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Election to ratably accrue property taxes.

The IRS recently issued Rev. Proc. 92-28, providing accrual-basis taxpayers with a method of obtaining the Service's consent to ratably accrue real property taxes under Sec. 461(c). It also includes a procedure to revoke a previously made election.

For tax years after Dec. 31, 1991, economic performance under Sec. 461(h) occurs when a tax is paid to the governmental authority that imposed in. Under Sec. 461(c), an accrual-basis taxpayer may elect to ratably accrue any real property taxes related to a definite period of time, regardless of when the tax would normally accrue.

An election can be made without the IRS's consent only for the first year in which the taxpayer incurs real property taxes. Thereafter, consent must be obtained from the Service to make or revoke an election within 180 days after the beginning of the tax year. The purpose of the procedure is to allow taxpayers to make or revoke an automatic election for the first tax year after the payment rule is effective without regard to the 180-day limitation.

The revenue procedure applies to requests to make or revoke an election for any one of the three years--1990, 1991 or 1992--and that year would be considered the year of accounting method change for real property taxes. This procedure is only available to taxpayers who incurred real property taxes in a year prior to the year of change.

In order to obtain the automatic consent to make or revoke an election, taxpayers should attach a statement to their timely filed original return (including extensions) for the year of change. Amended returns with elections or revocations must be filed on or before Oct. 9, 1992 for the year of change. The revenue procedure provides specific wording as well as statements that should be set forth in the election or revocation. It will be important to identify at the top of the statement, "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 92-28," or "REQUEST TO CHANGE TO THE RATABLE ACCRUAL METHOD FOR REAL PROPERTY TAXES UNDER REV. PROC. 92-28 WITH SEC. 481 (A) ADJUSTMENT."

The procedure is not available if, as of Apr. 9, 1992, the taxpayer is under audit, is subject to criminal investigation or if the method of accounting is a "pending issue." To be a pending issue, the taxpayer must have been issued a written notification of proposed adjustment to its method of accounting for real property taxes (i.e., Form 5701, Notification of Proposed Adjustment) on or before Apr. 9, 1992.

It is up to the practitioner to see that the proper decision is made to either make or revoke the election under Sec. 461(c).
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Author:Weber, George
Publication:The Tax Adviser
Article Type:Brief Article
Date:Sep 1, 1992
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