Rev. Proc. 2013-24 [PDF 150 KB] provides definitions of “units of property” and “major components”—definitions listed in Appendix A to today’s revenue procedure—that may be used by taxpayers to determine whether expenditures to maintain, replace, or improve steam or electric power generation property must be capitalized under section 263(a).
The revenue procedure also includes:
- Procedures for obtaining automatic consent to change to a method of accounting that uses all, or some of, the “units of property” definitions provided
- An extrapolation methodology—listed in Appendix B—that an eligible taxpayer may use in connection with a change in method of accounting for determining the amount of a section 481(a) adjustment
Rev. Proc. 2013-24 is effective for tax years ending on or after December 31, 2012.
Overview of Rev. Proc. 2013-24
Rev. Proc. 2013-24 applies to a taxpayer that has a depreciable interest in steam or electric power generation property primarily used in the trade or business of generating or selling steam (or steam in the form of heat) or electricity.
- It only applies for property defined in Appendix A of Rev. Proc. 2013-24.
- It does not apply to property used to produce electricity from alternative energy sources such as wind or photovoltaic.
- A determination of whether a taxpayer is within the scope of this revenue procedure is made by each member of a consolidated group, by a partnership, or by an S corporation.
The IRS issued Rev. Proc. 2013-24 to reduce the number of disputes regarding the deductibility or capitalization of expenditures to maintain, replace, or improve generation property. If a taxpayer uses the definitions of “unit of property” and “major component” provided by Rev. Proc. 2013-24, this treatment will not be challenged by the IRS.
Rev. Proc. 2013-24 describes and includes examples of “generation property” (as well as units of property and major components of generation property) and power stations.
Change in method of accounting
Rev. Proc. 2013-24 provides that a change by a taxpayer to use the “units of property” and “major components” definitions in today’s guidance is a change in method of accounting, and that a taxpayer seeking such a change must use the automatic change in method of accounting provisions in Rev. Proc. 2011-14 (or successor guidance).
With respect to the extrapolation methodology, Rev. Proc. 2013-24 explains that taxpayers may extrapolate their results to determine the section 481(a) adjustment amount for certain years by following the process provided in Appendix B.
Rev. Proc. 2013-24 also includes specific rules concerning changes in the method of accounting for taxpayers in the business of generating steam or electric power, by adding new section 3.20 to the appendix of Rev. Proc. 2011-14. The new automatic procedure provides, among other things, that the scope limitations in section 4.02 are waived for a taxpayer that changes to the method of accounting provided in Rev. Proc. 2013-24 for its first, second, or third tax year ending after December 30, 2012, and that a taxpayer must take the entire net section 481(a) adjustment into account (whether positive or negative) in computing taxable income in the year of change.