SECTION 2. BACKGROUND

.01 Section 263A generally requires direct costs and an allocable portion of indirect costs of certain property produced or acquired for resale by a taxpayer to be included in inventory costs, in the case of property that is inventory, or to be capitalized, in the case of other property.

.02 Section 263A(d)(2)(A) provides that § 263A does not require the capitalization of certain costs paid or incurred to replant plants bearing an edible crop for human consumption that were lost or damaged by reason of freezing temperatures, disease, drought, pests, or casualty. See also § 1.263A–4(e) of the Income Tax Regulations. Section 263A(d)(2)(A) applies to certain replanting costs paid or incurred by a taxpayer that owned the plants at the time the plants were lost or damaged (the “owner described in § 263A(d)(2)(A)”) and § 263A(d)(2)(B) applies to similar costs paid or incurred by other taxpayers that meet certain ownership and participation criteria.

.03 Section 13207 of the Act added new § 263A(d)(2)(C) for certain costs that

are paid or incurred after December 22, 2017, and on or before December 22, 2027, to replant citrus plants after the loss or damage of citrus plants. Pursuant to § 263A(d)(2)(C), in the case of replanting citrus plants after the loss or damage of citrus plants by reason of freezing temperatures, disease, drought, pests, or casualty, § 263A does not apply to replanting costs paid or incurred by a taxpayer other than the owner described in § 263A(d)(2)(A) if: (1) the owner described in § 263A(d) (2)(A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which such amounts were paid or incurred and the taxpayer holds any part of the remaining equity interest; or (2) the taxpayer acquired the entirety of the owner described in § 263A(d)(2)(A)’s equity interest in the land on which the lost or damaged citrus plants were located at the time of such loss or damage, and the replanting is on such land.

.04 Section 446(e) and § 1.446–1(e) state that, except as otherwise provided, a taxpayer must secure the consent of the Commissioner of Internal Revenue before changing an accounting method for federal income tax purposes. Section 1.446– 1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures that provide the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change an accounting method in accordance with § 446(e).

.05 Section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted to be taken into account when the taxpayer’s taxable income is determined under an accounting method different from the method used to determine taxable income for the preceding taxable year.

.06 Rev. Proc. 2018–31, 2018–22 I.R.B. 637, provides the procedures by which a taxpayer may obtain automatic consent from the Commissioner to change to a method of accounting described in Rev. Proc. 2018–31.