IRS Extends Time to Make Certain Accounting Method Changes

Under the Tangible Property Regulations Generating Significant Tax Saving Opportunities

The IRS issued Notice 2017-6 on December 20, 2016 that once again extended the time period during which certain automatic accounting method changes can be requested with respect to the tangible property regulations (“TPR”). Under the provisions of the Notice, certain automatic accounting changes can be requested on Form 3115 provided it is filed with the income tax return for a tax year beginning before January 1, 2017.

Of particular note is that this Notice permits taxpayers that previously made accounting method changes for repairs and maintenance costs in the past five years to refine their current methodologies and potentially obtain additional tax deductions (for example, if the taxpayer previously filed a Form 3115 under the TPR but took a conservative position by reporting a section 481(a) adjustment of $0, the taxpayer can file another Form 3115 under this Notice).

Among the automatic changes included is the extension of time to file for an automatic method change with respect to partial dispositions of buildings and structural components. It has been our experience that the partial disposition provision has generated a significant amount of deductions for our clients for whom we have performed a TPR review.

This Notice provides taxpayers with the opportunity to obtain expeditious consent for changes that can generate significant deductions in the year of change. In light of the fact that the new Trump administration has been talking about reducing corporate and, possibly, individual income tax rates, consideration should be given to filing appropriate accounting method changes as soon as possible so as to be able to get the benefit from the anticipated deductions at the current (higher) tax rates.