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IRS Issues Further Guidance on Tangible Property Regulations

On January 24th, the IRS issued revenue procedure 2014-16 (Rev. Proc.) providing clarification as to how taxpayers can take advantage of recently issued permanent and proposed regulations pertaining to capitalization and repair treatment for certain assets.  This Rev. Proc. is welcome news as there has been a great deal of conjecture about the mechanism by which taxpayers and their advisors could properly account for these important changes.

In a nutshell, the Rev. Proc. allows a change in accounting method  to deduct amounts paid or incurred for repairs and maintenance in accordance with § 1.162-4. It also allows changes regarding Unit of Property (UoP) designations under § 1.263(a)-3(e), including identifying the building structure or building systems under § 1.263(a)-3(e)(2) for purposes of making the change to deducting the amounts. It also allows a change in the other direction – capitalizing amounts paid or incurred for improvements, including any UoP changes.

Other highlights of the Rev. Proc. include:

  • Relaxed limitations on timing of changes
  • Clarified instructions regarding Form 3115
  • Instructions and clarification pertaining to required attachments
  • Reduced filing requirements (under § 1.263(a)-3(h)(3)) for small taxpayers
  • Concurrent changes relating to UoP, building and building systems are not permitted


Bedford Observation – The Rev. Proc. now provides the clarification needed to properly address changes under the new permanent Tangible Property Regulations.  It also underscores the importance of utilizing UoP designations on properties in your portfolio, as a properly prepared UoP reference document will enable you to make informed decisions regarding past and future activities.  For more information, please call your local Bedford Cost Segregation representative.