CCA 200003024: Chief Counsel reports withdrawal of accounting method request

Plain-English summary

A taxpayer withdrew its Form 3115 request to change the accounting treatment of part of a building and to correct deductions for retired and replaced roof components. Chief Counsel informed the district director that it had not reached a tentative position on the building cost change. It had raised concerns about treating the roof corrections as an accounting method change and about deducting retirement losses. The memorandum concluded that the taxpayer should not have recognized losses when the roof components were retired. The withdrawal meant the requested accounting method change was not approved in this memorandum.

Ruling snapshot

• Question: What was the status of the taxpayer's Form 3115, and how did Chief Counsel view the roof retirement losses?
• Outcome: Advice given: the application was withdrawn; the roof retirement losses should not have been recognized.
• Key authorities: IRC §§ 446(e), 481(a), and 168; proposed Treas. Reg. § 1.168-6(b).

Full text (IRS public release)

                        DEPARTMENT OF THE TREASURY
                            I N T E R N AL R E V E N U E S E R V I C E
                                 WASHINGTON, D.C. 20224


                                   October 22, 1999

Number: 200003024
Release Date: 1/21/2000
UIL: 446.04-17                                                 CC:DOM:P&SI:6
                                                               CAM-21594-94



MEMORANDUM FOR DISTRICT DIRECTOR, OHIO DISTRICT
               Attn: Chief, Examination Division

FROM:                 Chief, Branch 6, Passthroughs & Special Industries
                      (CC:DOM:P&SI:6)

SUBJECT:              Withdrawal of Application for Change in Method of
                      Accounting

In accordance with section 8.07(2)(a) of Rev. Proc. 99-1, 1999-1 I.R.B. 6, 34, this
memorandum advises you that a taxpayer within your district has withdrawn a Form
3115, Application for Change in Accounting Method. This document is not to be
cited as precedent.

LEGEND:

Taxpayer    =


a           =

b           =

c           =

d           =

e           =

f           =

g           =


This memorandum advises you that a Form 3115, filed a, on behalf of Taxpayer, is
withdrawn. Taxpayer withdrew its Form 3115 because of the long delay in
processing this form.

                                           2
CAM-21594-94

Taxpayer filed the Form 3115 to request permission to change its treatment of a
portion of the cost of a building constructed in b from nondepreciable property to
depreciable property, and to correct the amounts deducted on its federal income
tax returns for the part of the roof demolished in c and for the other part of the roof
replaced in d, thereby resulting in a net negative adjustment of $e under
§ 481(a) of the Internal Revenue Code. These changes would have been effective
beginning with the taxable year beginning f.

At the time of the withdrawal, we had not formed a tentative position on Taxpayer’s
proposed change in its treatment of a portion of the cost of a building from
nondepreciable to depreciable property.

However, with respect to Taxpayer’s proposed correction of the amounts deducted
on its federal income tax returns for the part of the roof demolished in c and for the
other part of the roof replaced in d, we had advised Taxpayer’s authorized
representative by letter dated g, that we had concerns about whether these
corrections are a change in method of accounting under § 446(e) and whether the
losses on the retirements of the roof in c and d should have been deducted on
Taxpayer’s federal income tax returns. With respect to the retirement losses, the
Joint Committee on Taxation Staff in its explanation relating to gain on disposition
and recapture of depreciable property subject to § 168 of the Internal Revenue
Code of 1954 stated that “Congress did not intend a retirement of a structural
component of the building to be a disposition requiring recognition of gain or loss.
Thus, if the roof wears out, no loss is recognized upon retirement and the
unadjusted basis of the building is not reduced (i.e., cost recovery continues over
the remaining recovery period). If the roof is replaced, the unadjusted basis of the
new roof is recovered over a new recovery period beginning in the month it is
placed in service.” Joint Committee on Taxation Staff, General Explanation of the
Economic Recovery Act of 1981, 97th Cong., 1st Sess. (1981). See also
§ 1.168-6(b) of the proposed Income Tax Regulations. This rule did not change
with the enactment of § 168 of the 1986 Code. Accordingly, Taxpayer should not
have recognized any losses in c and d with respect to the retirements of the roof.

If you have any questions on this matter, do not hesitate to call (202) 622-3110.


                                               Charles B. Ramsey
                                               CHARLES B. RAMSEY