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IRS Extends Five Year Eligibility Limitation

Internal Revenue Service|Real Estate|Tax

By Gary Sliman

The Internal Revenue Service (“IRS”) issued Notice 2017-6 on December 20, 2016, which extends for one year the five year eligibility limitation period for making automatic accounting method changes to comply with the tangible property regulations.  The five year eligibility limitation, as stated in Revenue Procedure 2015-13, Section 5.01(1)(f), prohibits a taxpayer from filing an automatic accounting method change if the taxpayer made, or requested, a method change for the same item during any of the five years ending with the year of change.  If a taxpayer is prohibited for making an automatic change, the taxpayer must request consent from the IRS to make the method change and  pay a user fee.

IRS Notice 2017-6 

The IRS previously issued Revenue Procedure 2016-29, which temporarily waived the eligibility limitation for changes filed in tax years beginning before January 1, 2016.  The recent Notice applies to tax years beginning before January 1, 2017.  In addition to changes relating to the tangible property regulations, Notice 2017-6 also applies to:

  • Changing from a permissible method to another permissible method of accounting for depreciation property under MACRS;
  • Change in method of accounting for dispositions of a building or structural components;
  • Change in method of accounting for dispositions of tangible depreciable assets other than a building or structural components; and
  • Change in method of accounting for dispositions of tangible depreciable assets in a general asset account.

Taxpayers seeking to make any of these specific accounting method changes should take advantage of this temporary waiver to avoid following the non-automatic procedures that require IRS consent and paying a user fee.  Automatic accounting method changes can be filed on, or before, the extended due date of the tax return with the preparation of Form 3115.

Contact us with questions regarding IRS Notice 2017-6 and visit our tax blog to read more articles on related topics

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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