SECTION 2. BACKGROUND

.01 The Internal Revenue Service (IRS) and the Treasury Department recently issued final regulations under §§ 1.167(a)–4 and 1.168(i)–7 (T.D. 9636, 2013–43 I.R.B. 331, 78 Fed. Reg. 57686) (the final regulations). Section 1.167(a)–4 provides rules for depreciating or amortizing leasehold improvements. Section 1.168(i)–7 provides rules for accounting for property depreci

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ated under § 168 of the Internal Revenue Code (MACRS property). The final regulations generally apply to taxable years beginning on or after January 1, 2014, but also permit a taxpayer to choose to apply these sections to taxable years beginning on or after January 1, 2012. Alternatively, the final regulations permit a taxpayer to apply the temporary regulations under §§ 1.167(a)–4T and 1.168(i)–7T (T.D. 9564, 2012-14 I.R.B. 614, 76 Fed. Reg. 81060) to taxable years beginning on or after January 1, 2012, and before January 1, 2014.

.02 The IRS and the Treasury Department also recently issued proposed regulations under §§ 1.168(i)–1, 1.168(i)–7, and 1.168(i)–8 (REG–110732–13, 2013–43 I.R.B. 404, 78 Fed. Reg. 57547) (the proposed regulations). Prop. Reg. § 1.168(i)–1, when finalized, will modify the rules for general asset accounts. Prop. Reg. § 1.168(i)–7, when finalized, will provide rules for accounting for partial dispositions of MACRS property. Prop. Reg. § 1.168(i)–8, when finalized, will provide rules for dispositions of MACRS property. The proposed regulations, when finalized, will apply to taxable years beginning on or after January 1, 2014, and will permit a taxpayer to choose to rely on them for taxable years beginning on or after January 1, 2012, and before January 1, 2014. Alternatively, the proposed regulations, when finalized, will permit a taxpayer to apply the temporary regulations under §§ 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. 81060) to taxable years beginning on or after January 1, 2012, and before January 1, 2014.

.03 Except as otherwise expressly provided by the 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.

.04 Section 1.446–1(e)(2)(ii)( d ) provides 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 changes in a method of accounting under § 1.446– 1(e)(2)(ii)( d ) the item being changed generally is the depreciation treatment of each individual depreciable or amortizable as

set. 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).

.05 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);

(3) For depreciable or amortizable assets that are mass assets accounted for in multiple asset accounts or pools, a change in the method of identifying which assets have been disposed of; and

(4) Any other change in depreciation or amortization as the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin.

.06 Section 1.446–1(e)(2)(ii)( d )( 3 ) provides, in relevant part, that none of the following changes in depreciation or amortization is a change in method of accounting:

(1) An adjustment in the useful life of a depreciable or amortizable asset for which depreciation is determined under § 167 (other than under § 168, § 1400I, § 1400L(c), former § 168, or an additional first year depreciation deduction provision of the Code (for example, § 168(k), § 1400L(b), or § 1400N(d))). However, if a taxpayer is changing to or from a useful life (or recovery period or amortization period) that is specifically assigned by the Code (for example, § 167(f)(1), § 168(c), § 168(g)(2), § 168(g)(3), or § 197), the regulations thereunder, or other guidance published in the Internal Revenue Bulletin, such a change is a change in method of accounting;

(2) The making of a late depreciation or amortization election or the revocation of a timely valid depreciation or amortization election, except as otherwise expressly provided by the Code, the regula

tions thereunder, or other guidance published in the Internal Revenue Bulletin;

(3) Any change in the placed-inservice date of a depreciable or amortizable asset, except as otherwise expressly provided by the Code, the regulations thereunder, or other guidance published in the Internal Revenue Bulletin; and

(4) Any other change in depreciation or amortization as the Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin.

.07 Section 1.446–1(e)(2)(ii)( d )( 5 )( iii ) provides that except as otherwise expressly provided by the Code, the regulations thereunder, or other guidance published in the Internal Revenue Bulletin, no § 481(a) adjustment is required or permitted for a change from one permissible method of computing depreciation or amortization to another permissible method of computing depreciation or amortization for an asset. Instead, this 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.

.08 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 of the Commissioner to change to a method of accounting described in the APPENDIX of Rev. Proc. 2011–14.

.09 Section 3.02 of this revenue procedure modifies the APPENDIX of Rev. Proc. 2011–14 by (1) revising sections 6.27 through 6.32 to provide additional changes in method of accounting that are consistent with Prop. Reg. § 1.168(1)–1, Prop. Reg. § 1.168(i)–7, or Prop. Reg. § 1.168(i)–8, (2) revising section 6.01 to

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provide an additional scope limitation that is not applicable, (3) removing section 6.20 because it is obsolete, and (4) revising section 10.07 to provide additional inapplicability provisions that are consistent with § 1.162–3 or § 1.162–3T.

.10 Section 3.03 of this revenue procedure modifies the APPENDIX of Rev. Proc. 2011–14 by adding sections 6.33 through 6.37 to the APPENDIX to provide additional changes in method of accounting that are consistent with § 1.167(a)–4, § 1.168(i)–7, Prop. Reg. § 1.168(i)–1, or Prop. Reg. § 1.168(i)–8.