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Guidance on Tangible Property Accounting Method Changes


A pattern seems to be developing at the IRS of issuing significant guidance to taxpayers right before major holidays. Most recently, two new revenue procedures under the new tangible property regulations were issued on 7 March 2012. Much was going to be said about these new regulations. To confirm this, all you need to do is google "new tangible property regulations" and you'll find around 2,500 or so pieces discussing them. While there is no direct correlation between the volume of articles written and the actual changes to your tax accounting for tangible property expenditures under these new regulations, there is no doubt that businesses, particularly corporations with audited financial statements, need to address the new regulations sooner rather than later. Taxand US looks at the new guidelines and assesses how multinationals would be affected.

The new temporary regulations are applicable to tax years beginning on or after 1 January 2012, or to amounts paid or incurred in tax years beginning on or after 1 January 2012, as applicable. Thus, beginning in 2012, the popular view is that most taxpayers likely will have to change their method of accounting to conform to these temporary regulations.

Taxand US provides a more in depth consideration of this issue

Taxand's Take

After coming to grips with the extent of work involved in analysing the direction your company should be taking with these regulations, the term "March Madness" might take on a whole new meaning. What should your company be doing now? Here are a few suggestions:
  • Determine the affected departments and processes
  • Identify internal project team members
  • Schedule fact-gathering meetings with selected plant and/or business unit fixed-asset accountants
  • Identify current processes and systems for authorising, tracking and recording fixed-asset-related expenditures
  • Analyse potential tax and business issues affected by conformance to the temporary regulations
  • Start factual development
  • Perform initial technical research

Draft an initial work plan for implementation of new methods/elections, computation of 481(a) adjustments, tax return reporting (including Forms 3115 and elections), documentation for IRS exams and financial statement considerations.

Your Taxand contact for further queries is:
Paul Heldermen
T. +1 212 763 9760

Taxand's Take Author