SECTION 2. BACKGROUND

.01 Amendments to §§ 168(j), 168(l), and 181 .

(1) Section 168(j) . Section 168(j)(1) provides that for purposes of § 168(a), the applicable recovery period for qualified Indian reservation property, as defined in § 168(j)(4), is determined in accordance with the table contained in § 168(j)(2), instead of the table contained in § 168(c). Prior to amendment by § 116 of the Taxpayer Certainty and Disaster Tax Relief Act of

2019 (2019 Act), enacted as Division Q of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116-94, 133 Stat. 2534, 3229 (December 20, 2019), § 168(j) (9) provided that § 168(j) did not apply to property placed in service after December 31, 2017. Section 116(a) of the 2019 Act amended § 168(j)(9) to provide that § 168(j) does not apply to property placed in service after December 31, 2020, which made § 168(j) applicable to property placed in service after December 31, 2017, and on or before December 31, 2020. Subsequent legislation further amended § 168(j)(9) to provide that § 168(j) does not apply to property placed in service after December 31, 2021, which made § 168(j) applicable to property placed in service after December 31, 2020, and on or before December 31, 2021. See § 138 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (2020 Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182, 3054 (December 27, 2020).

(2) Section 168(l) . Section 168(l)(1) allows a 50-percent additional first year depreciation deduction (also sometimes referred to as a “special depreciation allowance”) for qualified second generation biofuel plant property, as defined in § 168(l)(2) and (3), for the taxable year in which the qualified second generation biofuel plant property is placed in service by the taxpayer. Prior to amendment by § 130 of the 2019 Act, § 168(l)(2)(D) defined qualified second generation biofuel plant property, in part, as property placed in service by the taxpayer before January 1, 2018. Section 130(a) of the 2019 Act amended § 168(l)(2)(D) by inserting “January 1, 2021” in place of “January 1, 2018,” which made § 168(l)(1) applicable to property placed in service after December 31, 2017, and before January 1, 2021.

(3) Section 181 . Section 181(a)(1) allows a taxpayer to elect to treat the cost of any qualified film, television, or live

theatrical production, subject to the dollar limitations in § 181(a)(2), as an expense that is not chargeable to capital account (§ 181 election). Prior to amendment by § 117 of the 2019 Act, § 181(g) provided that § 181 did not apply to qualified film, television, or live theatrical productions commencing after December 31, 2017. Section 117(a) of the 2019 Act amended § 181(g) to provide that § 181 does not apply to qualified film, television, or live theatrical productions commencing after December 31, 2020, which made § 181 applicable to qualified film, television, or live theatrical productions commencing after December 31, 2017, and on or before December 31, 2020. Subsequent legislation further amended § 181(g) to provide that § 181 does not apply to qualified film, television, or live theatrical productions commencing after December 31, 2025, which made § 181 applicable to qualified film, television, or live theatrical productions commencing after December 31, 2020, and on or before December 31, 2025. See § 116 of the 2020 Act. (4) In sum, the 2019 Act retroactively extended the application of §§ 168(j) and 168(l) to certain property placed in service by the taxpayer after December 31, 2017, and before January 1, 2021, and § 181 to a qualified film, television, or live theatrical production commencing after December 31, 2017, and before January 1, 2021. Unless otherwise provided, all references hereinafter in this revenue procedure to §§ 168(j), 168(l), and 181 are references to §§ 168(j), 168(l), and 181 as in effect on the day before the enactment date of the 2020 Act.

.02 Elections . (1) Section 168(j)(8) election . Section 168(j)(8) allows a taxpayer to make an election not to apply § 168(j) for all property that is in the same class of property and placed in service by the taxpayer in the same taxable year (§ 168(j)(8) election). For purposes of § 168(j), the term

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“class of property” means each class of property described in the table contained in § 168(j)(2) (for example, 3-year property). As set forth in Rev. Proc. 2017-33, 2017-19 I.R.B. 1236, the § 168(j)(8) election generally must be made by the due date, including extensions, of the Federal tax return for the taxable year in which the taxpayer places in service the qualified Indian reservation property. Rev. Proc. 201733 further provides that the § 168(j)(8) election generally must be made in the manner prescribed in the instructions for Form 4562, Depreciation and Amortiza- tion . The instructions for Form 4562 for the 2018 taxable year and the 2019 taxable year provide that the § 168(j)(8) election is made by attaching a statement to the taxpayer’s timely filed tax return, including extensions, indicating the class of property for which the taxpayer is making the § 168(j)(8) election and, for such class, that the taxpayer is electing not to apply § 168(j).

(2) Section 168(l)(3)(D) election . Section 168(l)(3)(D) allows a taxpayer to elect not to apply § 168(l) for all property that is in the same class of property and placed in service in the same taxable year (§ 168(l)(3)(D) election). The procedures for making the § 168(l)(3)(D) election are provided in the instructions for Form 4562. The instructions for Form 4562 for the 2018 taxable year and the 2019 taxable year provide that any election not to deduct the additional first year depreciation for any class of property, which includes the § 168(l)(3)(D) election, is made by attaching a statement to the taxpayer’s timely filed tax return, including extensions, indicating the class of property for which the taxpayer is making the § 168(l)(3)(D) election and, for such class, that the taxpayer is not claiming the additional first year depreciation.

(3) Section 181 election . Section 181(c)(1) provides that the § 181 election for any qualified film, television, or live theatrical production is made in such manner as prescribed by the Secretary of the Treasury or her delegate and by the due date, including extensions, for filing the taxpayer’s return of tax under chapter 1 of the Code for the taxable year in which costs of the production are first incurred.

(a) Last updated in 2012, the rules and procedures concerning a § 181 election for

qualified film and television productions are set forth in § 1.181-0 through § 1.1816 (§ 181 regulations). Congress added “qualified live theatrical production” to § 181 of the Code in 2015. As of the date of issuance of this revenue procedure, the § 181 regulations have not been updated to incorporate rules and procedures for qualified live theatrical productions.

(b) Section 1.181-2(a) provides that an owner, as defined in § 1.181-1(a)(2), generally makes the § 181 election to deduct production costs, as defined in § 1.1811(a)(3), of a production only if that owner has not deducted in a previous taxable year any production costs for that production under any provision of the Code other than § 181. Pursuant to § 1.181-2(b)(1), the § 181 election generally must be made by the due date, including any extension, for filing the owner’s Federal income tax return for the first taxable year in which (i) any aggregate production costs, as defined in § 1.181-1(a)(4), have been paid or incurred, and (ii) the owner reasonably expects, based on all of the facts and circumstances, that the production will be set for production and will, upon completion, be a qualified production. Pursuant to § 1.1812(c)(1), an owner must make the § 181 election separately for each production. Further, for each production to which the § 181 election applies, § 1.181-2(c)(2)(i) provides that the owner must attach a statement to the owner’s Federal income tax return for the taxable year of the § 181 election stating that the owner is making the § 181 election and providing the information specified in § 1.181-2(c)(2)(i)(A) through (H). If the owner pays or incurs additional production costs in any taxable year subsequent to the taxable year for which production costs are first deducted under § 181, § 1.181-2(c)(2)(ii) provides that the owner must attach a statement to the owner’s Federal income tax return for that subsequent taxable year providing the information specified in § 1.181-2(c)(2)(ii)(A) through (H).

.03 Method of accounting . (1) Section 446(e) of the Code and § 1.446-1(e)(2) of the Income Tax Regulations require a taxpayer to secure the consent of the Commissioner of Internal Revenue (Commissioner) before changing a method of accounting for Federal income tax purposes. Section 1.446-1(e)(3)(ii)

authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions necessary to permit a taxpayer to obtain consent to change a method of accounting.

(2) Section 1.446-1(e)(2)(ii)( d )( 3 )( iii ) provides that the making of a late depreciation election or the revocation of a timely valid depreciation election is not a change in method of accounting, except as otherwise expressly provided by the Code, the regulations under the Code, or other guidance published in the Internal Revenue Bulletin. Section 1.446-1(e)(2)(ii)( d ) ( 5 )( iii ) provides that except as otherwise expressly provided by the Code, the regulations under the Code, or other guidance published in the Internal Revenue Bulletin, no § 481 adjustment is required or permitted for a change from one permissible method of computing depreciation to another permissible method of computing depreciation.

(3) Because of the retroactive extension of the application of §§ 168(j), 168(l), and 181, guidance is needed for taxpayers that want to make late elections under §§ 168(j)(8), 168(l)(3)(D), and 181(a)(1). The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have determined it appropriate to treat the making of late elections under §§ 168(j)(8), 168(l)(3)(D), and 181(a)(1) for certain property and certain film, television, or live theatrical productions as a change in method of accounting with a § 481(a) adjustment for a limited period of time. Accordingly, this revenue procedure permits taxpayers to make these late elections by filing an amended return or an administrative adjustment request under § 6227 of the Code (AAR), as applicable, or a Form 3115, Application for Change in Accounting Method . See sections 4 and 6 of this revenue procedure for the procedures to make these late elections.