The Internal Revenue Service has published amended temporary Repair vs. Capitalization regulations to incorporate the changes announced in the recent Notice 2012-73.
The changes announced by the IRS on Friday include a two-year delay of the effective date of the regulations to Jan. 1, 2014.
While Notice 2012-73 indicated that taxpayers had the option to apply the temporary or final regulations for any tax year beginning after Jan. 1, 2012, it was unclear whether taxpayers could choose to apply only favorable portions of the regulations for those years (see IRS Delays Effective Date of Repair vs. Capitalization Regulations). These formal amendments clarify this question and make clear that taxpayers can. As such, taxpayers and CPAs should not overlook the possible tax benefits of applying favorable portions of the regulations immediately.
With the delay of the effective date to Jan. 1, 2014, some taxpayers are hesitant to file the necessary Change of Accounting Method forms for 2012 because of concern the rules will change.
However, CPAs should advise taxpayers that even if the regulations do change and some deductions must be reversed in 2014, such deductions would be given back evenly over four years starting in 2014 (see Rev. Proc. 2011-14). In most cases this will not result in a significant difference in tax savings. However, depending on the situation, some taxpayers may benefit from applying the rules immediately.
Gian Pazzia, CCSP, is a principal with KBKG and its National Practice Leader for Cost Segregation and Repair v Capitalization issues. He currently serves on the board of directors for the American Society of Cost Segregation Professionals and is chair of their Technical Issues Committee.