Current Issues

IRS Delays Application Of Repair Regs Until 2014; Gives Taxpayers More Time To Comply

Notice 2012-73

The IRS has delayed to tax years beginning after 2013 the application of temporary regs (TD 9564) on the capitalization of expenditures relating to tangible property. The IRS and Treasury expect to issue final "repair" regs in 2013, also with an effective date of 2014.

Take Away.

"Some auditing firms were saying that companies had to reflect the temporary regs in their 2012 financial statements, even though their tax effect was delayed until 2014," "This was counter to what the IRS had permitted. The government's goal in the Notice is to alleviate the need for companies to comply in their 2012 financial statements and to give everybody plenty of time. So the regs are now elective for 2012 and 2013. This puts everybody in the same position and takes the pressure off."

Comment

"The audit firms' position would mean that companies would have to assess the impact of the new rules for 2012 or file method changes under the temporary regs for 2012 when the government is considering making significant changes in the final regs." "The key point is that the effective date of the temporary regs is now postponed. It's welcome relief to those companies that thought they had to analyze the impact of the temporary regs for 2012."

Background

The IRS issued temporary regs at the end of 2011, effective for tax years beginning on or after January 1, 2012. The IRS also issued Rev. Proc. 2012-19 and Rev. Proc. 2012-20, giving taxpayers two years to file automatic consent method changes to comply with the temporary regs. Taxpayers that voluntarily changed their method of accounting under the automatic consent procedures also obtained IRS audit protection for years prior to the year of change, whether 2012 or 2013.

Comment

"The government verbally assured taxpayers that it was not going to audit taxpayers under the new regs until 2014, when everybody was required to comply." "So the IRS will likely not audit for 2012 or 2013."

Notice 2012-73

In Notice 2012-73, the IRS announced that it expects to issue final repair regs in 2013 and expects the final regs to apply to tax years beginning on or after January 1, 2014. The IRS also announced its intention to amend the temporary regs to delay their effective date until tax years beginning on or after January 1, 2014, while permitting taxpayers to apply the temporary regs to tax years beginning on or after January 1, 2012.

Comment

"Everybody was expecting a one-year deferral [of the temporary regs' effective date], what the government did makes a lot of sense. It lines up with the 2013 issuance of final regs." Taxpayers applying the temporary regs in 2012 or 2013 may continue to obtain automatic IRS consent to change their method of accounting under Rev. Procs. 2012-19 and 2012-20. The IRS expects to publish additional revenue procedures so that taxpayers can obtain automatic consent to apply the final regs before 2014.

Changes to temporary regs

In Notice 2012-73, the IRS also notified taxpayers that certain sections of the temporary regs may be revised and simplified in the final regs. These sections include:
• The de minimis rules;
• Dispositions under Code Sec. 168; and
• The safe harbor for routine maintenance.

Comment

"If companies change their accounting methods under the temporary regs, they may have to change their methods again in 2014 to comply with the final regs." "There was a lot of criticism of the de minimis rule, for example, so most companies will not want to implement the rule under temporary regs, but wait until the final version is released. Hopefully, the government will provide more details regarding the changes it expects to make, so that companies can decide whether to move forward under other aspects of the temporary regs."

Comment

"It's great that the government is looking to provide additional simplification and clarity in those areas."

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