The Service has extended (Notice 2017-6) the waiver of the eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13, 2015-5 IRB 419, for making certain automatic accounting method changes to comply with the final tangible property regulations under Sections 162(a) and 263(a) and for making certain automatic accounting method changes to depreciation and dispositions under Section 168 (see detailed list of changes affected by the Notice below). The Notice extends the eligibility rule waiver for one year to tax years beginning before January 1, 2017. Accordingly, taxpayers will have until the due date of their timely filed 2016 tax returns, including applicable extensions, to automatically file a Form 3115, Application for Change in Accounting Method, with the federal tax return to implement the above referenced method changes (even though they previously requested or made accounting method changes for the same item within the preceding five tax years).

Importantly, this Notice permits taxpayers that previously made accounting method changes for repair and maintenance costs in the past five tax years to refine their present methodologies and potentially obtain additional tax deductions on an automatic basis. Taxpayers that previously filed accounting method changes for repair and maintenance costs and took conservative positions (i.e., claimed a $0 or nominal Section 481(a) adjustment) may receive a permanent cash flow and earnings benefit from implementing method changes to accelerate deductions under current tax rates (e.g., 35%), as opposed to lower tax rates (e.g., 15% or 20%, as presently anticipated) that may apply under anticipated tax legislation.

Background

Section 5.01(1)(f) of Revenue Procedure 2015-13 prohibits a taxpayer from using the automatic change procedures if the taxpayer has made or requested an accounting method change for the same item during any of the five tax years ending with the year of change. To aid in the transition to the final tangible property regulations and final depreciation and disposition regulations, Revenue Procedure 2016-29 added an eligibility waiver to allow taxpayers to make one or more accounting method changes for any tax year beginning before January 1, 2016.

Notice 2017-6

Notice 2017-6 modifies Revenue Procedure 2016-29 to extend the eligibility rule waiver for one year to any tax year beginning before January 1, 2017, for the following sections:

— Section 6.14, relating to 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, relating to dispositions of a building or structural component under Reg. Section 1.168(i)-8;

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

— Section 6.17, relating to dispositions of tangible depreciable assets in a general asset account under Reg. Section 1.168(i)-1; and

— Section 11.08, relating to changes in methods of accounting for tangible property under the final tangible property regulations.

Section 11.08 of Revenue Procedure 2016-29 includes 10 method changes, notably including a change to deducting amounts paid or incurred for repair and maintenance under Reg. Section 1.162-4, including a change, if any, in identifying the unit of property.

Notice 2017-6 contains a transition rule for a taxpayer that filed Form 3115 under the non-automatic change procedures in Revenue Procedure 2015-13 before December 20, 2016, requesting consent for any of the listed accounting method changes, and still has the request pending as of that date. Under the transition rule, the taxpayer may choose to make the accounting method change under the automatic change procedures of Revenue Procedure 2015-13 by following the procedures in subsection .02(1) of the "Effective Date" section of Revenue Procedure 2016-29.

Implications

The Notice provides taxpayers the opportunity to obtain expeditious consent for changes that include, but are not limited to, a method change to currently deduct repair and maintenance costs that presently are capitalized and depreciated. Tax reform planning, including method changes to expense repair and maintenance costs, can deliver significant benefits if timely implemented. Taxpayers should consider filing method changes to accelerate expense recognition and defer income to generate a permanent cash flow and earnings benefit resulting from a reduction in corporate tax rates. As previously noted, the value of a deduction taken at a 35% tax rate is significantly greater than one taken at a 15% or 20% tax rate.

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