United States

Tangible Property Regulations and Manufacturers Perspectives


On Sept. 13, 2013, the Treasury Department and the IRS released final and proposed regulations governing the treatment of materials, supplies and costs to acquire, maintain, improve and dispose of tangible property. Although the majority of the regulations were issued in final form, regulations surrounding dispositions of tangible property were issued in proposed form but also as reliance guidance. 

The final regulations generally apply to taxable years beginning on or after Jan. 1, 2014. Taxpayers have the option, however, of applying all or portions of the regulations to their taxable years beginning on or after Jan. 1, 2012. 

On Jan. 24, 2014, the government released Rev. Proc. 2014-16, the first of two documents providing transition guidance to adopt the final regulations surrounding the treatment of materials, supplies and costs to acquire, repair and improve tangible property. While the final regulations will affect virtually all taxpayers who own or lease tangible property, several of the automatic method changes provided by Rev. Proc. 2014-16 will be especially applicable for taxpayer-manufacturers, including changes for incidental and nonincidental materials and supplies, rotable and temporary spare parts, and costs to acquire and maintain or improve both personal property and real property assets.

Although many portions of the final regulations are adopted through annual elections (e.g., the de minimis safe harbor or the election to capitalize and depreciate rotable and temporary spare parts), changes to adopt many portions of the final regulations constitute changes in method of accounting that may require one or more Forms 3115. 

Manufacturers should discuss both the final regulations and Rev. Proc. 2014-16 with their tax advisors to determine the elections and changes in accounting method that may be necessary to comply with and optimize the rules in the final regulations.  Read More.