taxnews.ey.comPrint

19 November 2018

IRS issues final regulations on allocating costs under simplified Section 263A methods, including 'negative Section 263A costs'

Today, the IRS published final "negative 263A regulations" (TD 9843) on allocating costs under Section 263A's simplified methods of accounting (uniform capitalization rules). The final regulations, which are substantially similar to the 2012 proposed regulations, generally provide the following:

  • A new modified simplified production method (MSPM) for allocating additional Section 263A costs to ending inventory
  • A new definition of Section 471 costs
  • New de minimis rules and safe harbors
  • A new automatic change to revoke a historic absorption ratio election for the first, second or third tax year ending after the effective date

In addition to the final regulations, the IRS issued Revenue Procedure 2018-56 (2018-50 IRB), which modifies Revenue Procedure 2018-31 and provides procedures under which a taxpayer may obtain automatic consent to make certain method changes to conform to these final regulations.

A Tax Alert on the regulations and revenue procedure is forthcoming.

Document ID: 2018-9026

 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2025, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement