SECTION 5. NETWORK ASSET

MAINTENANCE ALLOWANCE METHOD FOR WIRELINE NETWORK ASSETS

.01 In general . Under the network asset maintenance allowance method, the taxpayer must determine the amount of its wireline network asset expenditures that are not required to be capitalized under section 5.02 of this revenue procedure (network asset maintenance allowance) and the amount of wireline network asset expenditures that are treated as § 263(a) capital expenditures under section 5.03 of this revenue procedure (§ 263(a) capital expenditures). A taxpayer that uses the network asset maintenance allowance method described in this section 5 must use that method for all of its wireline network asset expenditures (which includes expenditures relating to wireline network assets acquired in an applicable asset acquisition as defined in § 1060 or in a transaction to which § 338(h)(10) applies, even though the cost of such property is removed from the total cost of capital additions for the taxable year as provided in § 5.02(2)(b)-(c) below).

.02 Network asset maintenance al- lowance . The amount of the network asset maintenance allowance for a particular taxable year is determined as follows:

(1) Start with the total cost of capital additions for financial statement purposes that are placed in service (within the meaning of § 1.46–3(d)(1)(ii)) during the taxable year.

(2) Decrease the amount determined in (1) by the following amounts:

(a) the cost of property other than wireline network assets;

(b) the cost of any wireline network assets acquired in an applicable asset acquisition as defined in § 1060; and

(c) the cost of any wireline network assets acquired in a transaction to which § 338(h)(10) applies.

(3) Adjust the amount determined after applying steps (1) and (2) to determine the adjusted basis of the property under § 1011, including any adjustments described in § 1016 except for the following:

(a) Any basis adjustments attributable to changes made after December 31, 2007 to the taxpayer’s unit of property definitions used for repair versus capitalization determinations.

(b) Any adjustments described in § 1016(a)(2) and § 1016(a)(3) and any adjustments that require tax basis to be reduced before depreciation is computed ( e.g., § 179, § 179D, or similar provisions; § 44 and § 46; and the payments for specified energy property under § 1603 of the American Recovery and Reinvestment Tax Act of 2009, Division B, Pub. L. 111–5, 123 Stat. 115 (section 1603 payments)).

(4) Using the adjusted basis determined in step (3), determine the amount attributable to 5-year, 7-year, 10-year, 15-year, and 20-year property and nonresidential real property, and multiply each of these amounts by 12%. The result is the network asset maintenance allowance for each class of property.

(5) The sum of the network asset maintenance allowances determined in (4) for each class of property is the taxpayer’s network asset maintenance allowance amount for the taxable year.

.03 § 263(a) capital expenditures . The wireline network asset capital expenditures for § 263(a) for the taxable year under the network asset maintenance allowance method are determined as follows:

(1) Start with the adjusted basis for 5-year, 7-year, 10-year, 15-year, and 20-year property and nonresidential real property determined in section 5.02(4) above.

(2) For each class of property, multiply the adjusted basis attributable to the class

May 2, 2011 741 2011–18 I.R.B.

Total cost of capital additions placed in service for the taxable year per financial statements $1,000,000,000

Less : Cost of property other than wireline network assets ( e.g . land, intangibles, etc.) ($100,000,000)

Less : Cost of assets acquired in a § 1060 or § 338(h)(10) transaction ($11,000,000)

Less/Plus : Other basis adjustments (excluding adjustments per IRC §§ 1016(a)(2) & (a)(3) and sections ($3,000,000) 5.02(3)(a) & 5.03(4) of this rev. proc.)

Adjusted basis attributable to network assets that are 5-year, 7-year, 10-year, 15-year, and 20-year property and nonresidential real property

$886,000,000

Multiply by : Maintenance allowance percentage (12%) X 12%

Network asset maintenance allowance amount $106,320,000

Proc. 2011–27 and wants to change its treatment of wireline network asset expenditures to adopt either (a) the wireline network asset maintenance allowance method of accounting or (b) all, or some, of the units of property described in Rev. Proc. 2011–27. (2) Waiver of scope limitations . The scope limitations in section 4.02 of this revenue procedure do not apply to a wireline telecommunications carrier that changes to a method of accounting provided in section 5 or section 6 of Rev. Proc. 2011–27 for its first or second taxable year ending after December 30, 2010.

(3) Section 481(a) adjustment . In general, a change to the wireline network asset maintenance allowance method of accounting or adoption of all, or some, of the units of property specified in Rev. Proc. 2011–27 requires an adjustment under § 481(a). The § 481(a) adjustment shall not include any amount attributable to property for which the taxpayer elected to apply the repair allowance under § 1.167(a)–11(d)(2).

(4) Ogden copy of Form 3115 required in lieu of national office copy . A taxpayer changing its method of accounting under section 3.07 of the APPENDIX must file a signed copy of its completed Form 3115 with the IRS in Ogden, UT, (Ogden copy) in lieu of filing the national office copy no earlier than the first day of the year of change and no later than the date the taxpayer files the original Form 3115 with its federal income tax return for the year of change. See section 6.02(3)(a)(ii)(B) (providing the general rules) and section 6.02(7)(b) (providing the mailing address) of this revenue procedure.

(5) Designated automatic accounting method change number . The designated automatic accounting method change