Deducting or Capitalizing Expenditures Related to Tangible Property
By: Richard Reichler
At the end of December 2011, the Treasury and the IRS promulgated temporary regulations (Temp. Regs.) principally dealing with the application of the expensing rules of Section 162 and the capitalization rules of Section 263 with respect to tangible personal property. The Temp. Regs. are generally effective for amounts paid or accrued after 1/1/12.
A change to conform to the Temp. Regs. will be a change in method of accounting under Section 446(c). In general, a taxpayer seeking a change in method of accounting to comply with the Temp. Regs. has to take into account an adjustment under Section 481(a). On 3/8/12, the Service published Rev. Procs. 2012-19′ and 2012-20, which provide procedures whereby a taxpayer may obtain automatic consent to change its method of accounting to that provided in the Temp. Regs. for a tax year beginning on or after 1/1/12. Taxpayers will undoubtedly be comparing the principles in the Temp. Regs. with prior rules, including the manner in which the prior rules, including the manner in which the prior rules were applied to them on audit, to determine the impact of any such change….