The IRS has updated (Revenue Procedure 2016-29) the list of automatic accounting method changes provided in Revenue Procedure 2015-14.

Significant changes to current automatic accounting method changes

Revenue Procedure 2016-29 modifies Section 6.01 regarding the impermissible to permissible methods of depreciation or amortization by not allowing a taxpayer to make a change under Section 6.01 of this Revenue Procedure for property for which the taxpayer has claimed a federal income tax credit. A taxpayer must make this accounting method change under the non-automatic change procedures in Revenue Procedure 2015-13.

Revenue Procedure 2016-29 also modifies Section 6.20 on the revocation of a partial disposition election under the remodel-refresh safe harbor by requiring a taxpayer to make the revocation for any tax year beginning after December 31, 2013, and ending before December 31, 2016. For tax years beginning after December 31, 2013, and ending before December 31, 2016, the eligibility rules in Section 5.01(d) and (f) of Revenue Procedure 2015-13 will not apply. In addition, Revenue Procedure 2016-29 provides that the eligibility rules in Section 5.01(1)(d) and (f) of Revenue Procedure 2015-13 will not apply to a change made under Section 11.10, relating to the remodel-refresh safe harbor, for any tax year beginning after December 31, 2013, and ending before December 31, 2016.

Additionally, Revenue Procedure 2016-29 modifies Section 11.08 on changes for tangible property by not allowing Section 11.08 to apply to amounts paid or incurred for repair and maintenance costs that the taxpayer is changing from capitalizing to deducting and for which the taxpayer has claimed a federal income tax credit or elected to apply Section 168(k)(4) of the Code. A taxpayer must make this change under the non-automatic change procedures in Revenue Procedure 2015-13.

New automatic accounting method changes

Revenue Procedure 2016-29 adds the following sections to the list of automatic accounting method changes:

— Section 10.01 on changes for start-up expenditures under Section 195

— Section 12.14 on changes for interest capitalization under Section 263A

— Section 21.17 on certain changes within the retail inventory method under Section 471

Waiver of eligibility rule

Revenue Procedure 2016-29 extends the waiver of the eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 for one year to any tax year beginning before January 1, 2016, for the following sections:

— Section 6.13 on depreciation of leasehold improvements under Reg. Section 1.167(a)-4

— Section 6.14 on a change from a permissible to another permissible accounting method for depreciation of MACRS property under Reg. Sections 1.168(i)-1, 1.168(i)-7 and 1.168(i)-8

— Section 6.15 on dispositions of a building or structural component under Reg. Section 1.168(i)-8

— Section 6.16 on dispositions of tangible depreciable assets (other than a building or its structural components) under Reg. Section 1.168(i)-8

— Section 6.17 on dispositions of tangible depreciable assets in a general asset account under Reg. Section 1.168(i)-1

— Section 11.08 on changes for tangible property under the final tangible property regulations

Other changes

Revenue Procedure 2016-29 makes the following changes:

— Removes all references to Prop. Reg. Section 1.168(i)-8 from Section 6.10 with regard to late partial disposition elections under Section 168 and Section 6.12 on partial dispositions of tangible depreciable assets

— Modifies Section 13.01 on changes to comply with the Section 267 requirements to provide that the eligibility rules of Section 5.01(1)(e) and (f) of Revenue Procedure 2015-13 do not apply to changes to comply with Section 267(a)(3)

— Removes Section 18.01 of Revenue Procedure 2015-14, relating to changes for long-term contracts to percentage-of-completion method under Reg. Section 1.460-4(b)

— Modifies Section 21.05 on the impermissible methods of identification and valuation of inventory to allow a taxpayer to make a change under Section 21.05 if the taxpayer is changing from an impermissible accounting method under Section 471

Revenue Procedure 2016-29 also removes the following sections because they are obsolete:

— Section 6.08, relating to depreciation of cable TV fiber optics under the safe harbor method of accounting provided in Revenue Procedure 2003-63, 2003-2 C.B. 304

— Section 6.27, relating to depreciation of leasehold improvements under Reg. Section 1.167(a)-4T

— Section 6.28, relating to a change from a permissible to another permissible method of accounting for depreciation of MACRS property under Reg. Sections 1.168(i)-1T, 1.168(i)-7T, and 1.168(i)-8T, and Prop. Reg. Sections 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8

— Section 6.29, relating to dispositions of a building or structural component under Reg. Section 1.168(i)-8T and Prop. Reg. Section 1.168(i)-8

— Section 6.30, relating to dispositions of tangible depreciable assets (other than a building or its structural components) under Reg. Section 1.168(i)-8T and Prop. Reg. Section 1.168(i)-8

— Section 6.31, relating to dispositions of tangible depreciable assets in a general asset account under Reg. Section 1.168(i)-1T and Prop. Reg. Section 1.168(i)-1

— Section 6.32, relating to general asset account elections under Reg. Section 1.168(i)-1, Reg. Section 1.168(i)-1T, and Prop. Reg. Section 1.168(i)-1

— Section 10.11(3)(b), relating to changes for tangible property under the temporary tangible property regulations

Implications

The release of Revenue Procedure 2016-29 is consistent with the intent of the IRS and Treasury to maintain a consolidated and updated list of automatic method changes, even as new method changes are added to the list with frequency. Streamlining the ability to update this list was part of the reason that the IRS and Treasury separated the list of automatic method changes out of former Revenue Procedure 2011-14 last year into its own stand-alone Revenue Procedure 2015-14.

Taxpayers should pay close attention to the changes made by Revenue Procedure 2016-29, since method changes listed therein are required to be made as automatic method changes, assuming they otherwise qualify under the rules in Revenue Procedure 2015-13. Method changes not listed in Revenue Procedure 2016-29 must be filed as non-automatic method change requests.

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