The IRS and Treasury on Nov. 20 issued a notice addressing the effective date for 2011 Temporary Regulations that apply to amounts paid to acquire, produce, or improve tangible property (commonly referred to as the "repair regulations"). Notice 2012-73 provides that the effective date of the Temporary Regulations will be amended to apply to taxable years beginning on or after Jan. 1, 2014.

Taxpayers will be permitted to apply the Temporary Regulations to taxable years beginning on or after Jan. 1, 2012. Further, final regulations are expected to be issued in 2013 to apply to taxable years beginning on or after Jan. 1, 2014.

Background

On Dec. 23, 2011, Treasury and the IRS issued Temporary Regulations (T.D. 9564) that provide guidance on amounts paid to improve tangible property (see Tax Flash 2011-14 for more information). The effective date of the Temporary Regulations made them applicable to taxable years beginning on or after Jan. 1, 2012.

Notice 2012-73 now provides that the IRS and Treasury will amend the Temporary Regulations to apply to taxable years beginning on or after Jan. 1, 2014, while permitting taxpayers to apply the Temporary Regulations for taxable years beginning on or after Jan. 1, 2012, and before the applicability date of the final regulations.

Final regulations

According to the Notice, the IRS and Treasury expect to publish final repair regulations in 2013 that will apply to taxable years beginning on or after Jan. 1, 2014, and to permit taxpayers to apply the provisions of the final regulations to taxable years beginning on or after Jan. 1, 2012.

The Notice also provides that certain sections of the Temporary Regulations may be revised in a manner that might affect, and in certain cases simplify, how taxpayers implement the rules in the final regulations.

The Notice specifically identifies the following rules that may be revised:

  • De minimis rule (Treas. Reg. Sec. 1.263(a)-2T(g))
  • Dispositions (Treas. Reg. Secs. 1.168(i)-1T and 1.168(i)-8T)
  • Safe harbor for routine maintenance (Treas. Reg. Sec. 1.263(a)-3T(g))

Taxpayers choosing to apply provisions of the Temporary Regulations to taxable years beginning on or after Jan. 1, 2012, and before the applicability date of the final regulations may continue to obtain automatic consent to change their methods of accounting under Revenue Procedures 2012-19 and 2012-20 (see Tax Flash 2012- 05 for more information on the revenue procedures). When the final regulations are published, the IRS and Treasury expect to issue guidance for obtaining automatic consent to change methods of accounting for taxpayers choosing to apply the provisions of the final regulations to taxable years beginning on or after Jan. 1, 2012.

Next steps

The effective date changes to the repair regulations will allow companies to either take advantage of the cash flow opportunities provided by certain provisions of the Temporary Regulations or wait to apply the provisions of the final regulations. Taxpayers should evaluate what makes the most sense given their facts and circumstances, including the potential financial accounting impact. Please contact Grant Thornton LLP for questions or to discuss how the effective date changes may impact a specific situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.