On Dec. 6, 2019, the IRS released PLR 201949002, which creates an opportunity for taxpayers to increase their investment tax credit (ITC) under section 48 by filing a method change to allocate additional costs to the basis of self-constructed energy property.
The taxpayer from the above PLR placed in service self-constructed property that uses solar energy to generate electricity, and claimed ITC under section 48 for the property. The section 48 calculation generally allows an ITC for a percentage of the taxpayer’s basis in the qualified property, which in this case was 30%. The taxpayer later filed a Form 3115, Application for Change in Accounting Method, under the automatic method change procedures of Revenue Procedure 2017-30 (the predecessor of Rev. Proc. 2019-43) to properly allocate additional mixed services costs to the section 48 property pursuant to section 263A and the regulations thereunder. This resulted in a net positive section 481(a) adjustment related to additional costs not originally capitalized to the self-constructed solar energy property (after netting the accumulated depreciation). The IRS allowed the taxpayer to amend its return for the year of change to claim the additional ITC for the increase in the basis of its energy property.
Key takeaways
Although the PLR is not citable as precedent, it does highlight a great opportunity for taxpayers to increase their ITC if/when they also increase their basis in the applicable property through an accounting method change. Accounting method changes under section 263A may require an automatic method change under Rev. Proc. 2019-43 or a non-automatic method change under Rev. Proc. 2015-13. Given the complexities of both the section 48 credit and procedures for changing section 263A methods, a discussion with your tax adviser is warranted to take advantage of the opportunity described above.
