IRS PROVIDES AUTOMATIC CONSENT TO ELECT TO ACCRUE REAL PROPERTY TAXES.

Rev. Proc. 92-28

SECTION 1. PURPOSE

The purpose of this revenue procedure is to provide a procedure whereby taxpayers may obtain the Commissioner's consent to make or revoke an election under section 461(c) of the Internal Revenue Code to ratably accrue real property taxes. An accrual method taxpayer that complies with this revenue procedure wi 11 be deemed to have obtained the Commissioner's consent to make or revoke the election without regard to time requirements otherwise applicable to requests to make or revoke an election under section 461(c).

SEC. 2. BACKGROUND

Section 461(c) of the Code provides that, for any real property tax that is related to a definite period of time, an accrual basis taxpayer may elect to accrue the tax ratably over that period. Section 1.461-1(c)(3)(i) of the Income Tax Regulations allows a taxpayer to make an election under section 461(c) without the consent of the Commissioner, but only for the first taxable year in which the taxpayer incurs real property taxes. For an election under section 461(c) in a subsequent year, the taxpayer must obtain the consent of the Commissioner.

Pursuant to section 1.461-1(c)(3)(ii) of the regulations, a taxpayer that must obtain the consent of the Commissioner to make the election under section 461(c) of the Code must submit a written request for permission to make the election within 90 days after the beginning of the taxable year to which the election is first applicable. Rev. Proc. 83-77, 1983-2 C.B. 594, provides a procedure whereby a taxpayer may automatically obtain a 90-day extension of the time in which to file the request, which results in a total election period of 180 days.

To revoke an election under section 461(c) of the Code, a taxpayer must also obtain the Commissioner's consent. Pursuant to sections 1.461-1(c)(4) and 1.446-1(e)(3) of the regulations, a taxpayer can request this consent by filing a Form 3115 with the Internal Revenue Service within 180 days after the beginning of the taxable year for which the revocation is to be effective.

Section 461(h) of the Code provides that in determining whether an amount has been incurred with respect to any item, the all events test is not treated as met any earlier than when economic performance with respect to the item occurs. In the case of taxes, section 1.461- 4(g)(6)(i) of the regulations provides that economic performance generally occurs as the tax is paid to the governmental authority that imposed the tax (the "payment rule"). The payment rule for taxes is effective for taxable years beginning after December 31, 1991.

Section 1.461-4(g)(6)(iii) of the regulations provides an exception to the payment rule in the case of real property taxes. Under the exception, a taxpayer's accrual for real property taxes is determined under section 461(c) of the Code if the taxpayer has made a valid election under that section.

Section 481(a) of the Code requires that those adjustments necessary to prevent amounts from being duplicated or omitted be taken into account when the taxpayer's taxable income is computed under a method of accounting different from the method used to compute taxable income for the preceding taxable year. Section 481(c) and section 1.481-5 of the regulations provide that the adjustment required by section 481(a) may be taken into account in determining taxable income in the manner and subject to the conditions agreed to by the Commissioner and the taxpayer.

Section 1.461-7T of the regulations provides guidance concerning the effective dates for section 461(h) of the Code and special transition rules for effecting a change in method of accounting required by section 461(h).

SEC. 3. SCOPE

01. Except as provided in sections 3.02 and 3.03 below, this revenue procedure applies to requests to make or revoke an election under section 461(c) of the Code for any one of the following three taxable years (the "year of change"):

(1) The first taxable year beginning after December 31, 1989;

(2) The first taxable year beginning after December 31, 1990; or

(3) The first taxable year beginning after December 31, 1991.

Thus, taxpayers have the option of changing their method of accounting for real property taxes for the first taxable year beginning after December 31, 1989, December 31, 1990, or December 31, 1991. In addition, this revenue procedure applies only to taxpayers that incurred real property taxes in a taxable year preceding the year of change. See section 1.461-1(c)(3)(i) of the regulations.

02 This revenue procedure does not apply if as of April 9, 1992, (1) the taxpayer's method of accounting for real property taxes was a "pending issue," and (2) the taxpayer has been contacted in any manner by the Service for purposes of scheduling an examination (and such examination has not yet been completed), is under consideration by an appeals office of the Service, or is before any federal court with respect to an income tax issue. A taxpayer's method of accounting for real property taxes is considered to be a pending issue as of April 9, 1992, only if on or before that date the Service had sent the taxpayer written notification indicating that an adjustment was being proposed to the taxpayer's method of accounting for real property taxes (e.g., by Form 5701, Notice of Proposed Adjustment).

03 This revenue procedure does not apply to any taxpayer that is the subject of a criminal investigation or proceeding concerning (1) directly or indirectly the taxpayer's federal tax liability for any year, or (2) the possibility of false or fraudulent statements made by the taxpayer with respect to any issue relating to its federal tax liability for any year.

04 Taxpayers to whom this revenue procedure does not apply and who desire to change their method of accounting for real property taxes should file an application (Form 3115) with the Commissioner in accordance with the requirements of section 1.446-1(e)(3) of the regulations and Rev. Proc. 92-20, 1992-12 I.R.B. 10 (Mar. 23, 1992).

SEC. 4. PROCEDURE FOR CHANGING TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES.

01 CONSENT. A taxpayer that complies with this revenue procedure is granted the consent of the Commissioner to change to the ratable accrual method of accounting for real property taxes in accordance with the election under section 461(c) of the Code for the year of change, without regard to the 180-day limitation of section 1.461- 1(c)(3)(ii) of the regulations and Rev. Proc. 83-77. See section 3.01 for purposes of determining the year of change.

02 PROCEDURE. A taxpayer may elect the ratable accrual method of accounting for real property taxes in accordance with the provisions of section 461(c) of the Code by attaching a statement to its timely filed original return for the year of change (including extensions) or an amended return for that year that is filed on or before October 6, 1992. The statement should be identified at the top as a "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 92-28". If the election results in a section 481(a) adjustment, the statement should be identified at the top as "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 92-28 WITH SECTION 481(a) ADJUSTMENT". The statement should set forth:

(1) The trades or businesses, or nonbusiness activities to which the election is to apply, and the overall method of accounting used therein;

(2) The period to which the real property taxes relate;

(3) The computation of the deduction for real property taxes for the first year of the election (or a summary of the computation);

(4) Whether the taxpayer elects the "cut-off method" described in Q&A-1 and Q&A-11 of section 1.461-7T or the "full year change in method" described in Q&A-3 and Q&A-4 of section 1.461-7T;

(5) If the taxpayer elects the full year change in method, the amount of the section 481(a) adjustment and the period over which the section 481(a) adjustment will be taken into account (see Q&A-8 and Q&A-9 of section 1.461-7T); and

(6) A description of the method used to deduct real property taxes during the taxable year that precedes the election.

03 SECTION 481(a) ADJUSTMENT. A taxpayer changing its method of accounting for real property taxes under this section 4, may elect to use either (1) the "cut-off method" described in Q&A-1 and Q&A-11 of section 1.461-7T (except that the effective date is the first day of the year of change), or (2) the "full year change in method" described in Q&A-3 and Q&A-4 of section 1.461-7T (except that the change in method occurs on the first day of the year of change). No section 481(a) adjustment results from the change in method of accounting if the taxpayer uses the cut-off method (see Q&A-1 and Q&A-11 of section 1.461-7T). A section 481(a) adjustment may result from the change in method of accounting if the taxpayer uses the full year change in method. I a taxpayer elects the full year change in method of accounting, any resulting section 481(a) adjustment is computed and taken into account under the rules provided in Q&A-8 and Q&A-9 of section 1.461-7T. (Generally, these regulations provide that the taxpayer shall take into account one-third of the adjustment in the taxable year of change and one-third of the adjustment in each of the two immediately succeeding years.)

SEC. 5. REVOKING AN ELECTION TO RATABLY ACCRUE REAL PROPERTY TAXES.

01 CONSENT. A taxpayer that complies with this revenue procedure is granted the consent of the Commissioner to revoke an election under section 461(c) of the Code for the year of change without regard to the 180-day limitation of section 1.461-1(c)(4) and 1.446- 1(e)(3). See section 3.01 for purposes of determining the year of change.

02 PROCEDURE. A taxpayer may revoke its election to ratably accrue real property taxes in accordance with the provisions of section 461(c) of the Code by attaching a statement to its timely filed return for the year of change (including extensions) or an amended return for that year that is filed on or before October 6, 1992. The statement should be identified at the top as a "REQUEST TO REVOKE THE ELECTION TO RATABLY ACCRUE REAL PROPERTY TAXES UNDER REV. PROC. 92-28". If the revocation results in a section 481(a) adjustment, the statement should be identified at the top as "REQUEST TO REVOKE THE ELECTION TO RATABLY ACCRUE REAL PROPERTY TAXES UNDER REV. PROC. 92-28 WITH SECTION 481(a) ADJUSTMENT". The statement should set forth:

(1) The trades or businesses, or nonbusiness activities to which the election is to apply, and the overall method of accounting used therein;

(2) The period to which the real property taxes relate;

(3) Whether the taxpayer elects the "cut-off method" described in Q&A-1 and Q&A-11 of section 1.461-7T or the "full year change in method" described in Q&A-3 and Q&A-4 of section 1.461-7T; and

(4) If the taxpayer elects the full year change in method, the amount of the section 481(a) adjustment and the period over which the section 481(a) adjustment will be taken into account (see Q&A-8 and Q&A-9 of section 1.461-7T).

03 SECTION 481(a) ADJUSTMENT. A taxpayer revoking its election under section 461(c) under this section 5 may elect to use either (1) the "cut-off method" described in Q&A-1 and Q&A-11 of section 1.461- 7T (except that the effective date is the first day of the year of change), or (2) the "full year change in method" described in Q&A-3 and Q&A-4 of section 1.461-7T (except that the change in method occurs on the first day of the year of change). No section 481(a) adjustment results from the change in method of accounting if the taxpayer uses the cut-off method (see Q&A-1 and Q&A-11 of section 1.461-7T). A section 481(a) adjustment may result from the change in method of accounting if the taxpayer uses the full year change in method. If a taxpayer elects the full year change in method of accounting, any resulting section 481(a) adjustment is computed and taken into account under the rules provided in Q&A-8 and Q&A-9 of section 1.461-7T. (Generally, these regulations provide that the taxpayer shall take into account one-third of the adjustment in the taxable year of change and one-third of the adjustment in each of the two immediately succeeding years.)

SEC. 6. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 83-77, 1983-2 C.B. 594, is hereby modified.

SEC. 7. EFFECT ON PENDING REQUESTS FOR CONSENT

The provisions of this revenue procedure are effective April 9, 1992, the date this revenue procedure was first made public. Requests for changes in methods of accounting that qualify under this revenue procedure and that are received by the National Office on or after April 9, 1992, will be returned to the taxpayer. Taxpayers to which this revenue procedure applies may not use Rev. Proc. 92-20, 1992-12 I.R.B. 10 (Mar. 23, 1992) but must use the provisions of this revenue procedure to change their method of accounting for real property taxes.

Taxpayers that have timely filed a Form 3115 with the National Office prior to the date of publication of this revenue procedure may used the automatic provisions of this revenue procedure and will be notified to this effect by the National Office.

SEC. 8. EFFECTIVE DATE

This revenue procedure is effective for a taxpayer's first taxable year beginning after December 31, 1989, a taxpayer's first taxable year beginning after December 31, 1990, or a taxpayer's first taxable year beginning after December 31, 1991.

DRAFTING INFORMATION AND INQUIRIES

The principal author of this revenue procedure is Robert M. Casey of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Lisa Bernardini of that office on (202) 377-7975 (not a toll-free call).

Inquiries in regard to this revenue procedure should refer to its number and be addressed to the Commissioner of Internal Revenue, Attention: Office of Assistant Chief Counsel (Income Tax and Accounting) CC:IT&A:1, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.