September 20, 2021
IRS and Treasury issue 2021—2022 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:
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.