Update on Recent Changes in Tax Capitalization Rules

In our January newsletter addressing significant changes impacting whether expenditures should be deducted or capitalized, we noted there was some uncertainty in the recently-issued Temporary Regulations over how the new rules would be implemented and whether an Application for Change in Accounting Method form would be used to report or request the change.  This month, the IRS issued Revenue Procedures 2012-19 and 2012-20, providing more guidance.

As speculated a few weeks ago, it is now clear that adopting the new regulations will require taxpayers to file Form 3115, Application for Change in Accounting Method.  However, unlike some uses of Form 3115, IRS acceptance will be automatic and a user fee is not required.  The new capitalization rules are effective for tax years beginning on or after

January 1, 2012.  For the 2012 year, Form 3115 can be filed separately or can accompany the taxpayer’s tax return when filed.

The underlying rules remain extremely complex, with numerous variables and many exceptions that are taxpayer-specific.  We will be working with our clients and associates in the months to follow to help optimize their use of these rules based on their specific facts.

For more information regarding these rules, please do not hesitate to contact Andy Smith or your BNN professional at 1.800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.