SECTION 4. METHOD CHANGE

PROCEDURES TO APPLY ADDITIONAL FIRST YEAR DEPRECIATION REGULATIONS

.01 Scope . This section 4 applies to a taxpayer within the scope of section 3 of this revenue procedure that is changing its method of accounting for depreciation under § 168 for depreciable property, including components described in § 1.168(k)2(c) of the 2020 final regulations or the 2019 proposed regulations for which the taxpayer has already made the component election or proposed component election, as applicable, and specified plants, within the scope of section 3 of this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable. However, this section 4:

(1) Does not apply to property that is affected by a late election, or withdrawn election, made/withdrawn by the taxpayer under § 163(j)(7)(B) (electing real property trade or business) or § 163(j)(7) (C) (electing farming business) after November 16, 2020, in accordance with Rev. Proc. 2020-22, 2020-18 I.R.B. 745. Any changes to depreciation for such property that result from such a late election, or withdrawn election, are made in accordance with sections 4.02 and 4.03, or 5.02 of Rev. Proc. 2020-22, as applicable;

(2) Does not apply to property or a specified plant for which the taxpayer is changing from deducting the cost or other basis of such property as an expense to capitalizing and depreciating the cost or other basis, or vice versa ;

(3) Does not apply to property or a specified plant that the taxpayer does not own at the beginning of the year of change. However, and solely for purposes of this section 4:

(a) In the case of property described in § 1.1502-68(e)(2)(i) of the 2020 final regulations that is acquired in a transaction that satisfies the requirements of § 1.150268(c)(1)(ii) or (c)(2)(ii) of the 2020 final regulations, such property is treated as owned by the taxpayer at the beginning

of the year of change if any party to the transaction owned such property at that time; and

(b) In the case of property that is acquired in a transaction described in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, such property is treated as owned by the taxpayer at the beginning of the year of change if any party to the transaction owned such property at that time; and

(4) Cannot be used to make a late election, or revoke an election, under § 168, § 179, or § 1.1502-68. However, see sections 5 and 6 of this revenue procedure for procedures for making or revoking certain elections.

.02 Changing to the depreciation al- lowable under the additional first year depreciation regulations .

(1) In general . A taxpayer within the scope of this section 4 has a choice to apply the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for (a) depreciable property within the scope of this section 4 that is placed in service by the taxpayer during the same taxable year, and (b) specified plants within the scope of this section 4 that are planted or grafted by the taxpayer during the same taxable year in which the taxpayer planted or grafted the specified plant to which the § 168(k)(5) election applies (the planting year). However, once a taxpayer applies § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for a taxable year, the taxpayer must continue to apply § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for the taxpayer’s subsequent taxable years. For example, if Partnership ABC applies § 1.168(k)-2 of the Final Regulations, in its entirety, for its 2018 taxable year and if § 1.1502-68 of the Final Regulations does not apply to Partnership ABC, Partnership ABC must apply § 1.168(k)-2 of the Final Regulations for its 2019 taxable year, 2020 taxable year, and subsequent taxable years.

(2) Change from impermissible or permissible method of accounting . The first time the taxpayer changes its method of accounting for depreciation under this revenue procedure for depreciable property and specified plants described in

section 4.02(1) of this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable, is deemed to be a change from an impermissible method of accounting to a permissible method of accounting that is made with a § 481(a) adjustment. See section 4.03 of this revenue procedure for the procedures to make this change in method of accounting. Any subsequent time the taxpayer changes its method of accounting for depreciation for such depreciable property and such specified plants to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, is a change from a permissible method of accounting to another permissible method of accounting that is made on a cut-off basis. See section 4.04 of this revenue procedure for the procedures to make this change in method of accounting.

(3) For example, for its taxable year beginning on January 1, 2020, and ending on December 31, 2020, Taxpayer X changes its method of accounting for depreciation for qualified property acquired by Taxpayer X after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017 and 2018 taxable years to comply with § 1.168(k)-2 of the 2019 final regulations. This change is a change from an impermissible method of accounting to a permissible method of accounting that is made with a § 481(a) adjustment. Subsequently, for its taxable year beginning on January 1, 2021, Taxpayer X changes its method of accounting for depreciation for qualified property acquired by Taxpayer X after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017, 2018, and 2019 taxable years to comply with § 1.168(k)-2 and, to the extent relevant, § 1.1502-68 of the Final Regulations. This change is (a) a change from a permissible method of accounting to another permissible method of accounting that is made on a cut-off basis for qualified property acquired after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017 and 2018 taxable years, and (b) a change from an impermissible method of accounting to

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the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Plant by filing a Form 3115 for this change in accordance with section 4.03(4)(b) of this revenue procedure, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Plant, subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property or 1-year Plant by filing an amended return or AAR, as applicable.

(3) Retroactive change in method of accounting . The Commissioner allows a taxpayer within the scope of this section 4.03 to make a retroactive change in method of accounting under this section 4.03 for a limited period of time, provided the taxpayer files the amended return(s) or AAR(s) within the time and manner provided in section 4.03(4)(a) of this revenue procedure and satisfies, to the extent relevant, section 4.02 of this revenue procedure. A Form 3115 is not required to be filed with such amended return(s) or AAR(s).

(4) Changing from the impermissible to the permissible method of determining depreciation . The taxpayer may change from the impermissible method of determining depreciation to a permissible method of determining depreciation under this section 4.03 by filing either:

(a) A Federal amended income tax return or amended Form 1065 for the placed-in-service year of the depreciable property and for the planting year of the specified plant on or before December 31, 2021, but in no event later than the applicable period of limitations on assessment for the taxable year for which the amended return is being filed. A partnership subject to the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015 (BBA partnership) may file an AAR for the placed-in-service year of the depreciable property or the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on making adjustments under § 6235 for the reviewed year as defined

a permissible method of accounting that is made with a § 481(a) adjustment for qualified property acquired after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2019 taxable year. (4) Ordering rules . If, for the same taxable year, a taxpayer within the scope of this section 4 makes a late election under section 5 of this revenue procedure and/ or revokes an election under section 6 of this revenue procedure and also makes a change in method of accounting for the same depreciable property or same specified plant, the taxpayer applies the late election or the revocation, as applicable, first.

(5) Special rules for applying consoli- dated group rules . In the case of property described in § 1.1502-68(e)(2)(i) of the 2020 final regulations that is acquired in a transaction that satisfies the requirements of § 1.1502-68(c)(1)(ii) or (c)(2)(ii) of the 2020 final regulations, all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, and the consolidated groups of which they are members for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the deconsolidation date, as defined in § 1.1502-68(a)(2)(iii) of the 2020 final regulations, must change their methods of accounting for depreciation for the property and specified plants in the same manner under this section 4. For example, if the transferor member changes its method of accounting for depreciation for property by filing an amended return in accordance with section 4.03 of this revenue procedure, all other parties to the transaction must do the same. Similarly, in the case of property to which § 1.168(k)-2 of the 2019 proposed regulations applies and that is acquired in a transaction described in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, as defined in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, and the consolidated groups of which they are members for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the Deconsolidation Date, as defined in § 1.168(k)-2(b)

(3)(v)(C)( 1 ) in the 2019 proposed regulations, must change their methods of accounting for depreciation for the property and specified plants in the same manner under this section 4. If a party to a transaction described in this section 4.02(5) was a member of a consolidated group for the taxable year(s) in which the transaction occurs and/or the taxable year(s) that includes the day after the deconsolidation date, then the change in the method of accounting for depreciation is made by the agent for the group, within the meaning of § 1.1502-77(a) and (c), in accordance with this section 4.

.03 Change from an impermissible to permissible method of accounting for de- preciation.

(1) Applicability . This section 4.03 applies to the first time that the taxpayer changes its method of accounting for depreciation under this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for (a) depreciable property within the scope of this section 4 that is placed in service during the same taxable year, and (b) specified plants within the scope of this section 4 that are planted or grafted during the same planting year. This initial change in determining depreciation is a change from an impermissible to a permissible method of accounting.

(2) One-year property . For depreciable property that is within the scope of this section 4.03 and is placed in service by the taxpayer in the taxable year immediately preceding the year of change, as defined in section 3.19 of Rev. Proc. 2015-13 (1year Property), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property by filing a Form 3115 for this change in accordance with section 4.03(4)(b) of this revenue procedure, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Property, subject to the Form 3115. Similarly, for a specified plant that is within the scope of this section 4.03 and is planted or grafted by the taxpayer in the taxable year immediately preceding the year of change, as defined in section 3.19 of Rev. Proc. 2015-13 (1-year Plant),

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in § 301.6241-1(a)(8) of the Procedure and Administration Regulations. This amended return or AAR must include the adjustment to taxable income for the change in determining depreciation of the depreciable property or specified plant and any collateral adjustments to taxable income or to tax liability (for example, proper amount allowed as a deduction for interest expense, taking into account the business interest limitation under § 163(j) and the regulations thereunder, for a trade or business with floor plan financing indebtedness that is applying § 1.168(k)2(b)(2)(ii)(G) of the Final Regulations, § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2) (ii)(G) of the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations). Such collateral adjustments also must be made on original or amended Federal returns or AARs for any affected succeeding taxable years. If the taxpayer satisfies this section 4.03(4)(a) for all depreciable property placed in service during the same taxable year and all specified plants planted or grafted during the same planting year, the Commissioner grants consent to the taxpayer to make this retroactive method change for such property and plant; or

(b) A Form 3115 with the taxpayer’s timely filed original Federal income tax return or Form 1065 under the automatic change procedures in Rev. Proc. 201513. This change in method of accounting is made with a § 481(a) adjustment. However, consent to make a change in method of accounting under this section 4.03(4)(b) will be granted by the Commissioner only if the taxpayer satisfies, to the extent relevant, section 4.02 of this revenue procedure. Further, if a taxpayer that has a trade or business with floor plan financing indebtedness is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations, § 1.168(k)-2(b)(2)(ii) (G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations and § 1.168(k)-2(b)(2) (ii)(G) of the 2019 proposed regulations for depreciable property placed in service by the taxpayer in its 2018, 2019, or 2020 taxable year, consent to make a change in method of accounting under this section 4.03(4)(b) will be granted by the Commissioner only if the amount

of the § 481(a) adjustment is adjusted to account for the proper amount of interest expense, taking into account the business interest limitation under § 163(j) and the regulations thereunder, as of the beginning of the year of change. See section 7.03 of this revenue procedure for the procedures for making this change in method of accounting.

.04 Change from a permissible to an- other permissible method of accounting for the depreciation .

(1) Applicability . This section 4.04 applies to the taxpayer that previously changed its method of accounting for depreciation under this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable, for depreciable property within the scope of this section 4 that is placed in service during the same taxable year and specified plants within the scope of this section 4 that are planted or grafted during the same planting year, and now wants to make another change in method of accounting for depreciation to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the same depreciable property or specified plant. This subsequent change in determining depreciation is a change from one permissible method of accounting to another permissible method of accounting.

(2) Changing from a permissible to another permissible method of determin- ing depreciation allowable . The taxpayer may change from a permissible method of accounting for depreciation to another permissible method of accounting for depreciation under this section 4.04 by filing a Form 3115 with the taxpayer’s timely filed original Federal income tax return or Form 1065 under the automatic change procedures in Rev. Proc. 2015-13. Consent to make a change in method of accounting under this section 4.04 will be granted by the Commissioner only if the taxpayer satisfies section 4.02 of this revenue procedure, to the extent relevant. Further, this change in method of accounting is made on a cut-off basis. See section 7.03 of this revenue procedure for the procedures for making this change in method of accounting.