SECTION 5. PROCEDURES FOR

ELIGIBLE SMALL BUSINESS TAXPAYERS TO REVOKE THE ELECTION MADE UNDER § 263A(d)(3) AND TO APPLY § 263A(i)

.01 In general. An eligible small business taxpayer has the consent of the Commissioner to revoke its election made under § 263A(d)(3) and § 1.263A-4(d)(3) (§ 263A(d)(3) election) and apply the exemption under § 263A(i) for the same taxable year if the taxpayer complies with the procedures provided in this section 5. See section 5.03 of this revenue procedure for the effect of the revocation of the § 263A(d)(3) election on the depreciation of property used in a farming business of the eligible small business taxpayer or related person. A valid § 263A election revoked pursuant to this revenue procedure remains in effect with respect to taxable years before the year in which the revocation is effective. An eligible small business taxpayer that revokes its own § 263A(d)(3) election but also is a related person to a taxpayer that made a § 263A(d)(3) election that has not also been revoked must continue to apply § 1.263A‑4(d)(4)(ii) for taxable years that the unrevoked § 263A(d)(3) election is in effect.

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.02 Time and manner of revocation . (1) In general . Except as provided in section 5.02(2) of this revenue procedure, an eligible small business taxpayer revokes its § 263A(d)(3) election under this section 5 on its original federal income tax return, including extensions, for the taxable year for which the taxpayer wants to revoke its § 263A(d)(3) election (revocation year), by:

(a) Continuing not to capitalize costs of plants produced in its farming business under § 263A;

(b) Applying section 5.03 of this revenue procedure for determining depreciation of property predominantly used in a farming business of the eligible small business taxpayer or related person; and

(c) Continuing to treat plants that are or have been treated as § 1245 property for prior taxable years as § 1245 property. See §§ 263A(e)(1)(A)(ii), 1245(a)(3) and 1.1245-3(c). (2) Making a revocation of § 263A(d)(3) election for a taxable year beginning in 2018 . If an eligible small business taxpayer timely filed its federal income tax return for its taxable year beginning in 2018 (2018 taxable year), wants to revoke its § 263A(d)(3) election for the 2018 taxable year, and did not revoke the § 263A(d)(3) election within the time and in the manner provided in section 5.02(1) of this revenue procedure, the taxpayer may revoke its § 263A(d)(3) election by using one of the options described in this section 5.02(2):

(a) Amended return or AAR . The taxpayer may file an amended federal income tax return, or in the case of a partnership subject to the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015, an administrative adjustment request (AAR), for the 2018 taxable year before the taxpayer files its federal income tax return for the first taxable year beginning after the 2018 taxable year. This amended return or AAR must include the adjustment to taxable income for the revocation of the § 263A(d)(3) election in the manner provided in section 5.02(1) of this revenue procedure and any collateral adjustments to taxable income or to tax liability. Such collateral adjustments also must be made on federal income tax returns or AARs for any affected succeeding taxable years, if applicable. If an eligible

small business taxpayer uses the option under this section 5.02(2)(a), then all related persons affected by the taxpayer’s revocation of the § 263A(d)(3) election must also use this option to reflect the taxpayer’s revocation; or

(b) Form 3115 . The taxpayer may file a Form 3115 with the eligible small business taxpayer’s timely filed federal income tax return for the first, second, or third taxable year beginning after the 2018 taxable year. Only during this limited period of time will the late revocation of the § 263A(d)(3) election under this section 5.02(2)(b) be treated as a change in method of accounting with a § 481(a) adjustment. No part of the § 481(a) adjustment shall be based on amounts that were, or which should have been, taken into account in computing taxable income for taxable years prior to the 2018 taxable year. The § 481(a) adjustment takes into account only the adjustments resulting from the change in the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the ADS to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the general depreciation system of § 168(a) (GDS) for all property used predominantly in any farming business of the eligible small business taxpayer. The time and manner of making this late revocation are described in the procedures for automatic method changes described in Rev. Proc. 2015-13 and section 7 of this revenue procedure. If an eligible small business taxpayer uses the option under this section 5.02(2)(b), then all related persons affected by the taxpayer’s revocation of the § 263A(d)(3) election must also use this option to reflect the taxpayer’s revocation.

.03 Changing depreciation of property to the GDS.

(1) In general . Beginning with the revocation year, an eligible small business taxpayer that revokes its § 263A(d)(3) election under this section 5, or a related person, is not required under § 263A(e)(2) and § 1.263A-4(d)(4)(ii) to depreciate all property used predominantly in any farming business of the taxpayer, or related person, in accordance with the ADS, unless such property is otherwise required to be depreciated in accordance with the

ADS (for example, § 168(g)(1)(G) applies to such property). The preceding sentence applies to such property placed in service by the eligible small business taxpayer or related person in taxable years beginning before the revocation year (existing property) and to such property placed in service by the eligible small business taxpayer or related person in the revocation year and subsequent taxable years (newly-acquired property). If an eligible small business taxpayer revokes its own § 263A(d)(3) election but also is a related person to a taxpayer that made a § 263A(d)(3) election that has not been revoked, the eligible small business taxpayer must continue to apply § 263A(e)(2) and § 1.263A-4(d)(4)(ii) for taxable years that such § 263A(d)(3) election is in effect.

(2) Existing property . For all property used predominantly in any farming business of the eligible small business taxpayer or related person that was placed in service in a taxable year prior to the revocation year and that is not otherwise required to be depreciated in accordance with the ADS, a change in use occurs for such property under § 168(i)(5) and § 1.168(i)-4(d) for the revocation year as a result of its revocation of the § 263A(d)(3) election. Accordingly, depreciation for such property beginning for the revocation year is determined in accordance with § 1.168(i)-4(d). However, pursuant to § 1.168(i)-4(d)(3)(C)(ii), the eligible small business taxpayer or related person may elect to determine the depreciation for such property as though the change in use had not occurred. See § 1.168(i)-4(d)(3)(C)(ii) for the time and manner of making this election for the revocation year. Pursuant to § 1.168(i)-4(f), a change in computing depreciation for the revocation year for such property is not a change in method of accounting under § 446(e). The additional first year depreciation deduction under § 168(k) is not allowable for any such existing property. See §§ 1.168(k)‑1(f)(6)(iv)(B) and 1.168(k)-2(g)(6)(iv)(B).

(3) Newly-acquired property . For all property used predominantly in any farming business of the eligible small business taxpayer or related person that was placed in service in the revocation year and subsequent taxable years and that is not otherwise required to be depreciated in accordance with the ADS, the eligible small

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business taxpayer or related person determines the depreciation in accordance with the GDS. Because such newly-acquired property is not required to be depreciated under the ADS, the property may be qualified property for purposes of the additional first year depreciation deduction under § 168(k), if all requirements under § 168(k) and § 1.168(k)-1 or § 1.168(k)-2, as applicable, are satisfied.

(4) Failure to change to GDS . (a) Existing property . If an eligible small business taxpayer or related person does not depreciate any existing property that is described in section 5.03(1) of this revenue procedure and that is not otherwise required to be depreciated in accordance with the ADS, under the GDS for the revocation year and the subsequent taxable year, then that taxpayer or related person has adopted an impermissible method of accounting for that item of MACRS property, as defined in § 1.168(b)-1(a)(2). A change from that impermissible method of accounting to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the GDS is a change in method of accounting under § 446(e). See § 1.446‑1(e)(2)(ii)( d )( 2 )( i ). The taxpayer requests to make such a method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015-13 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.05 of Rev. Proc. 2019-43, 2019-48 I.R.B. 1107 (or any successor). The § 481(a) adjustment as of the first day of the year of change is calculated as though the change in use occurred for the item of MACRS property in the revocation year.

(b) Newly-acquired property . If an eligible small business taxpayer or related person does not depreciate any newly-acquired property that is described in section 5.03(1) of this revenue procedure and that is not otherwise required to be depreciated under the ADS (including property described in § 168(g)(1)(E)), under the GDS for the property placedin-service year and the subsequent taxable year, then that taxpayer or related

person has adopted an impermissible method of accounting for that item of MACRS property. A change from that impermissible method of accounting to the applicable depreciation method, the applicable recovery period, and/or the applicable convention under the GDS for the item of MACRS property is a change in method of accounting under § 446(e). See § 1.446-1(e)(2)(ii)( d )( 2 )( i ). The taxpayer requests to make such a method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015-13 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.01 of Rev. Proc. 2019-43 (or any successor).