You’ve heard of a “do-over,” right? We now have a do-over officially sanctioned by the IRS. With the issuance of Revenue Procedure 2014-54, taxpayers may make a late partial disposition that will allow taxpayers to go back to prior years and treat the retirement of a structural building component as a disposition. Revenue Procedure 2014-54 provides guidance on making an automatic accounting method change in order to conform to the rules on dispositions of tangible property that were included in the repair regulations issued late last year. However, this opportunity is only available for a limited period of time; the election may be made for dispositions in tax years beginning on or after January 1, 2012 and beginning before January 1, 2015.

The 2013 regulations created a “partial disposition election” for assets that are not in general asset accounts. A “partial disposition” is the replacement of a structural component with another that serves the same function. An example would be to replace the roof on a building. By making this election, the taxpayer is allowed to recognize a loss on the component’s retirement. When the election is not made, the taxpayer continues to depreciate the component. This new revenue procedure explains how the election is to be made.

One caveat in the revenue procedure is that the asset, of which the disposed portion was a part, must be owned by the taxpayer at the beginning of the year in which the disposition occurs.

The revenue procedure explains in detail how to complete the Form 3115, with specific instructions for taxpayers whose average annual gross receipts for the three preceding taxable years is less than or equal to $10,000,000. Such taxpayers are considered “qualifying taxpayers” and only need to complete a limited number of lines on the form. All taxpayers (including qualifying taxpayers) must attach a statement to the Form 3115 with a description of the asset(s) to which the change applies.

Another issue covered by this revenue procedure has to do with taxpayers who used the Consumer Price Index (CPI) rollback method when computing the original basis of a disposed structural component for a partial disposition election. The final repair regulations decided the CPI rollback method was unreasonable and another method, such as the Producer Price Index (PPI), should be used instead. Taxpayers who used the CPI method may change to using the PPI method (or some other method considered reasonable) and treat it as an accounting method change under this revenue procedure.

In addition, Procedure 2014-54 contains an excellent summary chart of the various automatic accounting method changes that can be made as provided for in the earlier Revenue Procedure 2011-14.