Change Is Coming: Accounting Method Changes Under the Tangible Property Regulations

The new tangible property regulations form a framework of rules for the capitalization of tangible property that affects the treatment of fixed asset additions and disposals, the expensing of materials and supplies, and the timing of deductions for repairs and maintenance expenses. The regulations are complex and far-reaching, and they require almost all businesses to make accounting method changes and review past decisions regarding whether to capitalize or expense tangible assets. Some of the accounting method changes can be applied retroactively and require adjustments to income under Section. 481(a). Several accounting method changes should be considered -- all are automatic for 2014. While taxpayers in the past have been able to make an accounting method change for incorrect depreciation, the new regulations make a significant change. The new regulations establish a functional interdependence standard for defining a unit of property under which all the components that are functionally interdependent constitute a single unit of property.