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September 20, 2021
2021-1699

IRS and Treasury issue 20212022 Priority Guidance Plan, addressing various accounting method issues

The IRS and Treasury have issued the 2021—2022 Priority Guidance Plan, addressing various accounting method issues. The plan includes 193 guidance projects, which the Treasury and IRS are seeking to complete by June 30, 2022.

The following plan projects address certain important accounting method, transaction cost, and certain similar issues:

Code Section

Type of Guidance

Abstract

Notes

163(j)

Final regulations

Regarding the application of IRC Section 163(j) to partnerships, S corporations, and their owners

Proposed regulations were published September 14, 2020. Although not noted in the business plan, additional final regulations were issued in January 2021.

166

Unspecified

Guidance on the conclusive presumption of worthlessness for bad debts

Carryover project from prior year; Notice 2013-25, which requested comments on the existing rules, was published on June 10, 2013.

174

Unspecified

Guidance addressing amortization of research and experimental expenditures

New

199A

Regulations

Regarding the determination of unadjusted basis immediately after acquisition of qualified property, the definition of qualified business income and other issues

New

263(a)

Revenue Procedure

Addressing the capitalization of natural gas transmission and distribution property

Carryover project from prior year

263A, 448, 460 and 471

Revenue Procedure

Guidance on complying with the regulations under IRC Sections 263A, 448, 460, and 471 affecting small businesses, including procedures for making automatic changes in methods of accounting

New

280F

Unspecified

Guidance clarifying the business use of an aircraft by parties related to a lessee

New

355

Unspecified

Addressing the treatment of capitalized costs for IRC Section 355 distributions and certain other costs under Treas. Reg. Section 1.263(a)-5(a)

New

446, 1275 and 6050H

Unspecified

Guidance to address the treatment and reporting of capitalized interest on modified home mortgages

Carryover project

448 and 6033

Revenue Procedure

Addressing the gross receipts safe harbor under IRC Sections 448 and 6033 for the employee retention credit

Revenue Procedure 2021-33 published August 23, 2021

451

Guidance

Addressing compliance with the IRC Section 451 regulations, including procedures for making automatic changes in methods of accounting

Revenue Procedures 2021-34 and 2021-35 published August 30, 2021

453

Unspecified

Guidance on monetized installment sales

New

453B

Final Regulations

Addressing non-recognition of gain or loss on the disposition of certain installment sales

New

472

Regulations

Addressing dollar-value last-in, first-out inventories

Carryover project from prior year

472

Final regulations

Amending Treas. Reg. Section 1.472-8 concerning the inventory price index computation method

Carryover project from prior year

475

Unspecified

Addressing mark-to-market accounting

Carryover project from prior year; proposed regulations were published on January 4, 1995, and January 28, 1999.

861

Regulations

Addressing the character of income, including income arising in transactions involving intellectual property and the provision of digital goods and services

Proposed regulations were published August 14, 2019.

301.9100

Unspecified

Guidance regarding relief for late regulatory elections

Carryover project

Implications

Although not reflected in the guidance plan, automatic Revenue Procedure 2019-43 typically is updated by the IRS National Office on a recurring, periodic basis. There has been significant procedural guidance on method changes issued separately since the current general automatic-change procedure was last issued, notably on income recognition under IRC Section 451 and depreciation under IRC Section 168. While the IRS has issued procedural guidance needed for taxpayers to adopt/implement the final IRC Section 451 regulations, which are generally effective for tax years beginning on or after January 1, 2021, a forthcoming update to Revenue Procedure 2019-43 could address some further procedural details.

In the context of IRC Section 199A, regulations on unrelated basis in qualified property immediately after acquisition (UBIA) and qualified business acquisition and qualified business income (QBI) exist, and it is unclear what modifications the IRS might be contemplating in the business plan.

For IRC Section 174, definitional guidance is anticipated, as well as procedural guidance on a method change that may be needed to conform to the new capitalization regime.

The two LIFO inventory items under IRC Section 472 have been on the PGP for years, although the specific reference to guidance around nonrecognition transactions has been removed this year. Several inventory-related items that the AICPA suggested for the PGP this year are not on the plan, including (1) relief under IRC Section 473 for LIFO taxpayers, (2) regulatory and/or procedural guidance under IRC Section 263A(f) related to the capitalization of interest to designated property, (3) additional guidance on negative additional 263A costs and the related final regulations, (4) guidance on the tax treatment and characterization of software and e-content transactions, and (5) guidance under IRC Section 170(e)(3) on qualified contributions of inventory. These items, while important to taxpayers, appear to be lower in priority for the government at this time.

Concerning the IRC Section 355 project, the interest by the IRS in transaction costs in corporate separations (consistent with an LB&I campaign effort) is noteworthy because such transactions may not be as common as other types of capital transactions. With that said, the transaction costs incurred in corporate separations are often significant. Although an IRC Section 355 transaction is not a "covered transaction" (covered transactions are afforded more favorable tax rules, such as application of the "bright-line date" rule, election of the safe harbor under Revenue Procedure 2011-29, etc.), not all the associated costs are facilitative and required to be capitalized. To date, there has been very little guidance issued by the IRS in this area.

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Contact Information
For additional information concerning this Alert, please contact:
 
National Tax – Accounting Periods, Methods, and Credits
   • Scott Mackay (scott.mackay@ey.com)
   • Ken Beck (Kenneth.Beck@ey.com)
   • Kristine Mora (kristine.mora@ey.com)
   • Susan Grais (susan.grais@ey.com)
   • Allison Somphou (allison.somphou@ey.com)
   • Rayth Myers (rayth.myers@ey.com)
International Tax and Transaction Services
   • Amy Sargent (amy.sargent@ey.com)
   • Won Shin (won.shin@ey.com)