Today’s LB&I directive provides that an IRS examiner is to allow a taxpayer with certain asset expenditures to adopt the safe harbor method under Rev. Proc. 2011-43 for its first, second, or third tax year ending after December 30, 2010.
Rev. Proc. 2011-43 [PDF 75 KB] provides a safe harbor method for taxpayers to determine whether expenditures to maintain, replace or improve electric transmission and distribution property must be capitalized under section 263(a) or deducted under section 162.
The November 2011 LB&I directive—LB&I Control No. LB&I-4-1111-019—provided instructions for IRS examiners examining a taxpayer eligible to change to the transmission and distribution property safe harbor method of accounting described in Rev. Proc. 2011-43. For taxpayers eligible to adopt the unit of property definitions and safe harbor provisions provided in Rev. Proc. 2011-43, the November 2011 directive provided guidance to the field related to closing current examination activity relating to capital versus repair treatment for expenditures on utility electric transmission and distribution property. The guidance differed based on whether the tax year under examination ended before or after December 31, 2010.
Read more about the November 2011 directive: TaxNewsFlash-United States (November 28, 2011).
May 2013 LB&I directive
Rev. Proc. 2011-43 provided that the scope limitations (a taxpayer under examination, for example) for filing an automatic method change are waived for a taxpayer’s first or second year ending after December 30, 2010. Because some companies that own electric transmission and distribution property were not able to adopt the safe harbor method of accounting under Rev. Proc. 2011-43 within this time period, the IRS is extending the waiver of the scope limitations in Rev. Proc. 2012-39 to the third tax year ending after December 30, 2010.
Therefore, the May 2013 directive modifies the planning and examination guidance that was provided in the November 2011 directive so that IRS examiners are to follow the guidelines for a taxpayer’s first, second, or third tax year ending on or after December 31, 2010.