SECTION 2. BACKGROUND

.01 The Internal Revenue Service (IRS) and the Treasury Department recently issued temporary regulations under §§ 1.167(a)–4T, 1.168(i)–1T, 1.168(i)–7T, and 1.168(i)–8T (T.D. 9564, 2012–14 I.R.B. 614 [76 Fed. Reg. 81,060]). Section 1.167(a)–4T provides rules for depreciating or amortizing leasehold improvements. Section 1.168(i)–1T modifies the rules for general asset accounts. Section 1.168(i)–7T provides rules for accounting for property depreciated under § 168 (MACRS property). Section 1.168(i)–8T provides rules for dispositions of MACRS property. These sections generally are effective for taxable years beginning on or after January 1, 2012.

.02 Except as otherwise expressly provided by the Internal Revenue Code or the regulations thereunder, § 446(e) and § 1.446–1(e)(2) require a taxpayer to secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes.

.03 Section 1.446–1(e)(2)(ii)( d ) sets forth the changes in depreciation or amortization that are changes in a method of accounting and the changes in depreciation or amortization that are not changes in a method of accounting. For purposes of § 1.446–1(e)(2)(ii)( d ), § 1.446–1(e)(2)(ii)( d )( 4 ) provides that the item being changed generally is the depreciation treatment of each individual depreciable or amortizable asset. However, the item is the depreciation treatment of each general asset account for a depreciable asset for which the taxpayer has elected general asset account treatment under § 168(i)(4).

.04 Section 1.446–1(e)(2)(ii)( d )( 2 ) provides, in relevant part, that each of the following changes in depreciation or amortization is a change in method of accounting:

(1) A change in the depreciation method or amortization method, period of recovery, or convention of a depreciable or amortizable asset;

(2) A change in the accounting for depreciable or amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa, or from one type of multiple asset account (pooling) to a different type of multiple asset account (pooling);

2012–14 I.R.B. 700 April 2, 2012

Sections 6.24 and 6.25 of the APPENDIX of Rev. Proc. 2011–14 are modified to read as follows:

6.24 Reserved . 6.25 Reserved . .03 New automatic changes . (1) Rev. Proc. 2011–14 is modified to add new section 6.27 to the APPENDIX to read as follows:

6.27 Depreciation of leasehold im- provements (sections 167, 168, and 197) .

(1) Description of change . (a) Applicability . This change applies to a taxpayer that wants to change its method of accounting to comply with § 1.167(a)–4T for leasehold improvements in which the taxpayer has a depreciable interest at the beginning of the year of change:

(i) from improperly depreciating the leasehold improvements to which § 168 applies over the term of the lease (including renewals, if applicable) to properly depreciating these improvements under § 168;

(ii) from improperly amortizing leasehold improvements to which § 197 applies over the term of the lease (including renewals, if applicable) to properly amortizing these improvements under § 197; or

(iii) from improperly amortizing leasehold improvements to which § 167(f)(1) applies over the term of the lease (including renewals, if applicable) to properly amortizing these improvements under § 167(f)(1).

(b) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under section 6.27 of this APPENDIX if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable). (2) Certain scope limitations inapplica- ble .

(a) The scope limitations in section 4.02 of this revenue procedure do not apply to a taxpayer that makes this change for its first or second taxable year beginning after December 31, 2011. If the taxpayer makes both this change and a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX

change is implemented by either a cut-off method (see section 2.06 of Rev. Proc. 2011–14, 2011–4 I.R.B. 330, 338) or a modified cut-off method, as appropriate. Under the modified cut-off method, the adjusted depreciable basis of the asset as of the beginning of the year of change is recovered using the new permissible method of accounting. Section 1.446–1(e)(2)(ii)( d )( 5 )( iii ) also provides that a change from an impermissible method of computing depreciation or amortization to a permissible method of computing depreciation or amortization for an asset results in a § 481 adjustment.

.07 Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the terms, and conditions necessary for a taxpayer to obtain consent to change a method of accounting. Rev. Proc. 2011–14 provides the procedures by which a taxpayer may obtain automatic consent from the Commissioner to change to a method of accounting described in the APPENDIX of Rev. Proc. 2011–14.

.08 Section 5.02 of this revenue procedure modifies the APPENDIX of Rev. Proc. 2011–14 by removing sections 6.24 and 6.25 because they are obsolete. Section 5.03 of this revenue procedure modifies the APPENDIX of Rev. Proc. 2011–14 by adding sections 6.27 through 6.32 to the APPENDIX to provide additional changes in method of accounting that are consistent with § 1.167(a)–4T, § 1.168(i)–1T, § 1.168(i)–7T, or § 1.168(i)–8T.