Complying with the tangible property regulations: mission impossible?

1,667 views
1,473 views

Published on

Many taxpayers are overwhelmed as they contemplate how their company can possibly comply with the tangible property regulations last December. This session offers insights.

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,667
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
29
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Complying with the tangible property regulations: mission impossible?

  1. 1. 22nd Annual Health SciencesTax ConferenceComplying with the tangible property regulationsMission impossible?December 3, 2012
  2. 2. DisclaimerErnst & Young refers to the global organization of member firms of Ernst & YoungGlobal Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For moreinformation about our organization, please visit www.ey.com.This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of thisdocument may be reproduced, transmitted or otherwise distributed in any form or byany means, electronic or mechanical, including by photocopying, facsimiletransmission, recording, rekeying, or using any information storage and retrievalsystem, without written permission from Ernst & Young LLP. Any reproduction,transmission or distribution of this form or any of the material herein is prohibited andis in violation of US and international law. Ernst & Young LLP expressly disclaims anyliability in connection with use of this presentation or its contents by any third party.Views expressed in this presentation are not necessarily those of Ernst & Young LLP.Page 2 Complying with the tangible property regulations: Mission impossible?
  3. 3. DisclaimerErnst & Young refers to the global organization of member firms of Ernst & YoungGlobal Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. For moreinformation about our organization, please visit www.ey.com.This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of thisdocument may be reproduced, transmitted or otherwise distributed in any form or byany means, electronic or mechanical, including by photocopying, facsimiletransmission, recording, rekeying, or using any information storage and retrievalsystem, without written permission from Ernst & Young LLP. Any reproduction,transmission or distribution of this form or any of the material herein is prohibited andis in violation of US and international law. Ernst & Young LLP expressly disclaims anyliability in connection with use of this presentation or its contents by any third party.Views expressed in this presentation are not necessarily those of Ernst & Young LLP.Page 3 Complying with the tangible property regulations: Mission impossible?
  4. 4. Presenters► Scott Wilson ► Brendan Cox Roche Diagnostics Corporation Ernst & Young LLP Philadelphia, PA + 1 215 448 5049► Brandon C. Carlton brendan.cox@ey.com Ernst & Young LLP Washington, DC ► Daren Campbell + 1 202 327 6826 Ernst & Young LLP brandon.carlton@ey.com Washington, DC + 1 202 327 6539 daren.campbell@ey.comPage 4 Complying with the tangible property regulations: Mission impossible?
  5. 5. Agenda► Level-set ► Procedural background and outlook ► High-level vision of the tangibles regulations► Key implementation hotspots ► De minimis rule/materials and supplies ► Dispositions/general asset accounts ► Repairs versus improvements► How to move forward ► Priority implementation issues ► Other considerationsPage 5 Complying with the tangible property regulations: Mission impossible?
  6. 6. Tangible property regulationsLevel-set
  7. 7. Procedural background and outlook► Temporary regulations issued (December 2011) ► Final regulations anticipated in 2013► Transition guidance issued (March 2012) ► Provides 19 new automatic method changes ► Scope limitations waived for 2012 and 2013 ► Compliance with Section 263A generally required► Large Business & International (LB&I) Directive issued (March 2012) ► Stand-down order on most repairs and associated dispositions issues► Notice 2012-73 (November 2012)Page 7 Complying with the tangible property regulations: Mission impossible?
  8. 8. High-level vision of the tangibles regulations Materials and Acquisitions Improvements Depreciation supplies and dispositions § 1.162-3T § 1.263(a)-2T § 1.263(a)-3T §§ 1.168(i)-1T,-7T,-8T § 1.263(a)-1T ► Definition of materials and ► Capitalized costs include ► Unit of property (UOP) is ► Dispositions supplies costs that facilitate generally all functionally ► General rules acquisition of property inter-dependent property ► Required to recognize ► Three categories of ► Whether and which test except for: disposition of structural deductibility: for real property ► Buildings components ► Incidental ► May expense employee ► Plant property ► Reasonable ► Non-incidental comp. and overhead ► Leased property identification methods ► Rotable spare parts ► De minimis rule: follow ► Improvement defined: ► Allowed vs allowable issue ► Election to deduct under applicable financial ► Betterment de minimis rule statement (AFS) ► Restoration ► General asset accounts expensing up to ceiling ► New or different use ► Flexibility to recognize ► Election to capitalize and (applied to each regarded (or not) dispositions of depreciate entity) ► Safe harbor for routine assets ► Greater of: maintenance on property ► Annual election ► 0.1% of tax gross other than buildings ► One-time retroactive receipts, or election ► 2.0% of book ► Safe harbor for certain depreciation/ regulated entities amortization ► Election to capitalize ► No plan of rehabilitation and depreciate ► Remember: coordination with Section 263A required for most changes; several “sleeper” elections.Page 8 Complying with the tangible property regulations: Mission impossible?
  9. 9. Notice 2012-73Notice 2012-73 (issued 11/20/12) announced:► Temporary regulations (currently effective for tax years beginning on or after 1/1/12): ► Will be modified to be effective for tax years beginning on or after 1/1/14 ► May be optionally applied for tax years beginning on or after 1/1/12 ► Optional early application may be done piecemeal► Final regulations: ► Are anticipated to be published in 2013 ► Will be effective for tax years beginning on or after 1/1/14 ► May be optionally applied for tax years beginning on or after 1/1/12 ► Will include modifications to de minimis rule, dispositions rules and the routine maintenance safe harborPage 9 Complying with the tangible property regulations: Mission impossible?
  10. 10. Tangible property regulationsKey implementation hotspots
  11. 11. De minimis rule/materials and supplies De minimis rule Materials and supplies Treas. Reg. § 1.263(a)-2T(g) Treas. Reg. § 1.162-3T ► Can follow book de minimis ► Incidental expense policy if: Deduct when paid 1) Have applicable financial statement ► Non-incidental 2) Have written book policy Deduct when used 3) Deduct pursuant to book policy Elect to deduct ► Rotable and spare parts 4) Less than a ceiling (by under de minimis rule Deduct when disposed or use taxable entity) of the if ceiling allows optional method of accounting greater of:  0.1% of tax gross ► Elect to capitalize and receipts depreciate or  2.0% of book depreciation and amortization ► Elect to capitalize and depreciatePage 11 Complying with the tangible property regulations: Mission impossible?
  12. 12. Example flowchart Yes No Book capitalizes tangible property? Supply, Analyze fixed assets for potential What is character (i.e., gain/loss account) repair, deductibility for tax for book expense? other Can the property be classified as a tax M&S Repair expense such as 1. UOP < $100 2. UOP with economic life < 12 months Yes — IF Options 3. Fuel, water lubricants consumed in < 12 months M&S 4. Component to maintain, repair, improve a UOP No total $ 5. Other identified guidance limitation Capitalize M&S No Rotable or temporary Incidental (deduct when Non-incidental (deduct parts (deduct when acquired) when used/consumed) disposed) Depreciate Yes — IF UOP not improved Repair? No total $ limitation Deduct No Has AFS, follows written book policy, and deducts for book Yes — IF De minimis rule? Subject to a ceiling — the greater of: 0.1% of tax gross receipts or 2.0% of total book depreciation and amortization Total $ limited to ceiling ► No ► Amounts above ceiling Capitalize and Deduct up to ceiling depreciate Amounts above ceilingPage 12 Complying with the tangible property regulations: Mission impossible?
  13. 13. Tackling implementationDe minimis rule and materials and supplies 1. Calculate ceiling 2. Compare aggregate amount expensed under book policy 3. If overage, remove amounts deductible under other provisions 4. If overage remains, determine what to capitalize Expensed amount Incidental M&S Non-incidental M&S (used only) B Repairs costs De minimis ceiling Capitalize APage 13 Complying with the tangible property regulations: Mission impossible?
  14. 14. Example — de minimis rule► “A Corp.” historically deducts for tax all amounts it expenses for financial purposes. A Corp’s exam team has always agreed not to consider amounts under US$2,500 in its audit.► Does A Corp. need to make a change to use the de minimis rule under the tangibles regulations?Page 14 Complying with the tangible property regulations: Mission impossible?
  15. 15. Example — de minimis rule and materialsand supplies► A Corp. decides to make a method change to use the de minimis rule under the tangibles regulations. It has a book policy of expensing amounts under US$2,500 and simply deducts the cost of most materials and supplies.► How can A Corp. follow the new law but do the least amount of work?Page 15 Complying with the tangible property regulations: Mission impossible?
  16. 16. DispositionsT.R. § 1.168(i)-1T and T.R. § 1.168(i)-8T► Includes the sale, exchange, retirement, physical abandonment or destruction of an asset ► Now includes the retirement of structural components of a building► Must use a reasonable valuation method that is consistently applied► Basis issues with respect to allowed or allowable depreciationPage 16 Complying with the tangible property regulations: Mission impossible?
  17. 17. Dispositions/general asset accountsT.R. § 1.168(i)-1T and T.R. § 1.168(i)-7T General asset account New default (GAA)When a component is If elected to include in a GAA:disposed of: 1. Continue to depreciate asset as if still owned1. Stop depreciating the component 2. Recognize ordinary gain on amount realized2. Must recognize gain/loss or 3. Optionally recover basis:3. Use reasonable basis to ► For qualifying dispositions, determine tax basis of or disposed asset ► On disposing of last item in GAAPage 17 Complying with the tangible property regulations: Mission impossible?
  18. 18. Example — dispositions► “B Corp.,” a manufacturer, owns buildings and production equipment. B Corp. does not currently track dispositions of structural components of buildings or of most components of its production equipment. However, occasionally, B Corp. does recognize a loss on the disposal of some production equipment parts.► Should B Corp. make a general asset election? If so, what should it include? What are the pros and cons?Page 18 Complying with the tangible property regulations: Mission impossible?
  19. 19. ImprovementsStep 1 — determine unit of property► General rule ► Functional inter-dependence► Exceptions ► Buildings — single unit, but analyze … Building structure plus eight defined building systems ► Plant property Discrete and major function within the functionally inter-dependent machinery or equipment ► Network assets Facts and circumstances or published guidance ► Leased property and leasehold improvementsPage 19 Complying with the tangible property regulations: Mission impossible?
  20. 20. ImprovementsUnit of property for buildings — T.R. § 1.263(a)-3T Heating, ventilation Fire protection and air conditioning (HVAC) Structure: Security systems Plumbing ► Roof ► Walls ► Windows Elevator systems Electrical Escalator systems Gas distributionPage 20 Complying with the tangible property regulations: Mission impossible?
  21. 21. ImprovementsStep 2 — apply improvement rules Betterment? Restoration? New or► Correct pre-existing ► Replace component for which different use? material condition loss claimed ► New use inconsistent or defect ► Repair damage related to with intended use when► Results in material claimed casualty loss originally placed in addition service ► Replace component for which► Results in material basis adjusted in gain/loss increase in capacity, ► Repair unit of property (UOP) strength, quality to ordinarily efficient operating or output condition from state of disrepair ► Rebuild UOP to “like-new” condition at end of class life Potentially ► Replace major component or otherwise substantial structural part of deductible UOP Yes No Yes No Yes No Capitalize Capitalize CapitalizePage 21 Complying with the tangible property regulations: Mission impossible?
  22. 22. ImprovementsRoutine maintenance safe harbor — T.R. § 1.263(a)-3T► Must reasonably expect to perform the activity more than once during property’s class life► Must be able to keep asset in its ordinary and efficient operating condition ► Replace parts with comparable and commercially available and reasonable replacement parts► Does not apply if: ► Taxpayer takes a loss on removed components, takes a casualty loss or includes adjusted basis of removed component in gain, or loss on sale of component ► Put property into use from a state of disrepair► Does not apply to buildingsPage 22 Complying with the tangible property regulations: Mission impossible?
  23. 23. Example — improvements► “C Corp.” currently deducts all repair/maintenance activity costing less than US$5,000 on its manufacturing line. C Corp. would like to continue to follow this method for tax.► Can C Corp. continue to deduct repair/maintenance costs pursuant to its book policy?Page 23 Complying with the tangible property regulations: Mission impossible?
  24. 24. Tangible property regulationsHow to move forward
  25. 25. Priority implementation issues► Financial reporting► Consider possible method changes and timing considerations ► Optional application of temp/final rules in 2012, 2013 or 2014► Section 263A Uniform Capitalization (UNICAP) requirement► The risks of doing nothing until the 2014 tax yearPage 25 Complying with the tangible property regulations: Mission impossible?
  26. 26. Other considerations► Collateral federal tax effects ► Fixed assets/cost segregation ► Impact on Section 199 deduction ► Impact on earnings and profits from controlled foreign corporations► Impact on state and local tax ► Apportionment factors ► Personal property taxes► Impact on systems and processesPage 26 Complying with the tangible property regulations: Mission impossible?
  27. 27. Possible systems changes► General fixed asset system changes ► Systems modifications may be needed depending on the capitalization and depreciation rules created for the former regulations. ► Master data review of fixed assets could be beneficial to: ► Review bonus depreciation ► Incorporate topside adjustment schedules ► Eliminate side schedules ► Clean-up deferred tax reconciliation► Materials and supplies ► Additional accounts may be added to the general ledger to clearly separate material and supply expenditures from other expenditures. ► Analysis tools or queries may be developed to automate the process for filtering material and supply expenditures to determine whether or not book expenses must be capitalized for tax.Page 27 Complying with the tangible property regulations: Mission impossible?
  28. 28. Possible systems changes (cont.)► Acquisitions ► Upstream systems may be configured to flag differences in acquisition costs between book and tax.► Improvements ► Assets may be divided into business systems. ► Upstream systems may be configured to flag deductible repair expenditures. ► Special depreciation keys may need to be established to appropriately record repair expenditures.► Depreciation and dispositions ► Information fields may need to be established or populated to track general asset accounts. ► Special transaction codes may need to be established to allow for tax-only dispositions.Page 28 Complying with the tangible property regulations: Mission impossible?
  29. 29. Appendix — method changes and elections
  30. 30. Rev. Proc. 2012-19Materials and supplies Description of Appendix § § 481 vs method change change # cut-off Notes Deducting incidental § 3.13 Cut-off in 2012; Change to deduct incidental materials and supplies in the taxable materials and supplies #165 modified § 481 year in which they are paid or incurred when paid or incurred in future Notes A, B, C, D and E Deducting non-incidental § 3.14 Cut-off in 2012; Change to deduct non-incidental rotable and temporary spare rotable and temporary #166 modified § 481 parts in the taxable year in which the taxpayer disposes of spare parts when in future the parts disposed Notes A, B, C, D, and E Change to the optional § 3.15 § 481 Change to use the optional method of accounting for rotable and method for rotable spare #167 temporary spare parts parts Notes A, B, C, D and E Deducting non-incidental § 3.12 Cut-off in 2012; Change to deduct non-incidental materials and supplies in the materials and supplies #164 modified § 481 taxable year in which they are actually used or consumed when used or consumed in future Does not apply to rotable or temporary spare parts Notes A, B, C, D and E Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with §§ 1.162-3T, 1.162-4T, 1.263(a)-1T, 1.263(a)-2T and 1.263(a)-3T and, if applicable, should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 30 Complying with the tangible property regulations: Mission impossible?
  31. 31. Rev. Proc. 2012-19Sales costs Description of Appendix § § 481 vs method change change # cut-off Notes Deducting dealer § 3.16 § 481 Change for a dealer in property to treat costs paid or incurred to expenses that facilitate #168 facilitate the sale of tangible property as ordinary and necessary the sale of property business expenses Notes A, B and C Capitalizing non-dealer § 10.08 § 481 Change to capitalize costs to facilitate the sale of tangible expense to facilitate the #172 property for taxpayers that are not dealers in such property sale of property Notes A, B and C Note A: Should be combined on one Form 3115 with §§ 1.162-3T, 1.162-4T, 1.263(a)-1T, 1.263(a)-2T and 1.263(a)-3T and, if applicable, should be combined on one Form 3115 with concurrent change under § 263A Note B: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note C: Form 3115 filed with Ogden, UT in lieu of IRS National OfficePage 31 Complying with the tangible property regulations: Mission impossible?
  32. 32. Rev. Proc. 2012-19Acquisition costs and de minimis rule Description of Appendix § § 481 vs method change change # cut-off Notes Deducting de minimis § 3.17 Cut-off in 2012; Change to apply the de minimis rule for amounts paid or incurred amounts #169 modified § 481 to acquire or produce property in future Does not apply to inventory, land or § 195 expenditures Notes A, B, C and D Capitalizing acquisition or § 10.09 § 481 Change to capitalize amounts paid or incurred to acquire or production costs #173 produce property, including costs described in § 1.263(a)-2T(e) and (f) and ,if applicable, depreciate such property Must complete Schedule E of Form 3115 Notes A, B, C, D and E Deducting certain costs § 3.18 Cut-off in 2012; Change to deduct certain amounts paid or incurred in the process for investigating or #170 modified of investigating or otherwise pursuing the acquisition of real pursuing the acquisition of § 481 in future property or a change solely for employee compensation and real property overhead related to such investigatory costs Does not apply to § 195 expenditures Notes A,B, C and D Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with §§ 1.162-3T, 1.162-4T, 1.263(a)-1T, 1.263(a)-2T and 1.263(a)-3T and, if applicable, should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 32 Complying with the tangible property regulations: Mission impossible?
  33. 33. Rev. Proc. 2012-19Improvements Description of Appendix § § 481 vs method change change # cut-off Notes Deducting repairs and § 3.10 § 481 Change from capitalizing to deducting repairs and maintenance maintenance costs #162 costs; also includes change in units of property Does not include property subject to a repair allowance election for year in the election was made Notes A, B, C, D and E Change to the regulatory § 3.11 § 481 Change for certain regulated taxpayers to follow regulatory accounting method #163 method for determining whether amounts improve property Does not include property subject to a repair allowance election for year the election was made Addresses use of statistical sampling for § 481 adjustment only Notes A, B, C and D Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with §§ 1.162-3T, 1.162-4T, 1.263(a)-1T, 1.263(a)-2T and 1.263(a)-3T and, if applicable, should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 33 Complying with the tangible property regulations: Mission impossible?
  34. 34. Rev. Proc. 2012-19Improvements Description of Appendix § § 481 vs Notes method change change # cut-off Change to the safe harbor § 3.19 Modified Change to apply the routine maintenance safe harbor method, for routine maintenance #171 § 481 which does not apply to buildings on property other Notes A, B, C, D and E than buildings Capitalizing improvements § 10.10 § 481 by Class Change to capitalize amounts paid or incurred for improvements to tangible property #174 life to units of property, and, if applicable, depreciate such improvements Does not include property subject to a repair allowance election for year the election was made Must complete Schedule E of Form 3115 Notes A, B, C, D and E Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with §§ 1.162-3T, 1.162-4T, 1.263(a)-1T, 1.263(a)-2T and 1.263(a)-3T and, if applicable, should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 34 Complying with the tangible property regulations: Mission impossible?
  35. 35. Rev. Proc. 2012-20Depreciation Description of Appendix § § 481 vs method change change # cut-off Notes Depreciation of leasehold § 6.27 § 481 — option Changes comply with § 1.167(a)-4T for leasehold improvements improvements #175 for one net in which the taxpayer has a depreciable interest at the beginning adjustment or of the year of change may have two Section 4.02(5) of RP 2011-14 does not apply adjustments by Special rules for public utility property separating Note A, B, C and D negative and positive Permissible to permissible 6.28 Some changes Change from permissible to permissible depreciation methods method of accounting for #176 are modified under § 168 for certain assets owned by the taxpayer at the depreciation of MACRS cut-off; some beginning of the year of change property cut-off; some Must be combined on one Form 3115 with #177 § 481 Must complete Schedule E of Form 3115 Statistical sampling for § 481 adjustment Section 4.02(5) of RP 2011-14 does not apply Notes A, C and D Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 35 Complying with the tangible property regulations: Mission impossible?
  36. 36. Rev. Proc. 2012-20Dispositions Description of Appendix § § 481 vs method change change # cut-off Notes Disposition of a building or § 6.29 § 481 — option Change to the appropriate asset for dispositions of buildings and structural component #177 for one net structural components adjustment or Must be combined on one Form with certain 176 may have two Must complete Schedule E of Form 3115 adjustments by Statistical sampling for § 481 adjustment separating No ruling on asset negative and Section 4.02(5) of RP 2011-14 does not apply positive Notes A, B, C and D Dispositions of tangible § 6.30 § 481—option Change to the appropriate asset for disposition of § 1245 property depreciable assets (other #178 for one net or a depreciable land improvement than a building or its adjustment or No ruling on asset structural components) may have two Notes A, B, C and D adjustments by separating negative and positive Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A change Note B: Should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnsPage 36 Complying with the tangible property regulations: Mission impossible?
  37. 37. Rev. Proc. 2012-20Dispositions and general asset accounts Description of Appendix § § 481 vs method change change # cut-off Notes Dispositions of tangible § 6.31 § 481 Change to the appropriate asset disposed of or the method of depreciable assets in a #179 identifying which assets have been disposed of for assets for general asset account which the taxpayer made a valid general asset account election; special rules for making the change including description of the assets Notes A, B, C and D General asset account § 6.32 § 481 with Change to make a late general asset account election, a late elections #180 modified cut-off election to recognize gain or loss upon the disposition of all the in certain assets or the last asset in a general asset account, or a late situations election to recognize gain or loss upon the disposition of an asset for which the taxpayer made a valid general asset account election. This change only applies for the taxpayer’s first or second taxable year beginning after December 31, 2011; after that, the making of a late election will not be considered a change in method of accounting Notes C, D Note A: Must be in compliance with § 263A for the costs subject to the method change or file concurrent § 263A 3115 Note B: Should be combined on one Form 3115 with concurrent change under § 263A Note C: Scope limitations in Section 4.02 of Rev. Proc. 2011-14 are waived for the first and second taxable year beginning after December 31, 2011 Note D: Form 3115 filed with Ogden, UT in lieu of IRS National Office Note E: Addresses use of statistical sampling using Rev. Proc. 2011-42 to determine § 481 adjustment and to support items on income tax returnPage 37 Complying with the tangible property regulations: Mission impossible?
  38. 38. Tangibles regulations elections to be madeon the 2012 tax return Asset by asset Revocation, if Election or overall? How election made allowedCapitalize and depreciate materials Asset by asset No statement required; treatment on Private letter rulingand supplies timely filed original return constitutes showing good cause electionDeduct materials and supplies Asset by asset No statement required; treatment on Private letter rulingunder de minimis rule in Treas. Reg. timely filed original return constitutes showing good cause§1.263(a)-2T(g) electionCapitalize and depreciate, rather Asset by asset No statement required; treatment on Private letter rulingthan deduct under de minimis rule in timely filed original return constitutes showing good causeTreas. Reg. §1.263(a)-2T(g) electionCapitalize employee compensation Asset by asset No statement required; treatment on Private letter rulingand overhead as amounts that timely filed original return constitutes showing good causefacilitate an acquisition transaction electionGeneral asset account Asset by asset Form 4562 on timely filed original return IrrevocableOptional termination of a general Overall No statement required; treatment on Private letter rulingasset account timely filed original return constitutes showing good cause electionOptional determination of the Asset by asset No statement required; treatment on Private letter rulingamount of gain, loss or other timely filed original return constitutes showing good causededuction for disposition from electiongeneral asset accountPage 38 Complying with the tangible property regulations: Mission impossible?

×