CCA 200135036: Street lighting depreciation method change denied

Plain-English summary

A utility changed its depreciation treatment for street lighting equipment under an automatic consent procedure, believing the equipment belonged in no listed asset class. Chief Counsel concluded that the new method was impermissible and therefore outside the procedure's scope. It denied consent for the accounting method change and directed the taxpayer to amend the year-of-change and later returns to reflect the correct depreciation method. The proposed change would have reduced taxable income through a negative § 481(a) adjustment.

Ruling snapshot

• Question: Could the utility use the automatic procedure to change its depreciation method for street lighting equipment?
• Outcome: Denied: the new method was impermissible, so the change did not qualify for automatic consent.
• Key authorities: IRC § 481(a); Rev. Proc. 97-37, Appendix § 2.01.

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
August 1, 2001

Number: 200135036
Release Date: 8/31/2001
UIL: 168.20-00
CC:PSI:6ACooper
446.04-17
RPAUT-115670-98

MEMORANDUM FOR: INDUSTRY DIRECTOR, NATURAL RESOURCES (LM:NR)

FROM: CHIEF, BRANCH 6 (CC:PSI:6)
PASSTHROUGHS AND SPECIAL INDUSTRIES

SUBJECT: DENIAL OF CONSENT FOR CHANGE IN
ACCOUNTING METHOD

In accordance with § 8.07(2)(a) of Rev. Proc. 2001-1, 2001-1 I.R.B. 1, 43, this Chief Counsel Advice advises you that consent for a change in accounting method has been denied to a taxpayer within your jurisdiction. Pursuant to § 6110 (k)(3), this Chief Counsel Advise is not to be cited as precedent.

LEGEND:

Taxpayer =

B
=

C
=

Taxpayer filed the Form 3115 to request permission to change its method of computing depreciation for street lighting equipment under Rev. Proc. 97-37, 1997-2 C. B. 55. Because this change was under an automatic consent revenue procedure, Taxpayer has already made this change.

Taxpayer previously treated equipment used wholly for public street and highway lighting or traffic, fire alarm, police and other signals (collectively, “street lighting”) as included in asset class 49.14, Electric Utility Transmission and Distribution Plant, under both Rev. Proc. 83-35, 1983-1 C. B. 745, and Rev. Proc. 87-56, 1987-2 C. B. 674. Taxpayer believes this classification was improper. Specifically, Taxpayer believes that this property does not belong in asset class 49.14 or any other class.

The method changes would have been effective with the taxable year beginning B and would have resulted in a negative § 481(a) adjustment/decrease in taxable income in the amount of C. The reasons for denial of this consent are explained in the attached copy of our letter to Taxpayer.

2
RPAUT-115670-98

Taxpayer has changed to an impermissible method of accounting. This change is outside the scope of Appendix § 2.01 of Rev. Proc. 97-37 because Taxpayer did not change to a permissible method of accounting. Accordingly, consent to make this change is not granted. Taxpayer should file amended returns for the year of change and subsequent years to reflect the correct method of depreciating street lighting.

If you have any questions on this matter, do not hesitate to call me

CHARLES B. RAMSEY
Chief, Branch 6
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosure:
Copy of letter to Taxpayer