Effective date amended for temporary repair regulations.

• Author: Fitzpatrick, Ellen

On Dec. 14, 2012, the IRS issued technical amendments to address the effective date for the temporary regulations (T.D. 9564) that apply to amounts paid to acquire, produce, or improve tangible property. These broadly applicable regulations, commonly referred to as the repair regulations, were issued on Dec. 23, 2011, just days before they became effective for tax years beginning on or after Jan. 1, 2012 (see also Anderson, "Key Aspects of the New Tangible Property Regulations," 44 The Tax Adviser 24 (January 2013)).

Taxpayers and practitioners have struggled to digest the complexity of the temporary regulations, which in some areas differ significantly from their previously proposed form, and implement the new rules for the 2012 tax year. One area generating confusion was the effective date of the temporary regulations. As originally issued, the temporary regulations were effective for tax years beginning on or after Jan. 1, 2012.

Two additional pieces of guidance issued by the IRS and Treasury, however, gave some doubt as to when taxpayers would be required to apply the temporary regulations. On March 7, 2012, Rev. Procs. 2012-19 and 2012-20 were issued to provide taxpayers with transitional guidance and procedures for making accounting method changes to apply the temporary regulations. The revenue procedures waived the scope limitations for automatic method changes (i.e., waived the limitation on automatic changes for taxpayers that are under IRS examination, have had a change within the past five years, or are in their last year of a trade or business) for a taxpayer's first or second tax year beginning on or after Dec. 31, 2011. Some taxpayers and practitioners interpreted this scope limitation waiver to mean that taxpayers would have two tax years to apply the temporary regulations.

Shortly after the revenue procedures were issued, the IRS Large Business & International Division issued a directive to IRS field agents about taxpayers that had adopted a method of accounting to convert capitalized costs to repair expense (LB&I-4-0312-004). This directive was necessary because, at the time that the temporary regulations were issued, there was significant controversy between the examining agents and taxpayers about previously filed method changes to deduct repair and maintenance expenditures. The directive instructed agents to suspend current examinations of the issue for 2011 and prior years and not to examine the issue for a taxpayer's...