IRS WILL NOT CHALLENGE TAXPAYERS' PRE-1990 POSITIONS ON PROPERTY TAX ACCRUALS.

Notice 90-64

This notice provides guidance regarding the economic performance requirement of section 461(h) of the Internal Revenue Code ("Code") and the accrual of property taxes.

Section 461(h) was added to the Code by the Tax Reform Act of 1984 and is effective with respect to amounts incurred (without regard to section 461(h)) after July 18, 1984. Section 461(h) provides that the all events test with respect to a liability is not met before the economic performance requirement with respect to the liability occurs [sic]. On June 7, 1990, the Internal Revenue Service issued proposed regulations under section 461(h). The proposed section 461(h) regulations provide that for taxable years beginning after December 31, 1989, economic performance with respect to taxes occurs when the taxes are paid. The proposed regulations do not, however, provide rules for determining when economic performance occurs with respect to property taxes during the time between the effective date of section 461(h) and the effective date of the proposed regulations.

Before the enactment of section 461(h), the Service issued a number of revenue rulings addressing the accrual of property taxes. See e.g., Rev. Rul. 73-64, 1973-1 C.B. 70; Rev. Rul. 72-409, 1972-2 C.B. 99; Rev. Rul. 71-204, 1971-1 C.B. 71; Rev. Rul. 70-653, 1970-2 C.B. 48. The Service has determined that, for taxable years beginning before January 1, 1990, it will not challenge positions previously taken by taxpayers that relied on earlier published rulings relating to the accrual of property taxes.