Pratical advice on current issues: LMSB identifies new repairs issue.

• Author: Kay, Sharon A.
• Position: Large and mid-size business

In an IRS Large and Mid-Size Business (LMSB) Division memorandum (LMSB-4-0509-019), the IRS notified LMSB executives of an emerging issue relating to the recharacterization of costs associated with tangible assets previously capitalized under Sec. 263(a) as currently deductible repairs under Sec. 162.

The IRS noted that since mid-December 2008, it has seen a significant increase in filings of Form 3115, Application for Change in Accounting Method, requesting a change in accounting method for compliance assurance process cases, coordinated issue cases, and industry cases using the advance consent procedures under Rev. Proc. 97-27. The accounting method change requests involve substantial Sec. 481(a) adjustments, refer to Sees. 263(a) and 162, and specify "repairs" as the change requested.

While the issue varies based on the industry, the IRS indicates that each variation involves an expansive change in the designation of the unit of property. Although the memo states that unit of property issues may be categorized as network asset issues, store remodeling issues, or general issues involving real property, it does not provide detail regarding what the specific issue is regarding the unit of property. The IRS advises its examination teams to analyze the details for the substantive issue to...