[Federal Register Volume 69, Number 1 (Friday, January 2, 2004)]
[Rules and Regulations]
[Pages 5-12]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31820]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9105]
RIN 1545-BC17


Changes in Computing Depreciation

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains regulations relating to a change in 
computing depreciation or amortization as well as a change from a 
nondepreciable or nonamortizable asset to a depreciable or amortizable 
asset (or vice versa). Specifically, these regulations provide guidance 
to any taxpayer that makes a change in depreciation or amortization on 
whether such change is a change in method of accounting under section 
446(e) of the Internal Revenue Code and on the application of section 
1016(a)(2) in determining whether the change is a change in method of 
accounting. The text of these temporary regulations also serves as the 
text of the proposed regulations set forth in the notice of proposed 
rulemaking on this subject in the Proposed Rules section in this issue 
of the Federal Register.

DATES: Effective Dates: These regulations are effective January 2, 
2004.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.167(e)-1T(e), 1.446(e)-1T(e)(4), and 1.1016-3T(j).

FOR FURTHER INFORMATION CONTACT: Sara Logan or Douglas Kim, (202) 622-
3110 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to 26 CFR part 1 to provide 
regulations under sections 167, 446(e), and 1016(a)(2) of the Internal 
Revenue Code (Code). These regulations provide the changes in 
depreciation or amortization that are, and are not, a change in method 
of accounting under Sec.  1.446-1(e). Additionally, these regulations 
amend Sec.  1.167(e)-1 to provide that certain changes in depreciation 
method for property for which depreciation is determined only under 
section 167 are made without the consent of the Commissioner of 
Internal Revenue, and amend Sec.  1.1016-3 to provide that section 
1016(a)(2) does not permanently affect a taxpayer's lifetime income for 
purposes of determining whether a change in depreciation or 
amortization is a change in method of accounting.

Explanation of Provisions

Background

    Section 446 provides in general that taxable income shall be 
computed under the method of accounting on the basis of which the 
taxpayer regularly computes the taxpayer's income in keeping the 
taxpayer's books. Section 446(e) provides that, except as otherwise 
expressly provided in chapter 1 of the Code, a taxpayer who changes the 
method of accounting on the basis of which the taxpayer regularly 
computes the taxpayer's income in keeping the taxpayer's books shall, 
before computing the taxpayer's taxable income under the new method, 
secure the consent of the Secretary.
    Section 1.446-1(e)(2)(ii)(a) provides in pertinent part that a 
change in method of accounting includes a change in the overall plan of 
accounting for gross income or deductions or a change in the treatment 
of any material item used in such overall plan. A material item is any 
item that involves the proper time for the inclusion of the item in 
income or the taking of a deduction. However, Sec.  1.446-
1(e)(2)(ii)(b) provides in pertinent part that a change in method of 
accounting does not include an adjustment in the useful life of a 
depreciable asset. Although such adjustment may involve the question of 
the proper time for the taking of a deduction, such item is 
traditionally corrected by adjustments in the current and future years.
    Section 1.167(e)-1(a) provides that in general, any change in the 
method of computing the depreciation allowances with respect to a 
particular account (other than a change in method permitted or required 
by reason of the operation of former section 167(j)(2) and Sec.  
1.167(j)-3(c)) is a change in method of accounting, and such a change 
will be permitted only with the consent of the Commissioner, except 
that certain changes to the straight line method of depreciation will 
be permitted without consent as provided in former section 167(e)(1), 
(2), and (3). Any request for a change in method of depreciation shall 
be made in accordance with section 446 and the regulations under 
section 446.
    In 1996, the IRS issued Rev. Proc. 96-31 (1996-1 C.B. 714), 
providing that a change from not claiming the depreciation or 
amortization allowable to claiming the depreciation or amortization 
allowable is a change in method of accounting for which the consent of 
the Commissioner of Internal Revenue is required.

[[Page 6]]

    In Kurzet v. Commissioner, 222 F.2d 830, 842-845 (10th Cir. 2000), 
the taxpayer sought to change the classification of property under 
section 168 from nonresidential real property to 15-year property 
thereby resulting in a change in recovery period from 31.5 years to 15 
years. The Tenth Circuit held that a change in recovery period under 
section 168 is a change in method of accounting under section 446(e). 
In reaching its holding, the Tenth Circuit considered the taxpayer's 
argument that a change in recovery period is analogous to a change in 
useful life, but concluded that the Commissioner's interpretation of 
Sec.  1.446-1(e)(2)(ii) in Rev. Proc. 96-31 as requiring a taxpayer to 
obtain permission for a change in recovery period is not plainly 
erroneous or inconsistent with Sec.  1.446-1(e)(2)(ii).
    In Brookshire Brothers Holding, Inc. & Subsidiaries v. 
Commissioner, 320 F.3d 507 (5th Cir. 2003), aff'g. T.C. Memo. 2001-150, 
reh'g en banc denied, 65 Fed. Appx. 511 (5th Cir. 2003), the Fifth 
Circuit held that a change in classification of property under section 
168 is not a change in method of accounting under section 446(e) 
because the change is the functional equivalent of a change in useful 
life thereby resulting in the change falling under the useful life 
exception in Sec.  1.446-1(e)(2)(ii)(b). The Eighth Circuit in 
O'Shaughnessy v. Commissioner, 332 F.3d 1125 (8th Cir. 2003), rev'g in 
part 2002-1 U.S.T.C. (CCH) ] 50,235 (D. Minn. 2001), adopted the 
analysis in Brookshire and held that a change in classification of 
property under section 168 falls within the useful life exception and, 
thus, does not constitute a change in method of accounting under 
section 446(e).
    Further, in Green Forest Manufacturing Inc. v. Commissioner, 
T.C.Memo. 2003-75, the Tax Court extended its reasoning in Brookshire. 
The court held that a change in computing depreciation from the general 
depreciation system in section 168(a) to the alternative depreciation 
system in section 168(g) is a change in classification that falls 
within the useful life exception and, therefore, is not a change in 
method of accounting.
    As a result of these decisions, there is inconsistent treatment of 
taxpayers with respect to whether a change in computing depreciation 
under section 168 is a change in method of accounting under section 
446(e). These regulations clarify the changes in depreciation or 
amortization (depreciation) that are (and are not) changes in method of 
accounting under section 446(e).

Scope

    The regulations provide the changes in depreciation for property 
for which depreciation is determined under section 167, 168, 197, 
1400I, 1400L(b), or 1400L(c), or former section 168, of the Code that 
are (and are not) changes in method of accounting under section 446(e). 
The regulations also clarify that the rules in Sec.  1.167(e)-1 with 
respect to a change in the depreciation method made without the consent 
of the Commissioner apply only to property for which depreciation is 
determined under section 167 (other than under section 168, section 
1400I, section 1400L, or former section 168).

Changes in Depreciation That Are Changes in Method of Accounting

    In general, the regulations provide that a change in the 
depreciation method, period of recovery, or convention of a depreciable 
or amortizable asset is a change in method of accounting. This change 
may be the result of, for example, a change in the classification of 
property under section 168(e) or a change in computing depreciation 
from the general depreciation system under section 168(a) to the 
alternative depreciation system of section 168(g). Further, a change to 
or from claiming the additional first year depreciation deduction 
provided by section 168(k) or 1400L(b) is a change in method of 
accounting under certain circumstances.
    The regulations clarify that the useful life exception, which has 
been moved from Sec.  1.446-1(e)(2)(ii)(b) to Sec.  1.446-
1T(e)(2)(ii)(d), applies only to property for which the depreciation is 
determined under section 167 (other than under section 168, section 
1400I, section 1400L, or former section 168). However, a change to or 
from a useful life (or recovery period or amortization period) that is 
specifically assigned by the Code, the regulations under the Code, or 
other guidance published in the Internal Revenue Bulletin is a change 
in method of accounting.
    The regulations also provide that a change in salvage value to zero 
for a depreciable or amortizable asset for which the salvage value is 
expressly treated as zero by the Code, the regulations under the Code, 
or other guidance published in the Internal Revenue Bulletin, is 
treated as a change in method of accounting. Any other change in 
salvage value is not treated as a change in method of accounting.
    Further, the regulations provide that a change in the accounting 
for depreciable or amortizable assets from single asset accounting to 
multiple asset accounting (pooling), or vice versa, or from one type of 
multiple asset accounting (pooling) to a different type of multiple 
asset accounting (pooling) is a change in method of accounting. Also, 
for depreciable or amortizable assets that are mass assets accounted 
for in multiple asset accounts or pools, a change in the method of 
identifying which assets have been disposed is a change in method of 
accounting (for example, from specific identification to a first-in, 
first-out method).
    Finally, the regulations provide that a change in the treatment of 
an asset from nondepreciable or nonamortizable (nondepreciable) to 
depreciable or amortizable (depreciable), or vice versa, is a change in 
method of accounting. For example, a change in the treatment of an 
asset that was used entirely in the taxpayer's trade or business and 
was never held for sale from being treated as inventory to being 
treated as depreciable property is a change in method of accounting.

Exceptions

    The regulations provide that a change in computing depreciation 
allowances in the taxable year in which the use of property changes in 
the hands of the same taxpayer is not a change in method of accounting.
    The regulations also provide that the making of a late depreciation 
election or the revocation of a timely valid depreciation election 
generally is not a change in method of accounting. This rule also 
applies to the making of a late election or the revocation of a timely 
valid election under section 13261(g)(2) or (3) of the Revenue 
Reconciliation Act of 1993 (107 Stat. 312, 540) (relating to 
amortizable section 197 intangibles). To make a late depreciation 
election or to revoke a timely valid depreciation election, a taxpayer 
must submit a request for a private letter ruling. Elections made under 
section 168(b)(2)(C), 168(b)(3)(D), or 168(g)(7) are irrevocable.
    Finally, the regulations provide that any change in the placed-in-
service date of a depreciable or amortizable asset is not treated as a 
change in method of accounting.

Item Being Changed

    The regulations clarify that for purposes of changes in 
depreciation, the item being changed is the depreciation treatment of 
each individual depreciable or amortizable asset. However, the item is 
the depreciation treatment of each vintage account with respect to 
depreciable assets for which depreciation is determined under Sec.  
1.167(a)-11 (CLADR property).

[[Page 7]]

Further, a change in computing depreciation under section 167 (other 
than a change under section 168, section 1400I, section 1400L, or 
former section 168) is permitted only with respect to all assets in a 
particular account (as defined in Sec.  1.167(a)-7) or vintage account.

Special Rules

    The regulations also provide rules for the following: (1) A change 
from a declining balance method under section 168(b)(1) or (2) to the 
straight line method; (2) changes in certain depreciation methods under 
section 167 (other than under section 168, section 1400I, section 
1400L, or former section 168); and (3) section 481 adjustments.
    With respect to a change from the 200-percent or 150-percent 
declining balance method under section 168(b)(1) or (2) to the straight 
line method, the regulations provide that this change may be made 
without the consent of the Commissioner in the first taxable year in 
which the depreciation allowance under the straight line method is 
greater than the depreciation allowance under the declining balance 
method.
    With respect to changes in depreciation methods under section 167 
(other than under section 168, section 1400I, section 1400L, or former 
section 168), the regulations provide cross-references to regulations 
under section 167 that allow certain depreciation method changes to be 
made without the consent of the Commissioner.
    With respect to section 481 adjustments, the regulations also 
clarify that except as otherwise expressly provided by the Code, the 
regulations under the Code, or other guidance published in the Internal 
Revenue Bulletin, a change from one permissible method of computing 
depreciation to another permissible method of computing depreciation 
for a depreciable or amortizable asset is implemented on either a cut-
off method (as described in section 2.06 of Rev. Proc. 97-27 (1997-1 
C.B. 680) and in section 2.06 of Rev. Proc. 2002-9 (2002-1 C.B. 327)) 
or a modified cut-off method (under which the adjusted depreciable 
basis of the asset as of the beginning of the year of change is 
recovered using the new permissible method of accounting). Because no 
items are duplicated or omitted from income when the cut-off method or 
the modified cut-off method is used to effect the change in method of 
accounting, no section 481 adjustment is required or permitted. 
However, a change from an impermissible method of computing 
depreciation to a permissible method of computing depreciation results 
in a negative or positive section 481 adjustment because the adjusted 
depreciable basis of the asset as of the beginning of the year of 
change is changed as a result of the change in computing depreciation. 
Similarly, a change in the treatment of an asset from nondepreciable to 
depreciable (or vice versa) or a change from expensing to depreciating 
an asset (or vice versa) will also result in a negative or positive 
section 481 adjustment.

Application of the Allowed or Allowable Rule to Changes in Method of 
Accounting

    Section 1016(a)(2) provides that the basis of property is adjusted 
in respect of any period since February 28, 1913, for exhaustion, wear 
and tear, obsolescence, amortization, and depletion, to the extent of 
the amount allowed as deductions in computing taxable income and 
resulting in a reduction for any taxable year of the taxpayer's taxes, 
but not less than the amount allowable.
    Concurrently with the issuance of these regulations, the IRS and 
Treasury Department will issue a revenue procedure that will allow a 
taxpayer to change the taxpayer's method of determining depreciation 
for a depreciable or amortizable asset after its disposition if the 
taxpayer did not take into account any depreciation allowance, or did 
take into account some depreciation but less than the depreciation 
allowable, for the asset in computing taxable income in the year of 
disposition or in prior taxable years. Because the taxpayer is 
permitted to claim the allowable depreciation not taken into account 
for this asset, the taxpayer's lifetime income is not permanently 
affected by the ``allowed or allowable'' rule under section 1016(a)(2). 
Accordingly, the regulations provide that section 1016(a)(2) does not 
permanently affect a taxpayer's lifetime income for purposes of 
determining whether a change in depreciation is a change in method of 
accounting under section 446(e) and the regulations under section 
446(e).
    The revenue procedure also will revise the depreciation changes 
included in Rev. Proc. 2002-9 (2002-1 C.B. 327), the automatic change 
in method of accounting revenue procedure, to conform with these 
regulations and will waive the application of Rev. Rul. 90-38 (1990-1 
C.B. 57) for changes in depreciation made under Rev. Proc. 97-27 (1997-
1 C.B. 680) or Rev. Proc. 2002-9.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed rulemaking published in the Federal 
Register. Pursuant to section 7805(f) of the Code, these temporary 
regulations will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal author of these regulations is Sara Logan, Office of 
Associate Chief Counsel (Passthroughs and Special Industries). However, 
other personnel from the IRS and Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.167(e)-1 is amended by:
0
1. Revising paragraph (a).
0
2. Adding new paragraph (e).
    The addition and revision read as follows:


Sec.  1.167(e)-1  Change in method.

    (a) In general. [Reserved]. For further guidance, see Sec.  
1.167(e)-1T(a).
* * * * *
    (e) Effective date. [Reserved]. For further guidance, see the first 
two sentences of Sec.  1.167(e)-1T(e).

0
Par. 3. Section 1.167(e)-1T is added to read as follows:


Sec.  1.167(e)-1T  Change in method (temporary).

    (a) In general. (1) Any change in the method of computing the 
depreciation allowances with respect to a particular account (other 
than a change in method

[[Page 8]]

permitted or required by reason of the operation of former section 
167(j)(2) and Sec.  1.167(j)-3(c)) is a change in method of accounting, 
and such a change will be permitted only with the consent of the 
Commissioner, except that certain changes to the straight line method 
of depreciation will be permitted without consent as provided in former 
section 167(e)(1), (2), and (3). Except as provided in paragraphs (c) 
and (d) of this section, a change in method of computing depreciation 
will be permitted only with respect to all the assets contained in a 
particular account as defined in Sec.  1.167(a)-7. Any change in the 
percentage of the current straight line rate under the declining 
balance method, for example, from 200 percent of the straight line rate 
to any other percent of the straight line rate, or any change in the 
interest factor used in connection with a compound interest or sinking 
fund method, will constitute a change in method of depreciation. Any 
request for a change in method of depreciation shall be made in 
accordance with section 446(e) and the regulations under section 
446(e). For rules covering the use of depreciation methods by acquiring 
corporations in the case of certain corporate acquisitions, see section 
381(c)(6) and the regulations under section 381(c)(6).
    (2) Paragraphs (b), (c), and (d) of this section apply to property 
for which depreciation is determined under section 167 (other than 
under section 168, section 1400I, section 1400L, or under section 168 
prior to its amendment by the Tax Reform Act of 1986 (100 Stat. 2121)) 
of the Internal Revenue Code.
    (b) through (d) [Reserved]. For further guidance, see Sec.  
1.167(e)-1(b) through (d).
    (e) Effective date. This section applies on or after December 30, 
2003. For the applicability of regulations before December 30, 2003, 
see Sec.  1.167(e)-1 in effect prior to December 30, 2003 (Sec.  
1.167(e)-1 as contained in 26 CFR part 1 edition revised as of April 1, 
2003). The applicability of this section expires on or before January 
2, 2007.

0
Par. 4. Section 1.446-1 is amended by:
0
1. Revising paragraphs (e)(2)(ii)(a), (e)(2)(ii)(b), and (e)(2)(iii).
0
2. Adding new paragraphs (e)(2)(ii)(d) and (e)(4).
    The additions and revisions read as follows:


Sec.  1.446-1  General rule for methods of accounting.

* * * * *
    (e) * * *
    (2) * * *
    (ii) (a) [Reserved]. For further guidance, see Sec.  1.446-
1T(e)(2)(ii)(a).
    (b) [Reserved]. For further guidance, see Sec.  1.446-
1T(e)(2)(ii)(b).
* * * * *
    (d) Changes involving depreciable or amortizable assets. 
[Reserved]. For further guidance, see Sec.  1.446-1T(e)(2)(ii)(d).
    (iii) Examples. [Reserved]. For further guidance, see Sec.  1.446-
1T(e)(2)(iii).
* * * * *
    (4) Effective date. [Reserved]. For further guidance, see Sec.  
1.446(e)-1T(e)(4)(i) and (ii).

0
Par. 5. Section 1.446-1T is added to read as follows:


Sec.  1.446-1T  General rule for methods of accounting (temporary).

    (a) through (e)(2)(i) [Reserved]. For further guidance, see Sec.  
1.446-1(a) through (e)(2)(i).
    (e)(2)(ii)(a) A change in the method of accounting includes a 
change in the overall plan of accounting for gross income or deductions 
or a change in the treatment of any material item used in such overall 
plan. Although a method of accounting may exist under this definition 
without the necessity of a pattern of consistent treatment of an item, 
in most instances a method of accounting is not established for an item 
without such consistent treatment. A material item is any item that 
involves the proper time for the inclusion of the item in income or the 
taking of a deduction. Changes in method of accounting include a change 
from the cash receipts and disbursement method to an accrual method, or 
vice versa, a change involving the method or basis used in the 
valuation of inventories (see sections 471 and 472 and the regulations 
under sections 471 and 472), a change from the cash or accrual method 
to a long-term contract method, or vice versa (see Sec.  1.460-4), 
certain changes in computing depreciation or amortization (see 
paragraph (e)(2)(ii)(d) of this section), a change involving the 
adoption, use or discontinuance of any other specialized method of 
computing taxable income, such as the crop method, and a change where 
the Internal Revenue Code and regulations under the Code specifically 
require that the consent of the Commissioner must be obtained before 
adopting such a change.
    (b) A change in method of accounting does not include correction of 
mathematical or posting errors, or errors in the computation of tax 
liability (such as errors in computation of the foreign tax credit, net 
operating loss, percentage depletion, or investment credit). Also, a 
change in method of accounting does not include adjustment of any item 
of income or deduction that does not involve the proper time for the 
inclusion of the item of income or the taking of a deduction. For 
example, corrections of items that are deducted as interest or salary, 
but that are in fact payments of dividends, and of items that are 
deducted as business expenses, but which are in fact personal expenses, 
are not changes in method of accounting. In addition, a change in the 
method of accounting does not include an adjustment with respect to the 
addition to a reserve for bad debts. Although such adjustment may 
involve the question of the proper time for the taking of a deduction, 
such items are traditionally corrected by adjustment in the current and 
future years. For the treatment of the adjustment of the addition to a 
bad debt reserve (for example, for banks under section 585 of the 
Internal Revenue Code), see the regulations under section 166 of the 
Internal Revenue Code. A change in the method of accounting also does 
not include a change in treatment resulting from a change in underlying 
facts. For further guidance on changes involving depreciable or 
amortizable assets, see paragraph (e)(2)(ii)(d) of this section and 
Sec.  1.1016-3T(h).
    (c) [Reserved]. For further guidance, see Sec.  1.446-
1(e)(2)(ii)(c).
    (d) Changes involving depreciable or amortizable assets--(1) Scope. 
This paragraph (e)(2)(ii)(d) applies to property subject to section 
167, 168, 197, 1400I, 1400L(b), or 1400L(c), or to section 168 prior to 
its amendment by the Tax Reform Act of 1986 (100 Stat. 2121) (former 
section 168).
    (2) Changes in depreciation or amortization that are a change in 
method of accounting. Except as provided in paragraph (e)(2)(ii)(d)(3) 
of this section, a change in the treatment of an asset from 
nondepreciable or nonamortizable to depreciable or amortizable, or vice 
versa, is a change in method of accounting. Additionally, a correction 
to require depreciation or amortization in lieu of a deduction for the 
cost of depreciable or amortizable assets that had been consistently 
treated as an expense in the year of purchase, or vice versa, is a 
change in method of accounting. Further, except as provided in 
paragraph (e)(2)(ii)(d)(3) of this section, the following changes in 
computing depreciation or amortization are a change in method of 
accounting:
    (i) A change in the depreciation or amortization method, period of 
recovery, or convention of a depreciable or amortizable asset.

[[Page 9]]

    (ii) A change from not claiming to claiming the additional first 
year depreciation deduction provided by section 168(k) or 1400L(b) for, 
and the resulting change to the amount otherwise allowable as a 
depreciation deduction for the remaining adjusted depreciable basis (or 
similar basis) of, qualified property, 50-percent bonus depreciation 
property, or qualified New York Liberty Zone property, provided the 
taxpayer did not make the election out of the additional first year 
depreciation deduction (or did not make a deemed election out of the 
additional first year depreciation deduction; for further guidance, see 
Rev. Proc. 2002-33 (2002-1 C.B. 963), Rev. Proc. 2003-50 (2003-29 
I.R.B. 119), and Sec.  601.601(d)(2)(ii)(b) of this chapter) for the 
class of property in which the qualified property, the 50-percent bonus 
depreciation property, or the qualified New York Liberty Zone property 
is included.
    (iii) A change from claiming the 30-percent additional first year 
depreciation deduction to claiming the 50-percent additional first year 
depreciation deduction for 50-percent bonus depreciation property 
(provided the property is not included in any class of property for 
which the taxpayer elected the 30-percent, instead of the 50-percent, 
additional first year depreciation deduction) or a change from claiming 
the 50-percent additional first year depreciation deduction to claiming 
the 30-percent additional first year depreciation deduction for 
qualified property (including property that is included in a class of 
property for which the taxpayer elected the 30-percent, instead of the 
50-percent, additional first year depreciation deduction) or qualified 
New York Liberty Zone property, and the resulting change to the amount 
otherwise allowable as a depreciation deduction for the property's 
remaining adjusted depreciable basis (or similar basis). This paragraph 
(e)(2)(ii)(d)(2)(iii) does not apply if a taxpayer is making a late 
election or revoking a timely valid election under section 168(k) or 
1400L(b) (see paragraph (e)(2)(ii)(d)(3)(iii) of this section).
    (iv) A change from claiming to not claiming the additional first 
year depreciation deduction for an asset that is not qualified 
property, 50-percent bonus depreciation property, or qualified New York 
Liberty Zone property, and the resulting change to the amount otherwise 
allowable as a depreciation deduction for the property's depreciable 
basis.
    (v) A change in salvage value to zero for a depreciable or 
amortizable asset for which the salvage value is expressly treated as 
zero by the Internal Revenue Code (for example, section 168(b)(4)), the 
regulations under the Code (for example, Sec.  1.197-2(f)(1)(ii)), or 
other guidance published in the Internal Revenue Bulletin.
    (vi) A change in the accounting for depreciable or amortizable 
assets from a single asset account to a multiple asset account 
(pooling), or vice versa, or from one type of multiple asset account 
(pooling) to a different type of multiple asset account (pooling).
    (vii) For depreciable or amortizable assets that are mass assets 
accounted for in multiple asset accounts or pools, a change in the 
method of identifying which assets have been disposed. For purposes of 
this paragraph (e)(2)(ii)(d)(2)(vii), the term mass assets means a mass 
or group of individual items of depreciable or amortizable assets that 
are not necessarily homogeneous, each of which is minor in value 
relative to the total value of the mass or group, numerous in quantity, 
usually accounted for only on a total dollar or quantity basis, with 
respect to which separate identification is impracticable, and placed 
in service in the same taxable year.
    (viii) Any other change in depreciation or amortization as the 
Secretary may designate by publication in the Federal Register or in 
the Internal Revenue Bulletin (see Sec.  601.601(d)(2) of this 
chapter).
    (3) Changes in depreciation or amortization that are not a change 
in method of accounting--(i) Useful life. An adjustment in the useful 
life of a depreciable or amortizable asset for which depreciation is 
determined under section 167 (other than under section 168, section 
1400I, section 1400L, or former section 168) is not a change in method 
of accounting. This adjustment in useful life is corrected by 
adjustments in the taxable year in which the conditions known to exist 
at the end of that taxable year changed thereby resulting in a 
redetermination of the useful life under Sec.  1.167(a)-1(b) (or if the 
period of limitation for assessment under section 6501(a) has expired 
for that taxable year, in the first succeeding taxable year open under 
the period of limitation for assessment), and in subsequent taxable 
years. In other situations, the adjustment in useful life may be 
corrected by adjustments in the earliest taxable year open under the 
period of limitation for assessment under section 6501(a) or the 
earliest taxable year under examination by the Internal Revenue Service 
(IRS) but in no event earlier than the placed-in-service year of the 
asset, and in subsequent taxable years. However, if a taxpayer 
initiates the correction in useful life, in lieu of filing amended 
Federal tax returns (for example, because the conditions known to exist 
at the end of a prior taxable year changed thereby resulting in a 
redetermination of the useful life under Sec.  1.167(a)-1(b)), the 
taxpayer may correct the adjustment in useful life by adjustments in 
the current and subsequent taxable years. This paragraph 
(e)(2)(ii)(d)(3)(i) does not apply if a taxpayer is changing to or from 
a useful life (or recovery period or amortization period) that is 
specifically assigned by the Internal Revenue Code (for example, 
section 167(f)(1), section 168(c), section 197), the regulations under 
the Code, or other guidance published in the Internal Revenue Bulletin 
and, therefore, such change is a change in method of accounting (unless 
paragraph (e)(2)(ii)(d)(3)(v) of this section applies).
    (ii) Change in use. A change in computing depreciation or 
amortization allowances in the taxable year in which the use of an 
asset changes in the hands of the same taxpayer is not a change in 
method of accounting.
    (iii) Elections. Generally, the making of a late depreciation or 
amortization election or the revocation of a timely valid depreciation 
or amortization election is not a change in method of accounting, 
except as otherwise expressly provided by the Internal Revenue Code, 
the regulations under the Code, or other guidance published in the 
Internal Revenue Bulletin. This paragraph (e)(2)(ii)(d)(3)(iii) also 
applies to making a late election or revoking a timely valid election 
made under section 13261(g)(2) or (3) of the Revenue Reconciliation Act 
of 1993 (107 Stat. 312, 540) (relating to amortizable section 197 
intangibles). A taxpayer may request consent to make a late election or 
revoke a timely valid election by submitting a request for a private 
letter ruling.
    (iv) Salvage value. Except as provided under paragraph 
(e)(2)(ii)(d)(2)(v) of this section, a change in salvage value of a 
depreciable or amortizable asset is not treated as a change in method 
of accounting.
    (v) Placed-in-service date. Any change in the placed-in-service 
date of a depreciable or amortizable asset is not treated as a change 
in method of accounting. The change in placed-in-service date may be 
corrected by adjustments in the earliest taxable year open under the 
period of limitation for assessment under section 6501(a) or the 
earliest taxable year under examination by the IRS but in no event 
earlier than the placed-in-service year of the asset,

[[Page 10]]

and in subsequent taxable years. However, if a taxpayer initiates the 
change in placed-in-service date, in lieu of filing amended federal tax 
returns, the taxpayer may correct the placed-in-service date by 
adjustments in the current and subsequent taxable years.
    (vi) Any other change in depreciation or amortization as the 
Secretary may designate by publication in the Federal Register or in 
the Internal Revenue Bulletin (see Sec.  601.601(d)(2) of this 
chapter).
    (4) Item being changed. For purposes of a change in depreciation or 
amortization to which this paragraph (e)(2)(ii)(d) applies, the item 
being changed generally is the depreciation treatment of each 
individual depreciable or amortizable asset. However, the item is the 
depreciation treatment of each vintage account with respect to a 
depreciable asset for which depreciation is determined under Sec.  
1.167(a)-11 (CLADR property). Further, a change in computing 
depreciation or amortization under section 167 (other than under 
section 168, section 1400I, section 1400L, or former section 168) is 
permitted only with respect to all assets in a particular account (as 
defined in Sec.  1.167(a)-7) or vintage account.
    (5) Special rules. For purposes of a change in depreciation or 
amortization to which this paragraph (e)(2)(ii)(d) applies--
    (i) Declining balance method to the straight line method for MACRS 
property. For tangible, depreciable property subject to section 168 
(MACRS property) that is depreciated using the 200-percent or 150-
percent declining balance method of depreciation under section 
168(b)(1) or (2), a taxpayer may change without the consent of the 
Commissioner from the declining balance method of depreciation to the 
straight line method of depreciation in the first taxable year in which 
the use of the straight line method with respect to the adjusted 
depreciable basis of the MACRS property as of the beginning of that 
year will yield a depreciation allowance that is greater than the 
depreciation allowance yielded by the use of the declining balance 
method. When the change is made, the adjusted depreciable basis of the 
MACRS property as of the beginning of the taxable year is recovered 
through annual depreciation allowances over the remaining recovery 
period (for further guidance, see section 6.06 of Rev. Proc. 87-57 
(1987-2 C.B. 687) and Sec.  601.601(d)(2)(ii)(b) of this chapter).
    (ii) Depreciation method changes for section 167 property. For a 
depreciable or amortizable asset for which depreciation is determined 
under section 167 (other than under section 168, section 1400I, section 
1400L, or former section 168), see Sec.  1.167(e)-1T(b), (c), and (d) 
for the changes in depreciation method that are permitted to be made 
without the consent of the Commissioner. For CLADR property, see Sec.  
1.167(a)-11(c)(1)(iii) for the changes in depreciation method for CLADR 
property that are permitted to be made without the consent of the 
Commissioner. Further, see Sec.  1.167(a)-11(b)(4)(iii)(c) for how to 
correct an incorrect classification or characterization of CLADR 
property.
    (iii) Section 481 adjustment. Except as otherwise expressly 
provided by the Internal Revenue Code, the regulations under the Code, 
or other guidance published in the Internal Revenue Bulletin, no 
section 481 adjustment is required or permitted for a change from one 
permissible method of computing depreciation or amortization to another 
permissible method of computing depreciation or amortization for an 
asset because this change is implemented by either a cut-off method 
(for further guidance, see section 2.06 of Rev. Proc. 97-27 (1997-1 
C.B. 680), section 2.06 of Rev. Proc. 2002-9 (2002-1 C.B. 327), and 
Sec.  601.601(d)(2)(ii)(b) of this chapter) or a modified cut-off 
method (under which the adjusted depreciable basis of the asset as of 
the beginning of the year of change is recovered using the new 
permissible method of accounting), as appropriate. However, a change 
from an impermissible method of computing depreciation or amortization 
to a permissible method of computing depreciation or amortization for 
an asset results in a section 481 adjustment. Similarly, a change in 
the treatment of an asset from nondepreciable or nonamortizable to 
depreciable or amortizable (or vice versa) or a change in the treatment 
of an asset from expensing to depreciating (or vice versa) results in a 
section 481 adjustment.
    (iii) Examples. The rules of this paragraph (e) are illustrated by 
the following examples:

    Example 1. Although the sale of merchandise is an income 
producing factor, and therefore inventories are required, a taxpayer 
in the retail jewelry business reports his income on the cash 
receipts and disbursements method of accounting. A change from the 
cash receipts and disbursements method of accounting to the accrual 
method of accounting is a change in the overall plan of accounting 
and thus is a change in method of accounting.
    Example 2. A taxpayer in the wholesale dry goods business 
computes its income and expenses on the accrual method of accounting 
and files its Federal income tax returns on such basis except for 
real estate taxes which have been reported on the cash receipts and 
disbursements method of accounting. A change in the treatment of 
real estate taxes from the cash receipts and disbursements method to 
the accrual method is a change in method of accounting because such 
change is a change in the treatment of a material item within his 
overall accounting practice.
    Example 3. A taxpayer in the wholesale dry goods business 
computes its income and expenses on the accrual method of accounting 
and files its Federal income tax returns on such basis. Vacation pay 
has been deducted in the year in which paid because the taxpayer did 
not have a completely vested vacation pay plan, and, therefore, the 
liability for payment did not accrue until that year. Subsequently, 
the taxpayer adopts a completely vested vacation pay plan that 
changes its year for accruing the deduction from the year in which 
payment is made to the year in which the liability to make the 
payment now arises. The change for the year of deduction of the 
vacation pay plan is not a change in method of accounting but 
results, instead, because the underlying facts (that is, the type of 
vacation pay plan) have changed.
    Example 4. From 1968 through 1970, a taxpayer has fairly 
allocated indirect overhead costs to the value of inventories on a 
fixed percentage of direct costs. If the ratio of indirect overhead 
costs to direct costs increases in 1971, a change in the underlying 
facts has occurred. Accordingly, an increase in the percentage in 
1971 to fairly reflect the increase in the relative level of 
indirect overhead costs is not a change in method of accounting but 
is a change in treatment resulting from a change in the underlying 
facts.
    Example 5. A taxpayer values inventories at cost. A change in 
the basis for valuation of inventories from cost to the lower of 
cost or market is a change in an overall practice of valuing items 
in inventory. The change, therefore, is a change in method of 
accounting for inventories.
    Example 6. A taxpayer in the manufacturing business has for many 
taxable years valued its inventories at cost. However, cost has been 
improperly computed since no overhead costs have been included in 
valuing the inventories at cost. The failure to allocate an 
appropriate portion of overhead to the value of inventories is 
contrary to the requirement of the Internal Revenue Code and the 
regulations under the Code. A change requiring appropriate 
allocation of overhead is a change in method of accounting because 
it involves a change in the treatment of a material item used in the 
overall practice of identifying or valuing items in inventory.
    Example 7. A taxpayer has for many taxable years valued certain 
inventories by a method which provides for deducting 20 percent of 
the cost of the inventory items in determining the final inventory 
valuation. The 20 percent adjustment is taken as a ``reserve for 
price changes.'' Although this method is not a proper method of 
valuing inventories under the Internal Revenue Code or the 
regulations under the Code, it involves the treatment of a material 
item used in the overall practice of valuing inventory. A change in 
such practice or procedure is a change of method of accounting for 
inventories.

[[Page 11]]

    Example 8. A taxpayer has always used a base stock system of 
accounting for inventories. Under this system a constant price is 
applied to an assumed constant normal quantity of goods in stock. 
The base stock system is an overall plan of accounting for 
inventories which is not recognized as a proper method of accounting 
for inventories under the regulations. A change in this practice is, 
nevertheless, a change of method of accounting for inventories.
    Example 9. In 2000, A1, a calendar year taxpayer engaged in the 
trade or business of manufacturing knitted goods, purchased and 
placed in service a building and its components at a total cost of 
$10,000,000 for use in its manufacturing operations. A1 classified 
the $10,000,000 as nonresidential real property under section 
168(e). A1 did not make any elections under section 168 on its 2000 
Federal tax return. As a result, on its 2000, 2001, and 2002 federal 
tax returns, A1 depreciated the $10,000,000 under the general 
depreciation system of section 168(a), using the straight line 
method of depreciation, a 39-year recovery period, and the mid-month 
convention. In 2003, A1 completes a cost segregation study on the 
building and its components and identifies items that cost a total 
of $1,500,000 as section 1245 property. As a result, the $1,500,000 
should have been classified in 2000 as 5-year property under section 
168(e) and depreciated on A1's 2000, 2001, and 2002 Federal tax 
returns under the general depreciation system, using the 200-percent 
declining balance method of depreciation, a 5-year recovery period, 
and the half-year convention. Pursuant to paragraph 
(e)(2)(ii)(d)(2)(i) of this section, A1's change to this 
depreciation method, recovery period, and convention is a change in 
method of accounting. This method change results in a section 481 
adjustment. The useful life exception under paragraph 
(e)(2)(ii)(d)(3)(i) of this section does not apply because the 
assets are depreciated under section 168.
    Example 10. In 1996, B, a calendar year taxpayer, purchased and 
placed in service new equipment at a total cost of $1,000,000 for 
use in its plant located outside the United States. The equipment is 
15-year property under section 168(e) with a class life of 20 years. 
The equipment is required to be depreciated under the alternative 
depreciation system of section 168(g). However, B incorrectly 
depreciated the equipment under the general depreciation system of 
section 168(a), using the 150-percent declining balance method, a 
15-year recovery period, and the half-year convention. In 2003, the 
IRS examines B's 2000 Federal income tax return and changes the 
depreciation of the equipment to the alternative depreciation 
system, using the straight line method of depreciation, a 20-year 
recovery period, and the half-year convention. Pursuant to paragraph 
(e)(2)(ii)(d)(2)(i) of this section, this change in depreciation 
method and recovery period made by the IRS is a change in method of 
accounting. This method change results in a section 481 adjustment. 
The useful life exception under paragraph (e)(2)(ii)(d)(3)(i) of 
this section does not apply because the assets are depreciated under 
section 168.
    Example 11. In May 2001, C, a calendar year taxpayer, purchased 
and placed in service equipment for use in its trade or business. C 
never held this equipment for sale. However, C incorrectly treated 
the equipment as inventory on its 2001 and 2002 Federal tax returns. 
In 2003, C realizes that the equipment should have been treated as a 
depreciable asset. Pursuant to paragraph (e)(2)(ii)(d)(2) of this 
section, C's change in the treatment of the equipment from inventory 
to a depreciable asset is a change in method of accounting. This 
method change results in a section 481 adjustment.
    Example 12. Since 2001, D, a calendar year taxpayer, has used 
the distribution fee period method to amortize distributor 
commissions and, under that method, established pools to account for 
the distributor commissions (for further guidance, see Rev. Proc. 
2000-38 (2000-2 C.B. 310) and Sec.  601.601(d)(2)(ii)(b) of this 
chapter). A change in the accounting of distributor commissions 
under the distribution fee period method from pooling to single 
asset accounting is a change in method of accounting pursuant to 
paragraph (e)(2)(ii)(d)(2)(vi) of this section. This method change 
results in no section 481 adjustment because the change is from one 
permissible method to another permissible method.
    Example 13. Since 2000, E, a calendar year taxpayer, has 
accounted for items of MACRS property that are mass assets in pools. 
Each pool includes only the mass assets that are placed in service 
by E in the same taxable year. E is able to identify the cost basis 
of each asset in each pool. None of the pools are general asset 
accounts under section 168(i)(4) and the regulations under section 
168(i)(4). E identified any dispositions of these mass assets by 
specific identification. Because of changes in E's recordkeeping in 
2003, it is impracticable for E to continue to identify disposed 
mass assets using specific identification. As a result, E wants to 
change to a first-in, first-out method under which the mass assets 
disposed of in a taxable year are deemed to be from the pool with 
the earliest placed-in-service year in existence as of the beginning 
of the taxable year of each disposition. Pursuant to paragraph 
(e)(2)(ii)(d)(2)(vii) of this section, this change is a change in 
method of accounting. This method change results in no section 481 
adjustment because the change is from one permissible method to 
another permissible method.
    Example 14. In August 2001, F, a calendar taxpayer, purchased 
and placed in service a copier for use in its trade or business. F 
incorrectly classified the copier as 7-year property under section 
168(e). F made no elections under section 168 on its 2001 Federal 
tax return. As a result, on its 2001 and 2002 Federal tax returns, F 
depreciated the copier under the general depreciation system of 
section 168(a), using the 200-percent declining balance method of 
depreciation, a 7-year recovery period, and the half-year 
convention. In 2003, F realizes that the copier is 5-year property 
and should have been depreciated on its 2001 and 2002 Federal tax 
returns under the general depreciation system using a 5-year 
recovery period rather than a 7-year recovery period. Pursuant to 
paragraph (e)(2)(ii)(d)(2)(i) of this section, F's change in 
recovery period from 7 to 5 years is a change in method of 
accounting. This method change results in a section 481 adjustment. 
The useful life exception under paragraph (e)(2)(ii)(d)(3)(i) of 
this section does not apply because the copier is depreciated under 
section 168.
    Example 15. In 1998, G, a calendar year taxpayer, purchased and 
placed in service an intangible asset that is not an amortizable 
section 197 intangible and that is not described in section 167(f). 
G amortized the cost of the intangible asset under section 167(a) 
using the straight line method of depreciation and a useful life of 
13 years. In 2003, because of changing conditions, G changes the 
remaining useful life of the intangible asset to 2 years. Pursuant 
to paragraph (e)(2)(ii)(d)(3)(i) of this section, G's change in 
useful life is not a change in method of accounting because the 
intangible asset is depreciated under section 167 and G is not 
changing to or from a useful life that is specifically assigned by 
the Internal Revenue Code, the regulations under the Code, or other 
guidance published in the Internal Revenue Bulletin.
    Example 16. In July 2001, H, a calendar year taxpayer, purchased 
and placed in service ``off-the-shelf'' computer software and a new 
computer. The cost of the new computer and computer software are 
separately stated. H incorrectly included the cost of this software 
as part of the cost of the computer, which is 5-year property under 
section 168(e). On its 2001 Federal tax return, H elected to 
depreciate its 5-year property placed in service in 2001 under the 
alternative depreciation system of section 168(g). The class life 
for a computer is 5 years. As a result, because H included the cost 
of the computer software as part of the cost of the computer 
hardware, H depreciated the cost of the software under the 
alternative depreciation system, using the straight line method of 
depreciation, a 5-year recovery period, and the half-year 
convention. In 2003, H realizes that the cost of the software should 
have been amortized under section 167(f)(1), using the straight line 
method of depreciation, a 36-month useful life, and a monthly 
convention. H's change from 5-years to 36-months is a change in 
method of accounting because H is changing to a useful life that is 
specifically assigned by section 167(f)(1). The change in convention 
from the half-year to the monthly convention also is a change in 
method of accounting. Both changes result in a section 481 
adjustment.
    Example 17. On September 15, 2001, I2, a calendar year taxpayer, 
purchased and placed in service new equipment at a total cost of 
$500,000 for use in its business. The equipment is 5-year property 
under section 168(e) with a class life of 9 years and is qualified 
property under section 168(k). I2 did not place in service any other 
depreciable property in 2001. Section 168(g)(1)(A) through (D) do 
not apply to the equipment. I2 intended to elect the alternative 
depreciation system under section 168(g) for 5-year property placed 
in service in 2001. However, I2 did not make the election. Instead, 
I2 deducted on its 2001 Federal tax return the 30-percent additional 
first year depreciation attributable to the equipment

[[Page 12]]

and, on its 2001 and 2002 Federal tax returns, depreciated the 
remaining adjusted depreciable basis of the equipment under the 
general depreciation system under 168(a), using the 200-percent 
declining balance method, a 5-year recovery period, and the half-
year convention. In 2003, I2 realizes its failure to make the 
alternative depreciation system election in 2001 and files a Form 
3115 to change its method of depreciating the remaining adjusted 
depreciable basis of the 2001 equipment to the alternative 
depreciation system. Because this equipment is not required to be 
depreciated under the alternative depreciation system, I2 is 
attempting to make an election under section 168(g)(7). However, 
this election must be made in the taxable year in which the 
equipment is placed in service (2001) and, consequently, I2 is 
attempting to make a late election under section 168(g)(7). 
Accordingly, I2's change to the alternative depreciation system is 
not a change in accounting method pursuant to paragraph 
(e)(2)(ii)(d)(3)(iii) of this section. Instead, I2 must submit a 
request for a private letter ruling under Sec.  301.9100-3 of this 
chapter, requesting an extension of time to make the alternative 
depreciation system election on its 2001 Federal tax return.

    (3) [Reserved]. For further guidance, see Sec.  1.446-1(e)(3).
    (4) Effective date--(i) In general. Except as provided in 
paragraphs (e)(3)(iii) and (e)(4)(ii) of this section, paragraph (e) of 
this section applies on or after December 30, 2003. For the 
applicability of regulations before December 30, 2003, see Sec.  1.446-
1(e) in effect prior to December 30, 2003 (Sec.  1.446-1(e) as 
contained in 26 CFR part 1 edition revised as of April 1, 2003).
    (ii) Changes involving depreciable or amortizable assets. With 
respect to paragraph (e)(2)(ii)(d) of this section, paragraph 
(e)(2)(iii) Examples 9 through 17 of this section, the addition of the 
language ``certain changes in computing depreciation or amortization 
(see paragraph (e)(2)(ii)(d) of this section)'' to the last sentence of 
paragraph (e)(2)(ii)(a) of this section, and the removal of all 
language regarding useful life and the sentence ``On the other hand, a 
correction to require depreciation in lieu of a deduction for the cost 
of a class of depreciable assets which had been consistently treated as 
an expense in the year of purchase involves the question of the proper 
timing of an item, and is to be treated as a change in method of 
accounting'' from paragraph (e)(2)(ii)(b) of this section--
    (A) For any change in depreciation or amortization that is a change 
in method of accounting, this section applies to such a change in 
method of accounting made for taxable years ending on or after December 
30, 2003; and
    (B) For any change in depreciation or amortization that is not a 
change in method of accounting, this section applies to such a change 
made for taxable years ending on or after December 30, 2003.
    (iii) The applicability of paragraph (e) of this section expires on 
or before January 2, 2007.

0
Par. 6. Section 1.1016-3 is amended by:
0
1. Redesignating paragraph (h) as paragraph (i).
0
2. Adding new paragraphs (h) and (j).
    The additions read as follows:


Sec.  1.1016-3  Exhaustion, wear and tear, obsolescence, amortization, 
and depletion for periods since February 28, 1913.

* * * * *
    (h) Application to a change in method of accounting. [Reserved]. 
For further guidance, see Sec.  1.1016-3T(h).
* * * * *
    (j) Effective date. [Reserved]. For further guidance, see Sec.  
1.1016-3T(j)(1) and (2).

0
Par. 7. Section 1.1016-3T is added to read as follows:


Sec.  1.1016-3T  Exhaustion, wear and tear, obsolescence, amortization, 
and depletion for periods since February 28, 1913 (temporary).

    (a) through (g) [Reserved]. For further guidance, see Sec.  1.1016-
3(a) through (g).
    (h) Application to a change in method of accounting. For purposes 
of determining whether a change in depreciation or amortization for 
property subject to section 167, 168, 197, 1400I, 1400L(b), or 
1400L(c), or to section 168 prior to its amendment by the Tax Reform 
Act of 1986 (100 Stat. 2121) (former section 168) is a change in method 
of accounting under section 446(e) and the regulations under section 
446(e), section 1016(a)(2) does not permanently affect a taxpayer's 
lifetime income.
    (i) [Reserved]. For further guidance, see Sec.  1.1016-3(i).
    (j) Effective date--(1) In general. Except as provided in paragraph 
(j)(2) of this section, this section applies on or after December 30, 
2003. For the applicability of regulations before December 30, 2003, 
see Sec.  1.1016-3 in effect prior to December 30, 2003 (Sec.  1.1016-3 
as contained in 26 CFR part 1 edition revised as of April 1, 2003).
    (2) Depreciation or amortization changes. Paragraph (h) of this 
section applies to a change in depreciation or amortization for 
property subject to section 167, 168, 197, 1400I, 1400L(b), or 
1400L(c), or former section 168 for taxable years ending on or after 
December 30, 2003.
    (3) The applicability of this section expires on or before January 
2, 2007.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 18, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 03-31820 Filed 12-30-03; 8:45 am]
BILLING CODE 4830-01-P