed for your reference at:
https://www.irs.gov/pub/irs-drop/rp-16-29.pdf
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for Prager Metis CPAs, LLC a member of The Prager Metis International Group. Scalise serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (ASTP).
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