Happy Holidays from the IRS:

Notice 2017-6 Extends Eligibility Rule Waiver for Automatic Accounting Method Changes

The IRS gave taxpayers an early gift this season, releasing Notice 2017-6 on December 20, 2016. This Notice extends the waiver of what was initially a five-year eligibility limitation allowing taxpayers to file automatic accounting method changes in light of the evolving Tangible Property Regulations.  The waiver applies for any tax year that begins before January 1, 2017 and the one-year extension is providing welcome relief to taxpayers seeking to comply with the final repair regulations.

Way back in Section 5.01 (1)(f) of Rev. Proc. 2015-13, the IRS stated that “automatic change procedures may not be utilized if the taxpayer has made or requested a change for the same item during any of the five taxable years ending with the year of change.”  This means that if a taxpayer made an accounting method change for an item using automatic consent procedures, the five-year eligibility limitation would restrict them from doing so again.  The only option available for this unfortunate taxpayer would be a method change through non-automatic means, also known as an accounting method change requiring advance consent.  Now, non-automatic method changes are involved, expensive, and can take quite a bit of time, as fees must be paid, actual IRS consent is required and there is significant administrative burden.  It is not at all shocking to note that both taxpayers and IRS representatives prefer automatic accounting method changes whenever possible.

As we all certainly remember, the TPRs took quite a while to be finalized, with numerous additions and corrections released piecemeal over a period of several years.  This extended rollout period was complicated by the five-year eligibility rule generally applicable to automatic changes.  To ease the transition, the IRS provided a temporary waiver of the rule in Rev. Proc. 2016-29.    This waiver stated that the limitation on automatic method changes did not apply to method changes filed in tax years beginning before January 1, 2016, and as such, taxpayers could file accounting method changes necessary to comply with the final TPRs automatically (and happily, and quickly, and for free).

And that brings us up to date.  January 1, 2017 is just days away, and the IRS has kindly extended this wonderful waiver for one more year – see the full text of Notice 2017-6 for yourself at https://www.irs.gov/pub/irs-drop/n-17-06.pdf.  In short, taxpayers have one more year in which to file an automatic method change even if they’ve already made the same method change within the five-year window.   This extends opportunities for the performance of cost segregation studies throughout Tax Year 2016.  What if a taxpayer wishes to have a study performed by their entity, but the entity has already filed an automatic change in accounting method?  No problem!  The waiver extension in Notice 2017-6 allows a taxpayer to again make a method change automatically (including method #7 relating to cost segregation) even though they previously made the same method change within the 5-year window.  No fee, no hassle, no consent, no delays.  Just opportunity.  Give the Capstan team a call and let us help you make the most of this unexpected gift in the new year.