Rev. Proc. 2005-9 extends automatic accounting-method changes relating to intangibles capitalization.

• Author: Fitzpatrick, Cathy

In December 2004, the IRS released Rev. Proc. 2005-9, to provide exclusive administrative procedures to obtain automatic consent to change an accounting method for a taxpayer's second year ending after Dec. 30, 2003, under Sec. 263(a) final regulations on the capitalization of amounts paid to acquire or create intangible assets.

Background

Sec. 263(a) regulations: In December 2003, the IRS and Treasury issued Sec. 263(a) final regulations for determining whether expenditures incurred to acquire or create intangible assets have to be capitalized, effective for amounts paid or incurred after Dec. 30, 2003 (TD 9107).

Under these rules, a taxpayer may automatically change its accounting method to comply with the regulations for its first tax year ending after Dec. 30, 2003, by following the procedures in Rev. Proc. 2002-9. The final regulations also waive the scope limitations of Rev. Proc. 2002-9 for such tax year. To implement the method change, taxpayers must calculate a Sec. 481(a) adjustment taking into account only those costs incurred in tax years ending after Jan. 23, 2002.

Rev. Proc. 2004-23: In March 2004, the IRS released Rev. Proc. 2004-23, which provided the exclusive administrative procedures to obtain automatic consent for a taxpayer's first tax year ending after Dec. 30, 2003, to change to an accounting method provided in Regs. Sec. 1.263(a)-4 or -5, or 1.167(a)-3(b). In Rev. Proc. 2004-23, the IRS noted its intent to issue future guidance for accounting-method changes made for subsequent tax years, including automatic consent procedures for some or all accounting methods provided in the final regulations.

For method changes pending when the regulations were finalized, Rev. Proc. 2004-23 specified that the Service would not grant a request to change to an accounting method provided in the final regulations for a change year earlier than the final regulations' effective date. For example, the procedure noted that the IRS had received numerous requests as to the application of the 12-month rule contained in Regs. Sec. 1.263(a)-4(f)(1), which is consistent with the holding in U.S. Freightways Corp., 270 F3d 1137 (7th Cir. 2001). As a result, affected taxpayers were notified in 2004, and given the opportunity to withdraw their requests and obtain a refund of the user fee. Any request not withdrawn was processed in accordance with the procedures under which it: was filed (e.g., Rev. Proc. 97-27), on the basis that the IRS National...