IRS EXTENDS AUTOMATIC CONSENT FOR ELECTION TO ACCRUE REAL PROPERTY TAXES.

Rev. Proc. 94-32

SECTION 1. PURPOSE

This revenue procedure extends the provisions of Rev. Proc. 92- 28, 1992-1 C.B. 745, to accrual method taxpayers that wish to make or revoke an election to ratably accrue real property taxes under section 461(c) of the Code for their first taxable year beginning after December 31, 1992. An accrual method taxpayer that complies with this revenue procedure is 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).

SECTION 2. BACKGROUND

.01 Section 461(c) provides that, for any real property tax that is related to a definite period of time, an accrual method taxpayer may elect to accrue the tax ratably over that period.

.02 Section 461(h) 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 Income Tax Regulations provides that economic performance generally occurs as the tax is paid to the governmental authority that imposed the tax. The payment rule for taxes is effective for taxable years beginning after December 31, 1991.

.03 Section 1.461-4(g)(6)(iii) provides an exception to the general rule that economic performance for taxes occurs as the taxes are paid. This exception provides that the taxpayer's accrual for real property taxes is determined under section 461(c) if the taxpayer has made a valid election under that section.

.04 Section 481(a) 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 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.

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

.06 Rev. Proc. 92-28 provides automatic procedures under which taxpayers may make or revoke an election to ratably accrue real property taxes under section 461(c). Section 3 of that procedure provides that it applies to taxpayers making or revoking an election under section 461(c) for any one of the following three 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. Under sections 4 and 5 of that procedure, taxpayers are permitted to make or revoke the election by attaching a statement to their timely filed original return (with extensions) for the year of change or to an amended return for that year that is filed on or before October 6, 1992. Sections 4 and 5 of that procedure describe the information that should be included in the election or revocation statement.

SECTION 3. SCOPE

This revenue procedure applies only to requests to make or revoke an election to ratably accrue real property taxes under section 461(c) for the taxpayer's first taxable year beginning after December 31, 1992 (the "year of change"), provided the taxpayer otherwise complies with all the conditions, requirements, and procedures of Rev. Proc. 92-28 to the extent those conditions, requirements, and procedures are not inconsistent with this revenue procedure.

SECTION 4. PROCEDURE

.01 A taxpayer that complies with this revenue procedure is granted the consent of the Commissioner to make or revoke an election to ratably accrue real property taxes under section 461(c) for the year of change.

.02 Taxpayers may make or revoke an election to ratably accrue real property taxes under section 461(c) by attaching a statement to their timely filed original return (with extensions) for the year of change or an amended return for that year that is filed on or before September 15, 1994.

.03 For taxpayers that wish to elect ratable accrual of real property taxes, the heading of the statement should read "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 94-32." If the election results in a section 481(a) adjustment the heading of the statement should read "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 94-32 WITH SECTION 481(a) ADJUSTMENT." The statement should set forth the information described in paragraphs (1) through (6) of section 4.02 of Rev. Proc. 92-28.

.04 For taxpayers that wish to revoke their election to ratably accrue real property taxes the heading of the statement should read "REQUEST TO REVOKE THE ELECTION TO RATABLY ACCRUE REAL PROPERTY TAXES UNDER REV. PROC. 94-32." If the election results in a section 481(a) adjustment the heading of the statement should read "REQUEST TO REVOKE THE ELECTION TO RATABLY ACCRUE REAL PROPERTY TAXES UNDER REV. PROC. 94-32 WITH SECTION 481(a) ADJUSTMENT." The statement should set forth the information described in paragraphs (1) through (4) of section 5.02 of Rev. Proc. 92-28.

SECTION 5. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 92-28 is hereby amplified.

SECTION 6. EFFECT ON PENDING REQUESTS FOR CONSENT

The National Office will not process requests for changes in method of accounting that qualify to use the automatic provisions of this revenue procedure. Taxpayers that submit, or have submitted, such requests will be informed that their requests for a method change will be returned and that they may use the automatic provisions of this revenue procedure to make the method change.

DRAFTING INFORMATION

The principal author of this revenue procedure is Michael J. Montemurro of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Robert A. Testoff on (202) 622-4850 (not a toll free call.)