SECTION 2. BACKGROUND

.01 The Internal Revenue Service (IRS) and the Treasury Department recently issued final regulations under §§ 1.168(i)–1, 1.168(i)–7, and 1.168(i)–8 (T.D. 9689, 2014–36 I.R.B. 456, 79 Fed. Reg. 48661) (the final regulations). Section 1.168(i)–1 provides rules for general asset accounts. Section 1.168(i)–7 provides rules for accounting for property depreciated under § 168 of the Internal Revenue Code (MACRS property). Section 1.168(i)–8 provides rules for dispositions of MACRS property. The final regulations apply to taxable years beginning on or after January 1, 2014, but also permit a taxpayer to choose to apply the final regulations to taxable years beginning on or after January 1, 2012. Alternatively, the final regulations 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, or to rely on the 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) for, taxable years beginning on or after January 1, 2012, and beginning before January 1, 2014.

.02 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.

.03 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 asset. However, for a depreciable asset for which the taxpayer has elected general asset account treatment under § 168(i)(4),

1The applicable dollar amount is $1 for policy and plan years ending before October 1, 2013.

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the item is the depreciation treatment of each general asset account.

.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);

(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.

.05 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 regulations 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.

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

.08 Section 3.02 of this revenue procedure modifies the APPENDIX of Rev. Proc. 2011–14 by: (1) removing section 6.19 (lessor improvements abandoned at termination of lease) because it is obsolete; (2) revising section 6.29 (disposition of a building or structural component) to provide that such section does not apply to any demolition of a structure to which § 280B and § 1.280B–1 apply; (3) revis

ing sections 6.32 (general asset account elections), 6.34 (revocation of a general asset account election), and 6.35 (partial dispositions of tangible depreciable assets to which the IRS’s adjustment pertains) to allow these changes in method of accounting to be made under § 1.168(i)–1 or § 1.168(i)–8; (4) revising section 6.33 (late partial disposition election) to allow a late partial disposition election under § 1.168(i)–8 to be treated as a change in method of accounting for a limited period of time; (5) revising section 6.37 (permissible to permissible method of accounting for depreciation of MACRS property) to provide additional changes in method of accounting that are consistent with § 1.168(i)–1 or § 1.168(i)–8; and (6) revising section 10.11 (tangible property) to clarify that this section of the APPENDIX does not apply to amounts paid or incurred for certain materials and supplies that the taxpayer has elected to capitalize and depreciate under § 1.162–3(d) or § 1.162–3T(d).

.09 Section 3.03 of this revenue procedure also modifies the APPENDIX of Rev. Proc. 2011–14 by adding sections 6.38 through 6.40 to the APPENDIX to provide additional changes in method of accounting that are consistent with § 1.168(i)–1 or § 1.168(i)–8.

.10 Section 4 of this revenue procedure provides charts that summarize the changes in methods of accounting that may be made under Rev. Proc. 2011–14 for dispositions of MACRS property.