The IRS has formally amended the temporary regs (TD 9564) issued on the deduction and capitalization of expenditures for tangible property (the "repair" regs), delaying their effective date from January 1, 2012 to January 1, 2014. The conforming amendments implement Notice 2012-73, in which the IRS announced its intention to delay the effective date of these sweeping new requirements.

Background

At the end of 2011, the IRS issued temporary repair regs that took effect immediately, applying to tax years that began on or after January 1, 2012. To ease the transition, the IRS gave taxpayers two years to change their method of accounting to comply with the temporary regs. However, some audit firms were advising companies to apply the regs to their 2012 financial statements, contrary to the IRS's intent. The IRS was also concerned that taxpayers who changed their accounting methods to comply with the temporary regs might have to change their methods again to comply with the final regs. By changing the effective date to January 1, 2014, the IRS has now ensured that taxpayers will not have to comply with the temporary regs before then, although they can elect to do so.

New amendments

The conforming amendments apply the temporary regs to tax years beginning on or after January 1, 2014, but permit taxpayers to apply the temporary regs to tax years beginning on or after January 1, 2012. Taxpayers can continue to obtain automatic IRS consent to change their method of accounting in 2012 or 2013.

The IRS indicated that the final regs will permit taxpayers to apply them to tax years beginning on or after January 1, 2012. For taxpayers choosing to apply the final regs before 2014, the IRS expects to publish procedures for obtaining automatic consent to change their method of accounting.

For more information on how these changes will affect you, please contact us.