The IRS issued long-awaited regulations regarding the treatment of expenditures incurred in selling, acquiring, producing, or improving tangible assets, including rules on determining whether costs related to tangible property are deductible repairs or capital improvements.
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Methods
Recurring-Item Exception Clarified
The IRS issued a revenue ruling to clarify the application of the all-events test’s recurring-item exception under Sec. 461(h)(3) to certain fact patterns. The ruling addresses questions that arise when a liability accrues over more than one year or under a service contract.
Deferral of Income from Sale of Gift Cards
This item summarizes the recently released Rev. Proc. 2011-18, which provides guidance on the deferral of income from the sale of gift cards.
Request for Accounting Method Change for Prepaid Expenses Denied
The Tax Court held that the IRS’s denial of a request for a change in accounting method that the taxpayer made outside the effective dates of the relevant regulations and revenue procedure was not an abuse of discretion.
Could Forgetting to Include the Effect of UNICAP Put Accounting Method Changes at Risk?
Taxpayers making automatic accounting method changes that affect capitalizable costs should consider the uniform capitalization rules of Sec. 263A and the related regulations (UNICAP rules).
Tax Court Rejects Taxpayer’s Argument That Denial of Accounting Method Change Was Arbitrary
The Tax Court held that the IRS’ rejection of a taxpayer’s accounting method change request was not the result of an “automatic rejection policy” and that the IRS acted within its proper discretion in denying the request.
Changes in Book Recognition of Advance Payments May Require Changes in Tax Accounting Method
Rev. Proc. 2011-14 recently introduced a new automatic consent method change for taxpayers wishing to use the new book method of recognizing advance payments in revenues for purposes of determining the extent to which advance payments are included in gross income.
Updated Procedures for Changing Accounting Methods and New Automatic Method Changes
The IRS released Rev. Proc. 2011-14, which provides the exclusive procedures for taxpayers to obtain automatic consent for a change in method of accounting.
Automatic Method Change Procedures Have Increased in Complexity and Level of Required Detail
Rev. Proc. 2011-14, governing automatic change of accounting method procedures was issued by the IRS on January 10, 2011, and is effective for applications filed on or after January 10, 2011, for a year of change ending on or after April 30, 2010. It contains over 137 automatic changes.
IRS Provides Safe-Harbor Methods for Auto Dealers Using UNICAP
Rev. Proc. 2010-44 resolves some of the issues raised by TAM 200736026 involving UNICAP issues affecting automobile dealerships; specifically, whether the installation of parts on customer-owned vehicles, and on taxpayer-owned vehicles, constitutes “production” for purposes of the UNICAP regulations.
Automatic Procedures for Changing Accounting Methods Updated, Expanded
The IRS released updated procedures under which taxpayers can receive automatic consent to change their accounting methods.
Changing Corporations’ Accounting Methods
A corporation that has adopted an accounting method cannot change that method simply by amending prior-year income tax returns; IRS permission is required to change methods.
Recharacterization of Income from Nonpassive to Passive Is Not a Change in Accounting Method
This item examines the IRS National Office’s ruling that the recharacterization of income from nonpassive to passive for purposes of the passive activity loss and credit limit rules of Sec. 469 is not a change of accounting method for purposes of Secs. 446(e) and 481(a).
Repairs and Maintenance Costs Method Change Designated Tier I Issue
The IRS Large and Mid-Size Business (LMSB) Division has issued two industry director directives (IDDs) relating to situations in which a taxpayer changes its method of accounting to recharacterize costs previously capitalized under Sec. 263(a) as deductible repairs and maintenance expenses under Sec. 162.
New Automatic Method Change for Nonincidental Materials and Supplies
With the release of Rev. Proc. 2009-39, taxpayers may now obtain automatic IRS consent to change their method of accounting for nonincidental materials and supplies to comply with the rules in Regs. Sec. 1.162-3.
New Accounting Methods Subject to Automatic Change Procedures
The IRS has issued new guidance on automatic accounting method changes.
Automatic Accounting Method Change Procedures Modified
The IRS has modified the procedures for obtaining automatic consent to change an accounting method.
Maneuvering Through the Proposed Rules for Post-Transaction Accounting Methods
Proposed regulations address the process for determining and changing methods of accounting following certain corporate reorganizations and liquidations.
Method Changes Within the Nonaccrual Experience Method
A nonaccrual experience method of accounting, as described in Sec. 448(d) (5), allows certain service providers to except from accrual the portion of revenue they have determined will not be collected, based on their own experience and through the use of formulas allowed under this section and the regulations.
Adopting or Changing a Foreign Corporation’s Accounting Method
Many companies are experiencing decreased cashflow during the present economic downturn and as a result are evaluating options to raise cash to fund ongoing business operations. One option that U.S. multinational corporations may consider is repatriation of earnings from related foreign corporations.
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