The IRS recently issued a revenue procedure (Rev. Proc. 2014-54) that provides taxpayers with rules for filing accounting method changes related to certain provisions of the final regulations regarding dispositions, including partial dispositions, of tangible depreciable property (final disposition regulations). This revenue procedure updates Rev. Proc. 2014-17, which was issued earlier this year for the same purpose. (For more on the final disposition regulations, see Tax Flash 2014-10).
The recent revenue procedure also updates the comprehensive list of automatic method changes in Rev. Proc. 2011-14 by adding or modifying several method changes. In general, the changes in method of accounting relate to asset-grouping rules and disposition rules under the final disposition regulations.
Additionally, at the end of Rev. Proc. 2014-54, the IRS has added a chart summarizing the changes in method of accounting provided. Many of the changes remain similar to those provided in Rev. Proc. 2014-17, with the IRS updating references to the final regulations and updating certain scope waivers.
Importantly, the IRS has extended the ability to make a late partial disposition election (including a Section 481(a) catch-up adjustment) to be made for dispositions in prior taxable years, but only for one more year. Thus, this late election is available as a change in method of accounting for federal income tax returns for taxable years beginning before Jan. 1, 2015. This is one of the most significant opportunities under the final disposition regulations, as it allows a taxpayer to recover basis upon the partial disposition of property, for example, when a component of a building is disposed of during a renovation.
Most of the method changes generally are made using a Section 481(a) adjustment. Additionally, certain scope limitations are waived for method changes under the revenue procedure. This generally means taxpayers may file the automatic method changes even though the taxpayers are under IRS exam or have recently filed the same type of method change. The IRS has also broadened taxpayers' ability to file concurrent method changes for impermissible to permissible recovery periods for Modified Accelerated Cost Recovery System Depreciation under Appendix Section 6.01 of Rev. Proc. 2011-14 on the same Form 3115, "Application for Change in Accounting Method."
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