[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Rules and Regulations]
[Pages 9529-9547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3992]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9115]
RIN 1545-BC27


Depreciation of MACRS Property That Is Acquired in a Like-Kind 
Exchange or as a Result of an Involuntary Conversion

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains regulations relating to the 
depreciation of property subject to section 168 of the Internal Revenue 
Code (MACRS property). Specifically, these temporary regulations 
provide guidance on how to depreciate MACRS property acquired in a 
like-kind exchange under section 1031 or as a result of an involuntary 
conversion under section 1033 when both the acquired and relinquished 
property are subject to MACRS in the hands of the acquiring taxpayer. 
These temporary regulations will affect taxpayers involved in a like-
kind exchange under section 1031 or an involuntary conversion under 
section 1033. 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 March 1, 2004.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.168(a)-1T(b) and (c), 1.168(b)-1T(b), 1.168(d)-1T(d), 1.168(i)-1T(l), 
1.168(i)-6T(k), and 1.168(k)-1T(g).

FOR FURTHER INFORMATION CONTACT: Charles J. Magee, (202) 622-3110 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 1 under section 
168 of the Internal Revenue Code (Code). Section 168 has been modified 
by several Acts, including section 201 of the Tax Reform Act of 1986, 
Public Law 99-514 (100 Stat. 2085, 2121), section 101 of the Job 
Creation and Worker Assistance Act of 2002, Public Law 107-147 (116 
Stat. 21), and section 201 of the Jobs and Growth Tax Relief 
Reconciliation Act of 2003, Public Law 108-27 (117 Stat. 752). Section 
168 provides the depreciation deduction for tangible property generally 
placed in service after December 31, 1986.

[[Page 9530]]

Explanation of Provisions

Background

    Section 167 allows as a depreciation deduction a reasonable 
allowance for the exhaustion, wear, and tear of property used in a 
trade or business or held for the production of income. The 
depreciation allowable for depreciable tangible property placed in 
service after 1986 generally is determined under section 168 (MACRS 
property). Under section 1031(a)(1), no gain or loss is recognized on 
an exchange of property held for productive use in a trade or business 
or for investment if the property is exchanged solely for property of 
like kind that is to be held either for productive use in a trade or 
business or for investment. Section 1031(b) provides that if an 
exchange would be within the provision of section 1031(a) were it not 
for the fact that the property received in the exchange consists not 
only of property permitted to be received in such an exchange, but also 
of other property or money, then the gain, if any, to the recipient 
shall be recognized, but in an amount not in excess of the sum of such 
money and the fair market value of such other property. Under section 
1031(c), no loss from such a transaction is recognized. Under section 
1031(d), the basis of property acquired in an exchange described in 
section 1031 is the same as that of the property exchanged, decreased 
by the amount of any money received by the taxpayer and increased by 
the amount of gain (or decreased by the amount of loss) that was 
recognized on such exchange.
    Section 1033(a)(1) provides that if property (as a result of its 
destruction in whole or in part, theft, seizure, or requisition or 
condemnation or threat or imminence thereof) is compulsorily or 
involuntarily converted into property similar or related in service or 
use to the property so converted, no gain is recognized. Under section 
1033(b)(1), the basis of property acquired by the taxpayer in such a 
transaction is the basis of the converted property. Under section 
1033(a)(2)(A), if property is compulsorily or involuntarily converted 
into money or into property not similar or related in service or use to 
the converted property, and, within the time frame described in section 
1033(a)(2)(B), the taxpayer purchases property that is related in 
service or use to the converted property or purchases stock in the 
acquisition of control of a corporation owning such property, then the 
taxpayer may elect to recognize gain only to the extent that the amount 
realized upon such conversion exceeds the cost of such other property. 
Under section 1033(b)(2), if such an election is made, the basis of the 
replacement property acquired by the taxpayer generally is the cost of 
that property decreased by any gain not recognized by reason of section 
1033(a)(2).
    The IRS became aware of inconsistent depreciation treatment by 
taxpayers of property that has a basis determined under section 1031(d) 
or section 1033(b) (replacement property). Certain taxpayers were 
depreciating the replacement property using the same depreciation 
method, recovery period, and convention as the exchanged or 
involuntarily converted property (relinquished property) while other 
taxpayers were depreciating the replacement property as if it were 
newly placed in service.
    In response, the IRS and Treasury issued Notice 2000-4 (2000-1 C.B. 
313), published January 18, 2000. Notice 2000-4 instructed taxpayers 
how to depreciate MACRS property that has a basis determined under 
section 1031(d) or section 1033(b) (replacement MACRS property), 
provided that the exchanged or involuntarily converted property was 
also MACRS property (relinquished MACRS property). The notice stated 
that replacement MACRS property placed in service after January 3, 
2000, is depreciated over the remaining recovery period of, and using 
the same depreciation method and convention as, the relinquished MACRS 
property and that any excess of the basis in the replacement MACRS 
property over the adjusted basis in the relinquished MACRS property is 
treated as newly purchased MACRS property. Notice 2000-4 also stated 
that the IRS and Treasury intended to issue regulations to address 
these transactions. Public comments on the nature and scope of these 
temporary regulations were requested.

Scope

    The temporary regulations instruct taxpayers how to determine the 
annual depreciation allowance under section 168 for replacement MACRS 
property. Generally, MACRS property, which is defined in Sec.  
1.168(b)-1T(a)(2), is tangible property of a character subject to the 
allowance for depreciation provided in section 167(a) that is placed in 
service after December 31, 1986, and subject to section 168. The 
temporary regulations also apply to a transaction to which section 
1031(a), (b), or (c) applies (like-kind exchange) or a transaction in 
which gain or loss is not recognized pursuant to section 1033 
(involuntary conversion) involving MACRS property that is replaced with 
other MACRS property in a transaction between members of the same 
affiliated group.
    Property acquired in a like-kind exchange or involuntary conversion 
to replace property whose depreciation allowance is computed under a 
depreciation system other than MACRS, or to replace property for which 
a taxpayer made a valid election under section 168(f)(1) to exclude it 
from the application of section 168 (MACRS), is not within the scope of 
the temporary regulations. Additionally, this regulation does not 
provide guidance for a taxpayer acquiring property in an exchange for 
property that the taxpayer depreciated under the Accelerated Cost 
Recovery System (ACRS) or for a taxpayer acquiring an automobile for 
another automobile for which the taxpayer used the Standard Mileage 
Rate method of deducting expenses. Comments are requested on the 
depreciation treatment of like-kind exchange or involuntary conversion 
transactions described above and whether the depreciation treatment of 
these transactions should fall within the scope of this regulation.
    The depreciation treatment used by previous owners in determining 
depreciation allowances for the replacement MACRS property is not 
relevant. For example, a taxpayer exchanging MACRS property for 
property that was depreciated under ACRS by the person relinquishing 
the property may use this regulation (because the acquired property 
will become MACRS property in the hands of the acquiring taxpayer). In 
addition, elections made by previous owners in determining depreciation 
allowances of the replacement MACRS property have no effect on the 
acquiring taxpayer. For example, a taxpayer exchanging MACRS property 
that the taxpayer depreciates under the general depreciation system for 
other MACRS property that the previous owner elected to depreciate 
under the alternative depreciation system pursuant to section 168(g)(7) 
does not have to continue using the alternative depreciation system for 
the replacement MACRS property.
    Finally, the IRS has learned that some taxpayers question whether 
Notice 2000-4 allows depreciation of land, if the land is acquired in a 
like-kind exchange or involuntary conversion for MACRS property. As 
explained in further detail below, neither the temporary regulations 
nor Notice 2000-4 allow taxpayers to depreciate land or other 
nondepreciable property.

[[Page 9531]]

General Rule

Exchanged Basis
    The temporary regulations provide rules for determining the 
applicable recovery period, depreciation method, and convention used to 
determine the depreciation allowances for the replacement MACRS 
property with respect to so much of the taxpayer's basis (as determined 
under section 1031(d) and the regulations under section 1031(d) or 
section 1033(b) and the regulations under section 1033(b)) in the 
replacement MACRS property as does not exceed the taxpayer's adjusted 
depreciable basis in the relinquished MACRS property (exchanged basis). 
In general, the exchanged basis is depreciated over the remaining 
recovery period of, and using the depreciation method and convention 
of, the relinquished MACRS property (general rule).
    This general rule applies if the replacement MACRS property has the 
same or a shorter recovery period or the same or a more accelerated 
depreciation method than the relinquished MACRS property. Under certain 
circumstances, this rule could adversely affect taxpayers engaging in 
like-kind exchanges or involuntary conversions. For example, under the 
general rule, a taxpayer must depreciate replacement MACRS property 
with a shorter recovery period over the longer recovery period of the 
relinquished MACRS property even if the taxpayer could depreciate the 
replacement MACRS property over a shorter recovery period by treating 
such property as newly acquired MACRS property. Accordingly, the 
temporary regulations provide an election not to apply the temporary 
regulations and to treat the replacement MACRS property as MACRS 
property placed in service by the acquiring taxpayer at the time of 
replacement. Taxpayers may use this election to ameliorate the possible 
adverse effects of applying the general rule to this type of 
transaction.
    The general rule does not apply if the replacement MACRS property 
has a longer recovery period or less accelerated depreciation method 
than the relinquished property. If the recovery period of the 
replacement MACRS property is longer than that of the relinquished 
MACRS property, the taxpayer's exchanged basis in the relinquished 
MACRS property is depreciated beginning in the year of replacement over 
the remainder of the recovery period that would have applied to the 
replacement MACRS property if the replacement MACRS property had 
originally been placed in service when the relinquished MACRS property 
was placed in service by the acquiring taxpayer. Similarly, if the 
depreciation method of the replacement MACRS property is less 
accelerated than that of the relinquished MACRS property, then the 
taxpayer's exchanged basis in the relinquished MACRS property is 
depreciated beginning in the year of replacement using the less 
accelerated depreciation method of the replacement MACRS property that 
would have applied to the replacement MACRS property if the replacement 
MACRS property had originally been placed in service when the 
relinquished MACRS property was placed in service by the acquiring 
taxpayer.
    For taxpayers who wish to use the optional depreciation tables to 
determine the depreciation allowances for the replacement MACRS 
property instead of the formulas (for example, see section 6 of Rev. 
Proc. 87-57 (1987-2 C.B. 687, 692)), the temporary regulations provide 
guidance on choosing the applicable optional table as well as how to 
modify the calculation for computing the depreciation allowances for 
the replacement MACRS property.
Excess Basis
    Any excess of the taxpayer's basis in the replacement MACRS 
property over the taxpayer's exchanged basis in the relinquished MACRS 
property is referred to as the excess basis. Generally, the excess 
basis in the replacement MACRS property is treated as property that is 
placed in service by the acquiring taxpayer in the taxable year in 
which the replacement MACRS property is placed in service by the 
acquiring taxpayer or, if later, the taxable year of the disposition of 
the relinquished MACRS property (time of replacement). The depreciation 
allowances for the excess basis are determined by using the applicable 
recovery period, depreciation method, and convention prescribed under 
section 168 for the replacement MACRS property at the time of 
replacement. In addition, the excess basis may be taken into account 
for purposes of computing the deduction allowed under section 179.

Special Rules

Deferred Exchanges
    Because of the complex nature of certain like-kind exchange and 
involuntary conversion transactions, the temporary regulations provide 
special rules for certain circumstances. If a taxpayer disposes of the 
relinquished MACRS property prior to the acquisition of the replacement 
MACRS property, the temporary regulations do not allow the taxpayer to 
take depreciation on the relinquished MACRS property during the period 
between the disposition of the relinquished MACRS property and the 
acquisition of the replacement MACRS property. This results because, in 
a deferred exchange under Sec.  1.1031(k)-1, or if a taxpayer does not 
replace converted property until after the taxpayer no longer owns the 
converted property, the taxpayer has no property to depreciate during 
that intervening period. Accordingly, the recovery period for the 
replacement MACRS property is suspended during this period. The 
temporary regulations do not address the issue of whether an 
intermediary (such as an exchange accommodation titleholder) is 
entitled to depreciation.
Acquisition Prior to Disposition
    When replacement MACRS property is acquired and placed in service 
by a taxpayer before the relinquished MACRS property is disposed of by 
the taxpayer (for example, under threat of condemnation), the 
regulations allow the taxpayer to depreciate the unadjusted depreciable 
basis of the replacement MACRS property until the time of disposition 
of the relinquished MACRS property by the taxpayer. The taxpayer must 
include in taxable income in the year of disposition of the 
relinquished MACRS property the excess of the depreciation allowable on 
the unadjusted depreciable basis of the replacement MACRS property over 
the depreciation that would be allowable on the excess basis of the 
replacement MACRS property from the date the replacement MACRS property 
was placed in service by the taxpayer to the time of disposition of the 
relinquished MACRS property. The depreciation of the depreciable excess 
basis of the replacement MACRS property continues to be depreciated by 
the taxpayer. The IRS and Treasury may consider providing additional 
future guidance with respect to this issue and request comments 
relating thereto. The IRS and Treasury also invite taxpayers to comment 
on whether the allowance of depreciation for the replacement MACRS 
property should be followed by basis reduction at the time of 
disposition of the relinquished MACRS property, or whether some other 
approach should be taken.

Transactions Involving Nondepreciable Property

    Because land or other nondepreciable property acquired in a like-
kind

[[Page 9532]]

exchange or involuntary conversion for MACRS property is not 
depreciable, such property is not within the scope of the temporary 
regulations. Further, if MACRS property or both MACRS property and land 
or other nondepreciable property are acquired in a like-kind exchange 
or involuntary conversion for land or other nondepreciable property, 
the basis of the replacement MACRS property is treated as property 
placed in service by the acquiring taxpayer in the year of replacement.

Automobiles

    The IRS received many comments concerning the like-kind exchange of 
automobiles. In response, the temporary regulations contain detailed 
rules regarding the annual allowable depreciation for automobiles 
acquired in a like-kind exchange or involuntary conversion. The 
temporary regulations provide that if the replacement MACRS property 
consists of a passenger automobile that is subject to the depreciation 
limitations of section 280F(a), then the depreciation limitation that 
applies for the taxable year is based on the date the replacement MACRS 
automobile is placed in service by the acquiring taxpayer. In 
allocating the depreciation limitation, the depreciation allowance for 
the exchanged basis in the replacement MACRS automobile generally is 
limited to the amount that would have been allowable under section 
280F(a) for the relinquished MACRS automobile had the transaction not 
occurred. The depreciation allowance for the excess basis is generally 
limited to the section 280F(a) limitation that applies for that taxable 
year less the amount of the depreciation allowance for the exchanged 
basis.

Election Not To Apply Temporary Regulations

    Commentators suggested that implementing the general rule for all 
depreciable property was burdensome because taxpayers would have 
onerous computational and administrative difficulties due to the 
possibility of having to track different depreciation components of one 
asset. Responding to these comments, the temporary regulations include 
a provision by which taxpayers may elect not to apply these temporary 
regulations. If a taxpayer elects not to apply the temporary 
regulations, the taxpayer must treat the entire basis (i.e., both the 
exchanged and excess basis) of the replacement MACRS property as being 
placed in service by the acquiring taxpayer at the time of replacement. 
Consistent with this treatment, the taxpayer treats the relinquished 
MACRS property as disposed of at the time of the disposition of the 
relinquished MACRS property. The election must be made by typing or 
legibly printing at the top of Form 4562, Depreciation and 
Amortization, ``ELECTION MADE UNDER SECTION 1.168(i)-6T(i),'' or in the 
manner provided for on Form 4562 and its instructions.

Additional First Year Depreciation

    Temporary regulations issued under Sec. Sec.  1.168(k)-1T and 
1.1400L(b)-1T (TD 9091, 68 FR 52986 (September 8, 2003)) provide that 
the exchanged basis (referred to as the ``carryover basis'' in such 
regulations) and the excess basis, if any, of the replacement MACRS 
property (referred to as the ``acquired MACRS property'' in such 
regulations) is eligible for the additional first year depreciation 
deduction provided under section 168(k) or 1400L(b) if the replacement 
MACRS property is qualified property under section 168(k)(2), 50-
percent bonus depreciation property under section 168(k)(4), or 
qualified New York Liberty Zone property under section 1400L(b)(2). 
However, if qualified property, 50-percent bonus depreciation property, 
or qualified New York Liberty Zone property is placed in service by the 
taxpayer and then disposed of by that taxpayer in a like-kind exchange 
or involuntary conversion in the same taxable year, the relinquished 
MACRS property (referred to as the ``exchanged or involuntarily 
converted MACRS property'' in such regulations) is not eligible for the 
additional first year depreciation deduction under section 168(k) or 
1400L(b), as applicable. However, the exchanged basis (and excess 
basis, if any) of the replacement MACRS property may be eligible for 
the additional first year depreciation deduction under section 168(k) 
or 1400L(b), as applicable, subject to the requirements of section 
168(k) or 1400L(b), as applicable. The rules provided under Sec. Sec.  
1.168(k)-1T and 1.1400L(b)-1T apply even if the taxpayer elects not to 
apply these temporary regulations.
    These temporary regulations amend the definition of time of 
replacement in Sec.  1.168(k)-1T(f)(5)(ii)(F) to be consistent with the 
definition of that term under these temporary regulations. In addition, 
these temporary regulations modify the like-kind exchange or 
involuntary conversion examples contained in Sec.  1.168(k)-1T(f)(5)(v) 
to reflect the placed in service date (taking into account the 
convention as determined under these temporary regulations) for the 
relinquished MACRS property and the replacement MACRS property in the 
year of disposition and year of replacement.
    Since the publication of Sec.  1.168(k)-1T and 1.1400L(b)-1T, we 
have received comments regarding the application of the additional 
first year depreciation deduction rules in Sec. Sec.  1.168(k)-1T(f)(5) 
and 1.1400L(b)-1T(f)(5) to qualified property, 50-percent bonus 
depreciation property, or qualified New York Liberty Zone property 
acquired in a like-kind exchange or an involuntary conversion. We will 
consider these comments when Sec. Sec.  1.168(k)-1T and 1.1400L(b)-1T 
are finalized.

General Asset Accounts

    Some commentators questioned how the general rule set forth in 
Notice 2000-4 affects the tax treatment of like-kind exchanges or 
involuntary conversions involving MACRS assets contained in general 
asset accounts as described in Sec.  1.168(i)-1.
    Section 1.168(i)-1(e)(2) treats like-kind exchanges or involuntary 
conversions as dispositions of the relinquished MACRS property and 
acquisitions of the replacement MACRS property. As a result, any amount 
realized on a like-kind exchange or involuntary conversion is 
recognized as ordinary income and the basis of the relinquished MACRS 
property in the general asset account continues to be depreciated. 
However, Sec.  1.168(i)-1(e)(3)(iii) allows a taxpayer to elect to 
terminate general asset account treatment for the relinquished MACRS 
property, and, as a result, the tax treatment of the like-kind exchange 
or involuntary conversion is determined under section 1031 or section 
1033, as applicable.
    These temporary regulations amend the final regulations under 
section 168(i)(4) (TD 8566, 59 FR 51369 (1994)) to address the like-
kind exchange or involuntary conversion of MACRS property contained in 
a general asset account. Under the temporary regulations, general asset 
account treatment terminates for the relinquished MACRS property as of 
the first day of the year of disposition. Because this rule would 
require taxpayers to track each property in a general asset account, 
the IRS and Treasury request comments on alternative methods to account 
for a like-kind exchange or involuntary conversion involving MACRS 
property contained in a general asset account when the replacement 
MACRS property has a longer recovery period or less accelerated 
depreciation method than the relinquished MACRS property or when the 
basis of the general asset

[[Page 9533]]

account would change as a result of the like-kind exchange or 
involuntary conversion.

Exchanges of Multiple Properties

    The determination of the basis of property acquired in a like-kind 
exchange involving multiple properties is described in Sec.  1.1031(j)-
1 and the determination of the basis of multiple properties acquired as 
a result of an involuntary conversion is described in Sec.  1.1033(b)-
1. Commentators question how the rules set forth in Notice 2000-4 
affects the depreciation treatment of a like-kind exchange or an 
involuntary conversion involving multiple properties. At this time, 
taxpayers may apply the principles of this temporary regulation to 
determine the depreciation treatment of MACRS property acquired in 
these transactions. The IRS and Treasury may consider providing future 
guidance with respect to this issue and request comments relating 
thereto. Specifically, comments are requested on the depreciation 
treatment of these transactions when the depreciation methods or 
recovery periods of the replacement MACRS properties differ from those 
of the relinquished MACRS properties.

Effect on Other Documents

    The following publication is obsolete after February 27, 2004: 
Notice 2000-4 (2000-1 C.B. 313).
    Taxpayers who have either relinquished or an acquired MACRS 
property in a like-kind exchange or involuntary conversion between 
January 3, 2000, and February 27, 2004, may rely on Notice 2000-4.

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 proposed rules 
section in this issue of 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 authors of these regulations are Alan H. Cooper, 
Office of the Chief Counsel (Small Business/Self Employed), and Charles 
J. Magee, Office of the 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.

Temporary 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 * * * Sec.  1.168(i)-1T also issued 
under 26 U.S.C. 168(i)(4).


0
Par. 2. Sections 1.168(a)-1T and 1.168(b)-1T are added to read as 
follows:


Sec.  1.168(a)-1T  Modified accelerated cost recovery system 
(temporary).

    (a) Section 168 determines the depreciation allowance for tangible 
property that is of a character subject to the allowance for 
depreciation provided in section 167(a) and that is placed in service 
after December 31, 1986 (or after July 31, 1986, if the taxpayer made 
an election under section 203(a)(1)(B) of the Tax Reform Act of 1986; 
100 Stat. 2143). Except for property excluded from the application of 
section 168 as a result of section 168(f) or as a result of a 
transitional rule, the provisions of section 168 are mandatory for all 
eligible property. The allowance for depreciation under section 168 
constitutes the amount of depreciation allowable under section 167(a). 
The determination of whether tangible property is property of a 
character subject to the allowance for depreciation is made under 
section 167 and the regulations under section 167.
    (b) This section is applicable on and after February 27, 2004.
    (c) The applicability of this section expires on or before February 
27, 2007.


Sec.  1.168(b)-1T  Definitions (temporary).

    (a) Definitions. For purposes of section 168 and the regulations 
under section 168, the following definitions apply:
    (1) Depreciable property is property that is of a character subject 
to the allowance for depreciation as determined under section 167 and 
the regulations under section 167.
    (2) MACRS property is tangible, depreciable property that is placed 
in service after December 31, 1986 (or after July 31, 1986, if the 
taxpayer made an election under section 203(a)(1)(B) of the Tax Reform 
Act of 1986; 100 Stat. 2143) and subject to section 168, except for 
property excluded from the application of section 168 as a result of 
section 168(f) or as a result of a transitional rule.
    (3) Unadjusted depreciable basis is the basis of property for 
purposes of section 1011 without regard to any adjustments described in 
section 1016(a)(2) and (3). This basis reflects the reduction in basis 
for the percentage of the taxpayer's use of property for the taxable 
year other than in the taxpayer's trade or business (or for the 
production of income), for any portion of the basis the taxpayer 
properly elects to treat as an expense under section 179, and for any 
adjustments to basis provided by other provisions of the Internal 
Revenue Code and the regulations under the Code (other than section 
1016(a)(2) and (3)) (for example, a reduction in basis by the amount of 
the disabled access credit pursuant to section 44(d)(7)). For property 
subject to a lease, see section 167(c)(2).
    (4) Adjusted depreciable basis is the unadjusted depreciable basis 
of the property, as defined in Sec.  1.168(b)-1T(a)(3), less the 
adjustments described in section 1016(a)(2) and (3).
    (b) Effective date. (1) This section is applicable on February 27, 
2004.
    (2) The applicability of this section expires on or before February 
27, 2007.
0
Par. 3. Section 1.168(d)-1 is amended by:
0
1. Revising paragraph (b)(3).
0
2. Adding paragraph (d)(3).
    The addition and revision read as follows:


Sec.  1.168(d)-1  Applicable conventions--half-year and mid-quarter 
conventions.

* * * * *
    (b) * * *
    (3) * * * (i) and (ii) [Reserved] For further guidance, see Sec.  
1.168(d)-1T(b)(3)(i) and (ii).
* * * * *
    (d) * * *
    (3) Like-kind exchanges and involuntary conversions. [Reserved] For 
further guidance, see Sec.  1.168(d)-1T(d)(3)(i).

0
Par. 4. Section 1.168(d)-1T is amended by:
0
1. Revising paragraphs (a) through (b)(3)(ii).
0
2. Adding paragraph (d)(3).
    The addition and revisions read as follows:

[[Page 9534]]

Sec.  1.168(d)-1T  Applicable conventions--half-year and mid-quarter 
conventions (temporary).

    (a) through (b)(2) [Reserved]. For further guidance, see Sec.  
1.168(d)-1(a) through (b)(2).
    (b)(3) Property placed in service and disposed of in the same 
taxable year--(i) Under section 168(d)(3)(B)(ii), the depreciable basis 
of property placed in service and disposed of in the same taxable year 
is not taken into account in determining whether the 40-percent test is 
satisfied. However, the depreciable basis of property placed in 
service, disposed of, subsequently reacquired, and again placed in 
service, by the taxpayer in the same taxable year must be taken into 
account in applying the 40-percent test, but the basis of the property 
is only taken into account on the later of the dates that the property 
is placed in service by the taxpayer during the taxable year. Further, 
see Sec.  1.168(i)-6T(c)(4)(v)(B) and Sec.  1.168(i)-6T(f) for rules 
relating to property placed in service and exchanged or involuntarily 
converted during the same taxable year.
    (ii) The applicable convention, as determined under this section, 
applies to all depreciable property (except nonresidential real 
property, residential rental property, and any railroad grading or 
tunnel bore) placed in service by the taxpayer during the taxable year, 
excluding property placed in service and disposed of in the same 
taxable year. However, see Sec.  1.168(i)-6T(c)(4)(v)(A) and Sec.  
1.168(i)-6T(f) for rules relating to MACRS property that has a basis 
determined under section 1031(d) or section 1033(b). No depreciation 
deduction is allowed for property placed in service and disposed of 
during the same taxable year. However, see Sec.  1.168(k)-1T(f)(1) for 
rules relating to qualified property or 50-percent bonus depreciation 
property, and Sec.  1.1400L(b)-1T(f)(1) for rules relating to qualified 
New York Liberty Zone property, that is placed in service by the 
taxpayer in the same taxable year in which either a partnership is 
terminated as a result of a technical termination under section 
708(b)(1)(B) or the property is transferred in a transaction described 
in section 168(i)(7).
* * * * *
    (d)(2) * * *
    (3) Like-kind exchanges and involuntary conversions. (i) The last 
sentence in paragraph (b)(3)(i) and the second sentence in paragraph 
(b)(3)(ii) of this section apply to exchanges to which section 1031 
applies, and involuntary conversions to which section 1033 applies, of 
MACRS property for which the time of disposition and the time of 
replacement both occur after February 27, 2004.
    (ii) The applicability of this section expires on or before 
February 27, 2007.

0
Par. 5. In Sec.  1.168(i)-0, the entries for Sec.  1.168(i)-1(d)(2), 
(e)(3)(i), (f), (f)(1), (f)(2), (f)(2)(i), (i), (j) and (l) are 
revised, the entry for (e)(3)(v) is removed and a new entry for 
(e)(3)(v) and (vi) is added.


Sec.  1.168(i)-0  Table of contents for the general asset account 
rules.

* * * * *


Sec.  1.168(i)-1  General asset accounts.

* * * * *
    (d) * * *
    (2) [Reserved]. For further guidance see the entry for Sec.  
1.168(i)-1T(d)(2).
* * * * *
    (e) * * *
    (3) * * *
    (i) [Reserved]. For further guidance see the entry for Sec.  
1.168(i)-1T(e)(3)(i).
* * * * *
    (v) and (vi) [Reserved]. For further guidance see the entries for 
Sec.  1.168(i)-1T(e)(3)(v) and (vi).
* * * * *
    (f) through (f)(2)(i) [Reserved]. For further guidance see the 
entries for Sec.  1.168(i)-1T(f) through (f)(2)(i).
* * * * *
    (i) and (j). [Reserved]. For further guidance, see the entries for 
Sec.  1.168(i)-1T(i) and (j).
* * * * *
    (l) [Reserved]. For further guidance, see the entry for Sec.  
1.168(i)-1T(l).
0
Par. 6. Section 1.168(i)-0T is added to read as follows:


Sec.  1.168(i)-0T  Table of contents for the general asset account 
rules (temporary).

    This section lists the major paragraphs contained in Sec.  
1.168(i)-1T.


Sec.  1.168(i)-1T  General asset accounts (temporary).

    (a) through (d)(1) [Reserved]. For further guidance, see the 
entries for Sec.  1.168(i)-1(a) through (d)(1).
    (2) Special rule for passenger automobiles.
    (e) through (e)(3) [Reserved]. For further guidance, see the 
entries for Sec.  1.168(i)-1(e) through (e)(3).
    (i) In general.
    (e)(3)(ii) through (e)(3)(iv) [Reserved]. For further guidance, see 
the entries for Sec.  1.168(i)-1(e)(3)(ii) through (iv).
    (v) Transactions subject to section 1031 or 1033.
    (vi) Anti-abuse rule.
    (f) Assets generating foreign source income.
    (1) In general.
    (2) Source of ordinary income, gain, or loss.
    (i) Source determined by allocation and apportionment of 
depreciation allowed.
    (f)(2)(ii) through (h)(2) [Reserved]. For further guidance, see the 
entries for Sec.  1.168(i)-1(f)(2)(ii) through (h)(2).
    (i) Identification of disposed or converted asset.
    (j) Effect of adjustments on prior dispositions.
    (k)(1) through (k)(3) [Reserved]. For further guidance, see the 
entries for Sec.  1.168(i)-1 (k)(1) through (k)(3).
    (l) Effective date.
    (l)(1) through (l)(3) [Reserved]. For further guidance, see the 
entries for Sec.  1.168(i)-1(l)(1) through (l)(3).


0
Par. 7. Section 1.168(i)-1 is amended by:
0
1. Redesignating paragraph (e)(3)(v) as paragraph (e)(3)(vi).
0
2. Adding paragraphs (c)(2)(ii)(E) and (e)(3)(v).
0
3. Revising paragraphs (d)(2), (e)(3)(i), (e)(3)(iii)(B)(4), newly 
designated (e)(3)(vi), (f)(1), (f)(2)(i), (i), (j), and (l).
    The additions and revisions read as follows:


Sec.  1.168(i)-1  General asset accounts.

* * * * *
    (c) * * *
    (2) * * * (ii) * * *
    (E) [Reserved]. For further guidance, see Sec.  1.168(i)-
1T(c)(2)(ii)(E).
    (d) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.168(i)-1T(d)(2).
    (e) * * *
    (3) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.168(i)-
1T(e)(3)(i).
* * * * *
    (iii) * * *
    (B) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.168(i)-
1T(e)(3)(iii)(B)(4).
* * * * *
    (e)(3)(v) [Reserved]. For further guidance, see Sec.  1.168(i)-
1T(e)(3)(v).
    (vi) Anti-abuse rule--[Reserved]. For further guidance, see Sec.  
1.168(i)-1T(e)(3)(vi).
    (f) * * * (1) In general. [Reserved]. For further guidance, see 
Sec.  1.168(i)-1T(f)(1).
    (2) * * *(i) [Reserved]. For further guidance, see Sec.  1.168(i)-
1T(f)(2)(i).
* * * * *
    (i) Identification of disposed or converted asset. [Reserved]. For 
further guidance, see Sec.  1.168(i)-1T(i).
    (j) Effect of adjustments on prior dispositions. [Reserved]. For 
further guidance, see Sec.  1.168(i)-1T(j).
* * * * *
    (l) Effective date--[Reserved]. For further guidance, see Sec.  
1.168(i)-1T(l).

[[Page 9535]]


0
Par. 8. Section 1.168(i)-1T is added to read as follows:


Sec.  1.168(i)-1T  General asset accounts (temporary).

    (a) through (c)(2)(ii)(D) [Reserved]. For further guidance, see 
Sec.  1.168(i)-1(a) through (c)(2)(ii)(D).
    (c)(2)(ii)(E) [Reserved].
    (d)(1) [Reserved]. For further guidance, see Sec.  1.168(i)-
1(d)(1).
    (d)(2) Special rule for passenger automobiles. For purposes of 
applying section 280F(a), the depreciation allowance for a general 
asset account established for passenger automobiles is limited for each 
taxable year to the amount prescribed in section 280F(a) multiplied by 
the excess of the number of automobiles originally included in the 
account over the number of automobiles disposed of during the taxable 
year or in any prior taxable year in a transaction described in 
paragraph (e)(3)(iii) (disposition of an asset in a qualifying 
disposition), (e)(3)(iv) (transactions subject to section 168(i)(7)), 
(e)(3)(v) (transactions subject to section 1031 or 1033), (e)(3)(vi) 
(anti-abuse rule), (g) (assets subject to recapture), or (h)(1) 
(conversion to personal use) of this section.
    (e)(1) through (e)(2) [Reserved]. For further guidance, see Sec.  
1.168(i)-1(e)(1) through (e)(2).
    (e)(3) Special rules--(i) In general. This paragraph (e)(3) 
provides the rules for terminating general asset account treatment upon 
certain dispositions. While the rules under paragraphs (e)(3)(ii) and 
(iii) of this section are optional rules, the rules under paragraphs 
(e)(3)(iv), (v), and (vi) of this section are mandatory rules. A 
taxpayer applies paragraph (e)(3)(ii) or (iii) of this section by 
reporting the gain, loss, or other deduction on the taxpayer's timely 
filed Federal income tax return (including extensions) for the taxable 
year in which the disposition occurs. For purposes of applying 
paragraph (e)(3)(iii) through (vi) of this section, see paragraph (i) 
of this section for identifying the unadjusted depreciable basis of a 
disposed asset.
    (e)(3)(ii) through (e)(3)(iii)(B)(3) [Reserved]. For further 
guidance, see Sec.  1.168(i)-1(e)(3)(ii) through (e)(3)(iii)(B)(3).
    (e)(3)(iii)(B)(4) A transaction, other than a transaction described 
in paragraph (e)(3)(iv) of this section (pertaining to transactions 
subject to section 168(i)(7)) and (e)(3)(v) of this section (pertaining 
to transactions subject to section 1031 or 1033), to which a 
nonrecognition section of the Code applies (determined without regard 
to this section).
    (e)(3)(iii)(C) through (e)(3)(iv) [Reserved]. For further guidance, 
see Sec.  1.168(i)-1(e)(iii)(C) through (e)(3)(iv).
    (e)(3)(v) Transactions subject to section 1031 or section 1033--(A) 
Like-kind exchange or involuntary conversion of all assets remaining in 
a general asset account. If all the assets, or the last asset, in a 
general asset account are transferred by a taxpayer in a like-kind 
exchange (as defined under Sec.  1.168-6T(b)(11)) or in an involuntary 
conversion (as defined under Sec.  1.168-6T(b)(12)), the taxpayer must 
apply this paragraph (e)(3)(v)(A) (instead of applying paragraph 
(e)(2), (e)(3)(ii), or (e)(3)(iii) of this section). Under this 
paragraph (e)(3)(v)(A), the general asset account terminates as of the 
first day of the year of disposition (as defined in Sec.  1.168(i)-
6T(b)(5)) and--
    (1) The amount of gain or loss for the general asset account is 
determined under section 1001(a) by taking into account the adjusted 
depreciable basis of the general asset account at the time of 
disposition (as defined in Sec.  1.168(i)-6T(b)(3)). The depreciation 
allowance for the general asset account in the year of disposition is 
determined in the same manner as the depreciation allowance for the 
relinquished MACRS property (as defined in Sec.  1.168(i)-6T(b)(2)) in 
the year of disposition is determined under Sec.  1.168(i)-6T. The 
recognition and character of gain or loss are determined in accordance 
with paragraph (e)(3)(ii)(A) of this section (notwithstanding that 
paragraph (e)(3)(ii) of this section is an optional rule); and
    (2) The adjusted depreciable basis of the general asset account at 
the time of disposition is treated as the adjusted depreciable basis of 
the relinquished MACRS property.
    (B) Like-kind exchange or involuntary conversion of less than all 
assets remaining in a general asset account. If an asset in a general 
asset account is transferred by a taxpayer in a like-kind exchange or 
in an involuntary conversion and if paragraph (e)(3)(v)(A) of this 
section does not apply to this asset, the taxpayer must apply this 
paragraph (e)(3)(v)(B) (instead of applying paragraph (e)(2), 
(e)(3)(ii), or (e)(3)(iii) of this section). Under this paragraph 
(e)(3)(v)(B), general asset account treatment for the asset terminates 
as of the first day of the year of disposition (as defined in Sec.  
1.168(i)-6T(b)(5)), and--
    (1) The amount of gain or loss for the asset is determined by 
taking into account the asset's adjusted basis at the time of 
disposition (as defined in Sec.  1.168(i)-6T(b)(3)). The adjusted basis 
of the asset at the time of disposition equals the unadjusted 
depreciable basis of the asset less the depreciation allowed or 
allowable for the asset, computed by using the depreciation method, 
recovery period, and convention applicable to the general asset account 
in which the asset was included. The depreciation allowance for the 
asset in the year of disposition is determined in the same manner as 
the depreciation allowance for the relinquished MACRS property (as 
defined in Sec.  1.168(i)-6T(b)(2)) in the year of disposition is 
determined under Sec.  1.168(i)-6T. The recognition and character of 
the gain or loss are determined in accordance with paragraph 
(e)(3)(iii)(A) of this section (notwithstanding that paragraph 
(e)(3)(iii) of this section is an optional rule); and
    (2) As of the first day of the year of disposition, the taxpayer 
must remove the relinquished asset from the general asset account and 
make the adjustments to the general asset account described in 
paragraph (e)(3)(iii)(C)(2) through (4) of this section.
    (e)(3)(vi) Anti-abuse rule--(A) In general. If an asset in a 
general asset account is disposed of by a taxpayer in a transaction 
described in paragraph (e)(3)(vi)(B) of this section, general asset 
account treatment for the asset terminates as of the first day of the 
taxable year in which the disposition occurs. Consequently, the 
taxpayer must determine the amount of gain, loss, or other deduction 
attributable to the disposition in the manner described in paragraph 
(e)(3)(iii)(A) of this section (notwithstanding that paragraph 
(e)(3)(iii)(A) of this section is an optional rule) and must make the 
adjustments to the general asset account described in paragraph 
(e)(3)(iii)(C)(1) through (4) of this section.
    (B) Abusive transactions. A transaction is described in this 
paragraph (e)(3)(vi)(B) if the transaction is not described in 
paragraph (e)(3)(iv) or (e)(3)(v) of this section and the transaction 
is entered into, or made, with a principal purpose of achieving a tax 
benefit or result that would not be available absent an election under 
this section. Examples of these types of transactions include--
    (1) A transaction entered into with a principal purpose of shifting 
income or deductions among taxpayers in a manner that would not be 
possible absent an election under this section in order to take 
advantage of differing effective tax rates among the taxpayers; or
    (2) An election made under this section with a principal purpose of 
disposing of an asset from a general

[[Page 9536]]

asset account in order to utilize an expiring net operating loss or 
credit. The fact that a taxpayer with a net operating loss carryover or 
a credit carryover transfers an asset to a related person or transfers 
an asset pursuant to an arrangement where the asset continues to be 
used (or is available for use) by the taxpayer pursuant to a lease (or 
otherwise) indicates, absent strong evidence to the contrary, that the 
transaction is described in this paragraph (e)(3)(vi)(B).
    (f) Assets generating foreign source income--(1) In general. This 
paragraph (f) provides the rules for determining the source of any 
income, gain, or loss recognized, and the appropriate section 904(d) 
separate limitation category or categories for any foreign source 
income, gain, or loss recognized, on a disposition (within the meaning 
of paragraph (e)(1) of this section) of an asset in a general asset 
account that consists of assets generating both United States and 
foreign source income. These rules apply only to a disposition to which 
paragraph (e)(2) (general disposition rules), (e)(3)(ii) (disposition 
of all assets remaining in a general asset account), (e)(3)(iii) 
(disposition of an asset in a qualifying disposition), (e)(3)(v) 
(transactions subject to section 1031 or 1033), or (e)(3)(vi) (anti-
abuse rule) of this section applies.
    (2) Source of ordinary income, gain or loss--(i) Source determined 
by allocation and apportionment of depreciation allowed. The amount of 
any ordinary income, gain, or loss that is recognized on the 
disposition of an asset in a general asset account must be apportioned 
between United States and foreign sources based on the allocation and 
apportionment of the--
    (A) Depreciation allowed for the general asset account as of the 
end of the taxable year in which the disposition occurs if paragraph 
(e)(2) of this section applies to the disposition;
    (B) Depreciation allowed for the general asset account as of the 
time of disposition if the taxpayer applies paragraph (e)(3)(ii) of 
this section to the disposition of all assets, or the last asset, in 
the general asset account, or if all the assets, or the last asset, in 
the general asset account are disposed of in a transaction described in 
paragraph (e)(3)(v)(A) of this section; or
    (C) Depreciation allowed for the disposed asset for only the 
taxable year in which the disposition occurs if the taxpayer applies 
paragraph (e)(3)(iii) of this section to the disposition of the asset 
in a qualifying disposition, if the asset is disposed of in a 
transaction described in paragraph (e)(3)(v)(B) of this section (like-
kind exchange or involuntary conversion), or if the asset is disposed 
in a transaction described in paragraph (e)(3)(vi) of this section 
(anti-abuse rule).
    (f)(2)(ii) through (h) [Reserved]. For further guidance, see Sec.  
1.168(i)-1(f)(2)(ii) through (h).
    (i) Identification of disposed or converted asset. A taxpayer may 
use any reasonable method that is consistently applied to the 
taxpayer's general asset accounts for purposes of determining the 
unadjusted depreciable basis of a disposed or converted asset in a 
transaction described in paragraph (e)(3)(iii) (disposition of an asset 
in a qualifying disposition), (e)(3)(iv) (transactions subject to 
section 168(i)(7)), (e)(3)(v) (transactions subject to section 1031 or 
1033), (e)(3)(vi) (anti-abuse rule), (g) (assets subject to recapture), 
or (h)(1) (conversion to personal use) of this section.
    (j) Effect of adjustments on prior dispositions. The adjustments to 
a general asset account under paragraph (e)(3)(iii), (e)(3)(iv), 
(e)(3)(v), (e)(3)(vi), (g), or (h)(1) of this section have no effect on 
the recognition and character of prior dispositions subject to 
paragraph (e)(2) of this section.
    (k) [Reserved]. For further guidance, see Sec.  1.168(i)-1(k).
    (l) Effective date--(1) In general. Except as provided in 
paragraphs (l)(2) and (l)(3) of this section, this section applies to 
depreciable assets placed in service in taxable years ending on or 
after October 11, 1994. For depreciable assets placed in service after 
December 31, 1986, in taxable years ending before October 11, 1994, the 
Internal Revenue Service will allow any reasonable method that is 
consistently applied to the taxpayer's general asset accounts.
    (2) [Reserved].
    (3) Like-kind exchanges and involuntary conversions. (i) This 
section applies for an asset transferred by a taxpayer in a like-kind 
exchange (as defined under Sec.  1.168-6T(b)(11)) or in an involuntary 
conversion (as defined under Sec.  1.168-6T(b)(12)) for which the time 
of disposition (as defined in Sec.  1.168(i)-6T(b)(3)) and the time of 
replacement (as defined in Sec.  1.168(i)-6T(b)(4)) both occur after 
February 27, 2004. For an asset transferred by a taxpayer in a like-
kind exchange or in an involuntary conversion for which the time of 
disposition, the time of replacement, or both occur on or before 
February 27, 2004, see Sec.  1.168(i)-1 in effect prior to February 27, 
2004, (Sec.  1.168(i)-1 as contained in 26 CFR part 1 edition revised 
as of April 1, 2003).
    (ii) The applicability of this section expires on or before 
February 27, 2007.

0
Par. 9. Section 1.168(i)-5T is added to read as follows:


Sec.  1.168(i)-5T  Table of contents (temporary).

    This section lists the major paragraphs contained in Sec.  
1.168(i)-6T.


Sec.  1.168(i)-6T  Like-kind exchanges and involuntary conversions 
(temporary).

    (a) Scope.
    (b) Definitions.
    (1) Replacement MACRS property.
    (2) Relinquished MACRS property.
    (3) Time of disposition.
    (4) Time of replacement.
    (5) Year of disposition.
    (6) Year of replacement.
    (7) Exchanged basis.
    (8) Excess basis.
    (9) Depreciable exchanged basis.
    (10) Depreciable excess basis.
    (11) Like-kind exchange.
    (12) Involuntary conversion.
    (c) Determination of depreciation allowance.
    (1) Computation of the depreciation allowance for depreciable 
exchanged basis beginning in the year of replacement.
    (i) In general.
    (ii) Applicable recovery period, depreciation method, and 
convention.
    (2) Effect of depreciation treatment of the replacement MACRS 
property by previous owners of the acquired property.
    (3) Recovery period and/or depreciation method of the properties 
are the same, or both are not the same.
    (i) In general.
    (ii) Both the recovery period and the depreciation method are 
the same.
    (iii) Either the recovery period or the depreciation method is 
the same, or both are not the same.
    (4) Recovery period or depreciation method of the properties is 
not the same.
    (i) Longer recovery period.
    (ii) Shorter recovery period.
    (iii) Less accelerated depreciation method.
    (iv) More accelerated depreciation method.
    (v) Convention.
    (A) In general.
    (B) Mid-quarter convention.
    (5) Year of disposition and year of replacement.
    (i) Relinquished MACRS property.
    (ii) Replacement MACRS property.
    (A) Year of replacement is 12 months.
    (B) Year of replacement is less than 12 months.
    (iii) Deferred transactions.
    (A) In general.
    (B) Allowable depreciation for a qualified intermediary.
    (iv) Remaining recovery period.
    (6) Examples.
    (d) Special rules for determining depreciation allowances.
    (1) Excess basis.
    (i) In general.
    (ii) Example.
    (2) Depreciable and nondepreciable property.
    (3) Depreciation limitations for automobiles.
    (i) In general.

[[Page 9537]]

    (ii) Order in which limitations on depreciation under section 
280F(a) are applied.
    (iii) Depreciation allowance for depreciable excess basis.
    (iv) Examples.
    (4) Replacement MACRS property acquired and placed in service 
before disposition of relinquished MACRS property.
    (e) Use of optional depreciation tables.
    (1) Taxpayer not bound by prior use of table.
    (2) Determination of the depreciation deduction.
    (i) Relinquished MACRS property.
    (ii) Replacement MACRS property.
    (A) Determination of the appropriate optional depreciation 
table.
    (B) Calculating the depreciation deduction for the replacement 
MACRS property.
    (iii) Unrecovered basis.
    (3) Excess basis.
    (4) Examples.
    (f) Mid-quarter convention.
    (1) Exchanged basis.
    (2) Excess basis.
    (3) Depreciable property acquired for nondepreciable property.
    (g) Section 179 election.
    (h) Additional first year depreciation deduction.
    (i) Election not to apply this section.
    (j) Time and manner of making elections.
    (1) In general.
    (2) Time for making election.
    (3) Manner of making election.
    (4) Revocation.
    (k) Effective date.
    (1) In general.
    (2) Application to pre-effective date like-kind exchanges and 
involuntarily conversions.



0
Par. 10. Section 1.168(i)-6T is added to read as follows:


Sec.  1.168(i)-6T  Like-kind exchanges and involuntary conversions 
(temporary).

    (a) Scope. This section provides the rules for determining the 
depreciation allowance for MACRS property acquired in a like-kind 
exchange or an involuntary conversion, including a like-kind exchange 
or an involuntary conversion of MACRS property that is exchanged or 
replaced with other MACRS property in a transaction between members of 
the same affiliated group. The allowance for depreciation under this 
section constitutes the amount of depreciation allowable under section 
167(a) for the year of replacement and any subsequent taxable year for 
the replacement MACRS property and for the year of disposition of the 
relinquished MACRS property. The provisions of this section apply only 
to MACRS property to which Sec.  1.168(h)-1 (like-kind exchanges of 
tax-exempt use property) does not apply. Additionally, paragraphs (c) 
through (f) of this section apply only to MACRS property for which an 
election has not been made under paragraph (i) of this section.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Replacement MACRS property is MACRS property (as defined in 
Sec.  1.168(b)-1T(a)(2)) in the hands of the acquiring taxpayer that is 
acquired for other MACRS property in a like-kind exchange or an 
involuntary conversion.
    (2) Relinquished MACRS property is MACRS property that is 
transferred by the taxpayer in a like-kind exchange, or in an 
involuntary conversion.
    (3) Time of disposition is when the disposition of the relinquished 
MACRS property takes place under the convention, as determined under 
Sec.  1.168(d)-1T, that applies to the relinquished MACRS property.
    (4) Time of replacement is the later of:
    (i) When the replacement MACRS property is placed in service under 
the convention, as determined under this section, that applies to the 
replacement MACRS property; or
    (ii) The time of disposition of the exchanged or involuntarily 
converted property.
    (5) Year of disposition is the taxable year that includes the time 
of disposition.
    (6) Year of replacement is the taxable year that includes the time 
of replacement.
    (7) Exchanged basis is determined after the depreciation deductions 
for the year of disposition are determined under paragraph (c)(5)(i) of 
this section and is the lesser of--
    (i) The basis in the replacement MACRS property, as determined 
under section 1031(d) and the regulations under section 1031(d) or 
section 1033(b) and the regulations under section 1033(b); or
    (ii) The adjusted depreciable basis (as defined in Sec.  1.168(b)-
1T(a)(4)) of the relinquished MACRS property.
    (8) Excess basis is any excess of the basis in the replacement 
MACRS property, as determined under section 1031(d) and the regulations 
under section 1031(d) or section 1033(b) and the regulations under 
section 1033(b), over the exchanged basis as determined under paragraph 
(b)(7) of this section.
    (9) Depreciable exchanged basis is the exchanged basis as 
determined under paragraph (b)(7) of this section reduced by--
    (i) The percentage of such basis attributable to the taxpayer's use 
of property for the taxable year other than in the taxpayer's trade or 
business (or for the production of income); and
    (ii) Any adjustments to basis provided by other provisions of the 
Internal Revenue Code and the regulations under the Code (including 
section 1016(a)(2) and (3), for example, depreciation deductions in the 
year of replacement allowable under section 168(k) or 1400L(b)).
    (10) Depreciable excess basis is the excess basis as determined 
under paragraph (b)(8) of this section reduced by--
    (i) The percentage of such basis attributable to the taxpayer's use 
of property for the taxable year other than in the taxpayer's trade or 
business (or for the production of income);
    (ii) Any portion of the basis the taxpayer properly elects to treat 
as an expense under section 179; and
    (iii) Any adjustments to basis provided by other provisions of the 
Internal Revenue Code and the regulations under the Code (including 
section 1016(a)(2) and (3), for example, depreciation deductions in the 
year of replacement allowable under section 168(k) or 1400L(b)).
    (11) Like-kind exchange is an exchange of property for other 
property (or money) in a transaction to which section 1031(a)(1), (b), 
or (c) applies.
    (12) Involuntary conversion is a transaction described in section 
1033(a)(1) or (2) that resulted in the nonrecognition of any part of 
the gain realized as the result of the conversion.
    (c) Determination of depreciation allowance--(1) Computation of the 
depreciation allowance for depreciable exchanged basis beginning in the 
year of replacement--(i) In general. This paragraph (c) provides rules 
for determining the applicable recovery period, the applicable 
depreciation method, and the applicable convention used to determine 
the depreciation allowances for the depreciable exchanged basis 
beginning in the year of replacement. See paragraph (c)(5) of this 
section for rules relating to the computation of the depreciation 
allowance for the year of disposition and for the year of replacement. 
See paragraph (d)(1) of this section for rules relating to the 
computation of the depreciation allowance for depreciable excess basis. 
See paragraph (d)(4) of this section if the replacement MACRS property 
is acquired before disposition of the relinquished MACRS property in a 
transaction to which section 1033 applies. See paragraph (e) of this 
section for rules relating to the computation of the depreciation 
allowance using the optional depreciation tables.
    (ii) Applicable recovery period, depreciation method, and 
convention. The recovery period, depreciation method, and convention 
determined under this paragraph (c) are the only permissible methods of 
accounting for

[[Page 9538]]

MACRS property within the scope of this section unless the taxpayer 
makes the election under paragraph (i) of this section not to apply 
this section.
    (2) Effect of depreciation treatment of the replacement MACRS 
property by previous owners of the acquired property. If replacement 
MACRS property is acquired by a taxpayer in a like-kind exchange or an 
involuntary conversion, the depreciation treatment of the replacement 
MACRS property by previous owners has no effect on the determination of 
depreciation allowances for the replacement MACRS property in the hands 
of the acquiring taxpayer. For example, a taxpayer exchanging, in a 
like-kind exchange, MACRS property for property that was depreciated 
under ACRS by the previous owner must use this section because the 
replacement property will become MACRS property in the hands of the 
acquiring taxpayer. In addition, elections made by previous owners in 
determining depreciation allowances for the replacement MACRS property 
have no effect on the acquiring taxpayer. For example, a taxpayer 
exchanging, in a like-kind exchange, MACRS property that the taxpayer 
depreciates under the general depreciation system for other MACRS 
property that the previous owner elected to depreciate under the 
alternative depreciation system (ADS) pursuant to section 168(g)(7) 
does not have to continue using the ADS for the replacement MACRS 
property.
    (3) Recovery period and/or depreciation method of the properties 
are the same, or both are not the same--(i) In general. For purposes of 
paragraphs (c)(3) and (c)(4) of this section in determining whether the 
recovery period and the depreciation method prescribed under section 
168 for the replacement MACRS property are the same as the recovery 
period and the depreciation method prescribed under section 168 for the 
relinquished MACRS property, the recovery period and the depreciation 
method for the replacement MACRS property are considered to be the 
recovery period and the depreciation method that would have applied, 
taking into account any elections made by the acquiring taxpayer under 
section 168(b)(5) or 168(g)(7), had the replacement MACRS property been 
placed in service by the acquiring taxpayer at the same time as the 
relinquished MACRS property.
    (ii) Both the recovery period and the depreciation method are the 
same. If both the recovery period and the depreciation method 
prescribed under section 168 for the replacement MACRS property are the 
same as the recovery period and the depreciation method prescribed 
under section 168 for the relinquished MACRS property, the depreciation 
allowances for the replacement MACRS property beginning in the year of 
replacement are determined by using the same recovery period and 
depreciation method that were used for the relinquished MACRS property. 
Thus, the replacement MACRS property is depreciated over the remaining 
recovery period (taking into account the applicable convention), and by 
using the depreciation method, of the relinquished MACRS property. 
Except as provided in paragraph (c)(5) of this section, the 
depreciation allowances for the depreciable exchanged basis for any 12-
month taxable year beginning with the year of replacement are 
determined by multiplying the depreciable exchanged basis by the 
applicable depreciation rate for each taxable year (for further 
guidance, for example, see section 6 of Rev. Proc. 87-57 (1987-2 C.B. 
687, 692) and Sec.  601.601(d)(2)(ii)(b) of this chapter).
    (iii) Either the recovery period or the depreciation method is the 
same, or both are not the same. If either the recovery period or the 
depreciation method prescribed under section 168 for the replacement 
MACRS property is the same as the recovery period or the depreciation 
method prescribed under section 168 for the relinquished MACRS 
property, the depreciation allowances for the depreciable exchanged 
basis beginning in the year of replacement are determined using the 
recovery period or the depreciation method that is the same as the 
relinquished MACRS property. See paragraph (c)(4) of this section to 
determine the depreciation allowances when the recovery period or the 
depreciation method of the replacement MACRS property is not the same 
as that of the relinquished MACRS property.
    (4) Recovery period or depreciation method of the properties is not 
the same. If the recovery period prescribed under section 168 for the 
replacement MACRS property (as determined under paragraph (c)(3)(i) of 
this section) is not the same as the recovery period prescribed under 
section 168 for the relinquished MACRS property, the depreciation 
allowances for the depreciable exchanged basis beginning in the year of 
replacement are determined under this paragraph (c)(4). Similarly, if 
the depreciation method prescribed under section 168 for the 
replacement MACRS property (as determined under paragraph (c)(3)(i) of 
this section) is not the same as the depreciation method prescribed 
under section 168 for the relinquished MACRS property, the depreciation 
method used to determine the depreciation allowances for the 
depreciable exchanged basis beginning in the year of replacement is 
determined under this paragraph (c)(4).
    (i) Longer recovery period. If the recovery period prescribed under 
section 168 for the replacement MACRS property (as determined under 
paragraph (c)(3)(i) of this section) is longer than that prescribed for 
the relinquished MACRS property, the depreciation allowances for the 
depreciable exchanged basis beginning in the year of replacement are 
determined as though the replacement MACRS property had originally been 
placed in service by the acquiring taxpayer in the same taxable year 
the relinquished MACRS property was placed in service by the acquiring 
taxpayer, but using the longer recovery period of the replacement MACRS 
property (as determined under paragraph (c)(3)(i) of this section) and 
the convention determined under paragraph (c)(4)(v) of this section. 
Thus, the depreciable exchanged basis is depreciated over the remaining 
recovery period (taking into account the applicable convention) of the 
replacement MACRS property.
    (ii) Shorter recovery period. If the recovery period prescribed 
under section 168 for the replacement MACRS property (as determined 
under paragraph (c)(3)(i) of this section) is shorter than that of the 
relinquished MACRS property, the depreciation allowances for the 
depreciable exchanged basis beginning in the year of replacement are 
determined using the same recovery period as that of the relinquished 
MACRS property. Thus, the depreciable exchanged basis is depreciated 
over the remaining recovery period (taking into account the applicable 
convention) of the relinquished MACRS property.
    (iii) Less accelerated depreciation method--(A) If the depreciation 
method prescribed under section 168 for the replacement MACRS property 
(as determined under paragraph (c)(3)(i) of this section) is less 
accelerated than that of the relinquished MACRS property at the time of 
disposition, the depreciation allowances for the depreciable exchanged 
basis beginning in the year of replacement are determined as though the 
replacement MACRS property had originally been placed in service by the 
acquiring taxpayer at the same time the relinquished MACRS property was 
placed in service by the acquiring taxpayer, but using the less 
accelerated depreciation method. Thus, the depreciable exchanged basis 
is

[[Page 9539]]

depreciated using the less accelerated depreciation method.
    (B) Except as provided in paragraph (c)(5) of this section, the 
depreciation allowances for the depreciable exchanged basis for any 12-
month taxable year beginning in the year of replacement are determined 
by multiplying the adjusted depreciable basis by the applicable 
depreciation rate for each taxable year. If, for example, the 
depreciation method of the replacement MACRS property in the year of 
replacement is the 150-percent declining balance method and the 
depreciation method of the relinquished MACRS property in the year of 
replacement is the 200-percent declining balance method, and neither 
method had been switched to the straight line method in the year of 
replacement or any prior taxable year, the applicable depreciation rate 
for the year of replacement and subsequent taxable years is determined 
by using the depreciation rate of the replacement MACRS property as if 
the replacement MACRS property was placed in service by the acquiring 
taxpayer at the same time the relinquished MACRS property was placed in 
service by the acquiring taxpayer, until the 150-percent declining 
balance method has been switched to the straight line method. If, for 
example, the depreciation method of the replacement MACRS property is 
the straight line method, the applicable depreciation rate for the year 
of replacement is determined by using the remaining recovery period at 
the beginning of the year of disposition (as determined under this 
paragraph (c)(4) and taking into account the applicable convention).
    (iv) More accelerated depreciation method--(A) If the depreciation 
method prescribed under section 168 for the replacement MACRS property 
(as determined under paragraph (c)(3)(i) of this section) is more 
accelerated than that of the relinquished MACRS property at the time of 
disposition, the depreciation allowances for the replacement MACRS 
property beginning in the year of replacement are determined using the 
same depreciation method as the relinquished MACRS property.
    (B) Except as provided in paragraph (c)(5) of this section, the 
depreciation allowances for the depreciable exchanged basis for any 12-
month taxable year beginning in the year of replacement are determined 
by multiplying the adjusted depreciable basis by the applicable 
depreciation rate for each taxable year. If, for example, the 
depreciation method of the relinquished MACRS property in the year of 
replacement is the 150-percent declining balance method and the 
depreciation method of the replacement MACRS property in the year of 
replacement is the 200-percent declining balance method, and neither 
method had been switched to the straight line method in the year of 
replacement or any prior taxable year, the applicable depreciation rate 
for the year of replacement and subsequent taxable years is the same 
depreciation rate that applied to the relinquished MACRS property in 
the year of replacement, until the 150-percent declining balance method 
has been switched to the straight line method. If, for example, the 
depreciation method is the straight line method, the applicable 
depreciation rate for the year of replacement is determined by using 
the remaining recovery period at the beginning of the year of 
disposition (as determined under this paragraph (c)(4) and taking into 
account the applicable convention).
    (v) Convention--(A) In general. The applicable convention for the 
exchanged basis is determined under this paragraph (c)(4)(v). The 
applicable convention for the exchanged basis is deemed to be the mid-
month convention for replacement MACRS property that is nonresidential 
real property, residential rental property, or any railroad grading or 
tunnel bore. Thus, if the relinquished MACRS property was depreciated 
using the mid-month convention, then the replacement MACRS property is 
deemed to have been placed in service by the acquiring taxpayer in the 
same month as the relinquished MACRS property and must continue to be 
depreciated using the mid-month convention. If nonresidential real 
property, residential rental property, or any railroad grading or 
tunnel bore is received as a result of an exchange or an involuntarily 
conversion of MACRS property that was depreciated using the mid-quarter 
convention, the replacement MACRS property is deemed to have been 
placed in service by the acquiring taxpayer in the month that includes 
the mid-point of the quarter that the relinquished MACRS property was 
placed in service and must be depreciated using the mid-month 
convention. If nonresidential real property, residential rental 
property, or any railroad grading or tunnel bore is received as a 
result of an exchange or an involuntarily conversion of MACRS property 
that was depreciated using the half-year convention, the replacement 
MACRS property is deemed to have been placed in service by the 
acquiring taxpayer in the month that includes the mid-point of the 
placed-in-service year and must be depreciated using the mid-month 
convention (for example, for a calendar-year taxpayer with a full 12-
month taxable year, the mid-point is the first day of the second half 
of the taxable year (the seventh month)). For all other replacement 
MACRS property, the applicable convention is the half-year convention, 
unless the applicable convention for the relinquished MACRS property is 
the mid-quarter convention, in which case the mid-quarter convention is 
applied to the replacement MACRS property.
    (B) Mid-quarter convention. See paragraph (f) of this section for 
purposes of applying the 40-percent test of section 168(d)(3) to any 
replacement MACRS property.
    (5) Year of disposition and year of replacement. No depreciation 
deduction is allowable for MACRS property disposed of by a taxpayer in 
a like-kind exchange or involuntary conversion in the same taxable year 
that such property was placed in service by the taxpayer. If 
replacement MACRS property is disposed of by a taxpayer during the same 
taxable year that the relinquished MACRS property is placed in service 
by the taxpayer, no depreciation deduction is allowable for either 
MACRS property. Otherwise, the depreciation allowances for the year of 
disposition and for the year of replacement are determined as follows:
    (i) Relinquished MACRS property. Except as provided in paragraphs 
(e) and (i) of this section, the depreciation allowance in the year of 
disposition for the relinquished MACRS property is computed by 
multiplying the allowable depreciation deduction for the property for 
that year by a fraction, the numerator of which is the number of months 
(including fractions of months) the property is deemed to be placed in 
service during the year of disposition (taking into account the 
applicable convention of the relinquished MACRS property), and the 
denominator of which is 12. However, if the year of disposition is less 
than 12 months, the depreciation allowance determined under this 
paragraph (c)(5)(i) must be adjusted for a short taxable year (for 
further guidance, for example, see Rev. Proc. 89-15 (1989-1 C.B. 816) 
and Sec.  601.601(d)(2)(ii)(b) of this chapter). In the case of 
termination under Sec.  1.168(i)-1T(e)(3)(v) of general asset account 
treatment of an asset, or of all the assets remaining, in a general 
asset account, the allowable depreciation deduction in the year of 
disposition for the asset or assets for which general asset account 
treatment is terminated is determined

[[Page 9540]]

using the depreciation method, recovery period, and convention of the 
general asset account. This allowable depreciation deduction is 
adjusted to account for the period the asset or assets is deemed to be 
in service in accordance with this paragraph (c)(5)(i).
    (ii) Replacement MACRS property--(A) Year of replacement is 12 
months. Except as provided in paragraphs (c)(5)(iii), (e), and (i) of 
this section, the depreciation allowance in the year of replacement for 
the depreciable exchanged basis is determined by--
    (1) Calculating the applicable depreciation rate for that taxable 
year by taking into account the recovery period and depreciation method 
prescribed for the replacement MACRS property under paragraph (c)(3) or 
(4) of this section;
    (2) Calculating the depreciable exchanged basis of the replacement 
MACRS property, and adding to that amount the amount determined under 
paragraph (c)(5)(i) of this section for the year of disposition; and
    (3) Multiplying the product of the amounts determined under Sec.  
1.168(i)-6T(c)(5)(ii)(A)(1) and (A)(2) by a fraction, the numerator of 
which is the number of months (including fractions of months) the 
property is deemed to be in service during the year of replacement (in 
the year of replacement the replacement MACRS property is deemed to be 
placed in service by the acquiring taxpayer at the time of replacement 
under the convention determined under paragraph (c)(4)(v) of this 
section), and the denominator of which is 12.
    (B) Year of replacement is less than 12 months. If the year of 
replacement is less than 12 months, the depreciation allowance 
determined under paragraph (c)(5)(ii)(A) of this section must be 
adjusted for a short taxable year (for further guidance, for example, 
see Rev. Proc. 89-15 (1989-1 C.B. 816) and Sec.  601.601(d)(2)(ii)(b) 
of this chapter).
    (iii) Deferred transactions--(A) In general. If the replacement 
MACRS property is not acquired until after the disposition of the 
relinquished MACRS property, depreciation is not allowable during the 
period between the disposition of the relinquished MACRS property and 
the acquisition of the replacement MACRS property. The recovery period 
for the replacement MACRS property is suspended during this period. For 
purposes of paragraph (c)(5)(ii) of this section, only the depreciable 
exchanged basis of the replacement MACRS property is taken into account 
for calculating the amount in paragraph (c)(5)(ii)(A)(2) of this 
section if the year of replacement is a taxable year subsequent to the 
year of disposition.
    (B) Allowable depreciation for a qualified intermediary. 
[Reserved].
    (iv) Remaining recovery period. The remaining recovery period of 
the replacement MACRS property is determined as of the beginning of the 
year of disposition of the relinquished MACRS property. For purposes of 
determining the remaining recovery period of the replacement MACRS 
property, the replacement MACRS property is deemed to have been 
originally placed in service under the convention determined under 
paragraph (c)(4)(v) of this section but at the time the relinquished 
MACRS property was deemed to be placed in service under the convention 
that applied to it when it was placed in service.
    (6) Examples. The application of this paragraph (c) is illustrated 
by the following examples:

    Example 1. A1, a calendar-year taxpayer, exchanges Building M, 
an office building, for Building N, a warehouse in a like-kind 
exchange. Building M is relinquished in July 2004 and Building N is 
acquired and placed in service in October 2004. A1 did not make any 
elections under section 168 for either Building M or Building N. The 
unadjusted depreciable basis of Building M was $4,680,000 when 
placed in service in July 1997. Since the recovery period and 
depreciation method prescribed under section 168 for Building N (39 
years, straight line method) are the same as the recovery period and 
depreciation method prescribed under section 168 for Building M (39 
years, straight line method), Building N is depreciated over the 
remaining recovery period of, and using the same depreciation method 
and convention as that of, Building M. Thus, Building N will be 
depreciated using the straight line method over a remaining recovery 
period of 32 years beginning in October 2004 (the remaining recovery 
period of 32 years and 6.5 months at the beginning of 2004, less the 
6.5 months of depreciation taken prior to the disposition of the 
exchanged MACRS property (Building M) in 2004). For 2004, the year 
in which the transaction takes place, the depreciation allowance for 
Building M is ($120,000)(6.5/12) which equals $65,000. The 
depreciation allowance for Building N for 2004 is ($120,000)(2.5/12) 
which equals $25,000. For 2005 and subsequent years, Building N is 
depreciated over the remaining recovery period of, and using the 
same depreciation method and convention as that of, Building M. 
Thus, the depreciation allowance for Building N is the same as 
Building M, namely $10,000 per month.
    Example 2. B, a calendar-year taxpayer, placed in service Bridge 
P in January 1998. Bridge P is depreciated using the half-year 
convention. In January 2004, B exchanges Bridge P for Building Q, an 
apartment building, in a like-kind exchange. B did not make any 
elections under section 168 for either Bridge P or Building Q. Since 
the recovery period prescribed under section 168 for Building Q 
(27.5 years) is longer than that of Bridge P (15 years), Building Q 
is depreciated as if it had originally been placed in service in 
July 1998 and disposed of in July 2004 using a 27.5 year recovery 
period. Additionally, since the depreciation method prescribed under 
section 168 for Building Q (straight line method) is less 
accelerated than that of Bridge P (150-percent declining balance 
method), then the depreciation allowance for Building Q is computed 
using the straight line method. Thus, when Building Q is acquired 
and placed in service in 2004, its basis is depreciated over the 
remaining 21.5 year recovery period using the straight line method 
of depreciation and the mid-month convention beginning in July 2004.
    Example 3. C, a calendar-year taxpayer, placed in service 
Building R, a restaurant, in January 1996. In January 2004, C 
exchanges Building R for Tower S, a radio transmitting tower, in a 
like-kind exchange. C did not make any elections under section 168 
for either Building R or Tower S. Since the recovery period 
prescribed under section 168 for Tower S (15 years) is shorter than 
that of Building R (39 years), Tower S is depreciated over the 
remaining recovery period of Building R. Additionally, since the 
depreciation method prescribed under section 168 for Tower S (150% 
declining balance method) is more accelerated than that of Building 
R (straight line method), then the depreciation allowance for Tower 
S is also computed using the same depreciation method as Building R. 
Thus, Tower S is depreciated over the remaining 31 year recovery 
period of Building R using the straight line method of depreciation 
and the mid-month convention. Alternatively, C may elect under 
paragraph (i) of this section to treat Tower S as though it is 
placed in service in January 2004. In such case, C uses the 
applicable recovery period, depreciation method, and convention 
prescribed under section 168 for Tower S.
    Example 4. (i) In February 2001, D, a calendar-year taxpayer and 
manufacturer of rubber products, acquired for $60,000 and placed in 
service Asset T (a special tool) and depreciated Asset T using the 
straight line method election under section 168(b)(5) and the mid-
quarter convention over its 3-year recovery period. In June 2004, D 
exchanges Asset T for Asset U (not a special tool) in a like-kind 
exchange. D elected not to deduct the additional first year 
depreciation for 7-year property placed in service in 2004. Since 
the recovery period prescribed under section 168 for Asset U (7 
years) is longer than that of Asset T (3 years), Asset U is 
depreciated as if it had originally been placed in service in 
February 2001 using a 7-year recovery period. Additionally, since 
the depreciation method prescribed under section 168 for Asset U 
(200-percent declining balance method) is more accelerated than that 
of Asset T (straight line method) at the time of disposition, the 
depreciation allowance is computed using the straight line method. 
Asset U is depreciated over its remaining recovery period of 3.75 
years using the straight line method of depreciation and the mid-
quarter convention.

[[Page 9541]]

    (ii) The 2004 depreciation allowance for Asset T is $938 ($2,500 
allowable depreciation deduction ($60,000 original basis minus 
$17,500 depreciation deduction for 2001 minus $20,000 depreciation 
deduction for 2002 minus $20,000 depreciation deduction for 2003) x 
4.5 months / 12).
    (iii) The depreciation rate in 2004 for Asset U is 0.2424 (1 / 
4.125 years (the length of the applicable recovery period remaining 
as of the beginning of 2004)). Therefore, the depreciation allowance 
in 2004 is $379 (0.2424 x $2,500 (the sum of the $1,562 depreciable 
exchanged basis of Asset U ($2,500 basis at the beginning of 2004 
for Asset T, less the $938 depreciation allowable for Asset T for 
2004) and the $938 depreciation allowable for Asset T for 2004) x 
7.5 months / 12).
    Example 5. On January 1, 2004, E, a calendar-year taxpayer, 
acquired and placed in service Canopy V, a gas station canopy. The 
purchase price of Canopy V was $60,000. On August 1, 2004, Canopy V 
was destroyed in a hurricane and was therefore no longer usable in 
E's business. On October 1, 2004, as part of the involuntary 
conversion, E acquired and placed in service Canopy W with the 
insurance proceeds E received due to the loss of Canopy V. E elected 
not to deduct the additional first year depreciation for 5-year 
property placed in service in 2004. E depreciates both canopies 
under the general depreciation system of section 168(a) by using the 
200-percent declining balance method of depreciation, a 5-year 
recovery period, and the half-year convention. No depreciation 
deduction is allowable for Canopy V. The depreciation deduction 
allowable for Canopy W for 2004 is $12,000 ($60,000 x the annual 
depreciation rate of .40 x \1/2\ year).
    Example 6. Same facts as in Example 5, except that E did not 
make the election out of the additional first year depreciation for 
5-year property placed in service in 2004. E depreciates both 
canopies under the general depreciation system of section 168(a) by 
using the 200-percent declining balance method of depreciation, a 5-
year recovery period, and the half-year convention. No depreciation 
deduction is allowable for Canopy V. For 2004, E is allowed a 50-
percent additional first year depreciation deduction of $30,000 for 
Canopy W (the unadjusted depreciable basis of $60,000 multiplied by 
.50), and a regular MACRS depreciation deduction of $6,000 for 
Canopy W (the depreciable exchanged basis of $30,000 multiplied by 
the annual depreciation rate of .40 x \1/2\ year). For 2005, E is 
allowed a regular MACRS depreciation deduction of $9,600 for Canopy 
W (the depreciable exchanged basis of $24,000 ($30,000 minus regular 
2003 depreciation of $6,000) multiplied by the annual depreciation 
rate of .40).

    (d) Special rules for determining depreciation allowances--(1) 
Excess basis--(i) In general. Any excess basis in the replacement MACRS 
property is treated as property that is placed in service by the 
acquiring taxpayer in the year of replacement. Thus, the depreciation 
allowances for the depreciable excess basis are determined by using the 
applicable recovery period, depreciation method, and convention 
prescribed under section 168 for the property at the time of 
replacement. However, if replacement MACRS property is disposed of 
during the same taxable year the relinquished MACRS property is placed 
in service by the acquiring taxpayer, no depreciation deduction is 
allowable for either MACRS property. See paragraph (g) of this section 
regarding the application of section 179. See paragraph (h) of this 
section regarding the application of section 168(k) or 1400L(b).
    (ii) Example. The application of this paragraph (d)(1) is 
illustrated by the following example:

    Example. In 1989, G placed in service a hospital. On January 16, 
2004, G exchanges this hospital plus $2,000,000 cash for an office 
building in a like-kind exchange. On January 16, 2004, the hospital 
has an adjusted depreciable basis of $1,500,000. After the exchange, 
the basis of the office building is $3,500,000. The depreciable 
exchanged basis of the office building is depreciated in accordance 
with paragraph (c) of this section. The depreciable excess basis of 
$2,000,000 is treated as being placed in service by G in 2004 and, 
as a result, is depreciated using the applicable depreciation 
method, recovery period, and convention prescribed for the office 
building under section 168 at the time of replacement.

    (2) Depreciable and nondepreciable property--(i) If land or other 
nondepreciable property is acquired in a like-kind exchange for, or as 
a result of an involuntary conversion of, depreciable property, the 
land or other nondepreciable property is not depreciated. If both MACRS 
and nondepreciable property are acquired in a like-kind exchange for, 
or as part of an involuntary conversion of, MACRS property, the basis 
allocated to the nondepreciable property (as determined under section 
1031(d) and the regulations under section 1031(d) or section 1033(b) 
and the regulations under section 1033(b)) is not depreciated and the 
basis allocated to the replacement MACRS property (as determined under 
section 1031(d) and the regulations under section 1031(d) or section 
1033(b) and the regulations under section 1033(b)) is depreciated in 
accordance with this section.
    (ii) If MACRS property is acquired, or if both MACRS and 
nondepreciable property are acquired, in a like-kind exchange for, or 
as part of an involuntary conversion of, land or other nondepreciable 
property, the basis in the replacement MACRS property that is 
attributable to the relinquished nondepreciable property is treated as 
though the replacement MACRS property is placed in service by the 
acquiring taxpayer in the year of replacement. Thus, the depreciation 
allowances for the replacement MACRS property are determined by using 
the applicable recovery period, depreciation method, and convention 
prescribed under section 168 for the replacement MACRS property at the 
time of replacement. See paragraph (g) of this section regarding the 
application of section 179. See paragraph (h) of this section regarding 
the application of section 168(k) or 1400L(b).
    (3) Depreciation limitations for automobiles--(i) In general. 
Depreciation allowances under section 179 and section 167 (including 
allowances under sections 168 and 1400L(b)) for a passenger automobile, 
as defined in section 280F(d)(5), are subject to the limitations of 
section 280F(a). The depreciation allowances for a passenger automobile 
that is replacement MACRS property (replacement MACRS passenger 
automobile) generally are limited in any taxable year to the 
replacement automobile section 280F limit for the taxable year. The 
taxpayer's basis in the replacement MACRS passenger automobile is 
treated as being comprised of two separate components. The first 
component is the exchanged basis and the second component is the excess 
basis, if any. The depreciation allowances for a passenger automobile 
that is relinquished MACRS property (relinquished MACRS passenger 
automobile) for the taxable year generally are limited to the 
relinquished automobile section 280F limit for that taxable year. For 
purposes of this paragraph (d)(3), the following definitions apply:
    (A) Replacement automobile section 280F limit is the limit on 
depreciation deductions under section 280F(a) for the taxable year 
based on the time of replacement of the replacement MACRS passenger 
automobile (including the effect of any elections under section 168(k) 
or section 1400L(b), as applicable).
    (B) Relinquished automobile section 280F limit is the limit on 
depreciation deductions under section 280F(a) for the taxable year 
based on when the relinquished MACRS passenger automobile was placed in 
service by the taxpayer.
    (ii) Order in which limitations on depreciation under section 
280F(a) are applied. Generally, depreciation deductions allowable under 
section 280F(a) reduce the basis in the relinquished MACRS passenger 
automobile and the exchanged basis of

[[Page 9542]]

the replacement MACRS passenger automobile, before the excess basis of 
the replacement MACRS passenger automobile is reduced. The depreciation 
deductions for the relinquished MACRS passenger automobile in the year 
of disposition and the replacement MACRS passenger automobile in the 
year of replacement and each subsequent taxable year are allowable in 
the following order:
    (A) The depreciation deduction allowable for the relinquished MACRS 
passenger automobile as determined under paragraph (c)(5)(i) of this 
section for the year of disposition to the extent of the smaller of the 
replacement automobile section 280F limit and the relinquished 
automobile section 280F limit, if the year of disposition is the year 
of replacement. If the year of replacement is a taxable year subsequent 
to the year of disposition, the depreciation deduction allowable for 
the relinquished MACRS passenger automobile for the year of disposition 
is limited to the relinquished automobile section 280F limit.
    (B) The additional first year depreciation allowable on the 
remaining exchanged basis (remaining carryover basis as determined 
under Sec.  1.168(k)-1T(f)(5) or Sec.  1.1400L(b)-1T(f)(5), as 
applicable) of the replacement MACRS passenger automobile, as 
determined under Sec.  1.168(k)-1T(f)(5) or Sec.  1.1400L(b)-1T(f)(5), 
as applicable, to the extent of the excess of the replacement 
automobile section 280F limit over the amount allowable under paragraph 
(d)(3)(ii)(A) of this section.
    (C) The depreciation deduction allowable for the taxable year on 
the depreciable exchanged basis of the replacement MACRS passenger 
automobile determined under paragraph (c) of this section to the extent 
of any excess of the sum of the amounts allowable under paragraphs 
(d)(3)(ii)(A) and (B) of this section over the smaller of the 
replacement automobile section 280F limit and the relinquished 
automobile section 280F limit.
    (D) Any section 179 deduction allowable in the year of replacement 
on the excess basis of the replacement MACRS passenger automobile to 
the extent of the excess of the replacement automobile section 280F 
limit over the sum of the amounts allowable under paragraphs 
(d)(3)(ii)(A), (B), and (C) of this section.
    (E) The additional first year depreciation allowable on the 
remaining excess basis of the replacement MACRS passenger automobile, 
as determined under Sec.  1.168(k)-1T(f)(5) or Sec.  1.1400L(b)-
1T(f)(5), as applicable, to the extent of the excess of the replacement 
automobile section 280F limit over the sum of the amounts allowable 
under paragraphs (d)(3)(ii)(A), (B), (C), and (D) of this section.
    (F) The depreciation deduction allowable under paragraph (d) of 
this section for the depreciable excess basis of the replacement MACRS 
passenger automobile to the extent of the excess of the replacement 
automobile section 280F limit over the sum of the amounts allowable 
under paragraphs (d)(3)(ii)(A), (B), (C), (D), and (E) of this section.
    (iii) Examples. The application of this paragraph (d)(3) is 
illustrated by the following examples:

    Example 1. H, a calendar-year taxpayer, acquired and placed in 
service Automobile X in January 2000 for $30,000 to be used solely 
for H's business. In December 2003, H exchanges, in a like-kind 
exchange, Automobile X plus $15,000 cash for new Automobile Y that 
will also be used solely in H's business. Automobile Y is 50-percent 
bonus depreciation property for purposes of section 168(k)(4). Both 
automobiles are depreciated using the double declining balance 
method, the half-year convention, and a five-year recovery period. 
The relinquished automobile section 280F limit for 2003 for 
Automobile X is $1,775. The replacement automobile section 280F 
limit for Automobile Y is $10,710. The exchanged basis for 
Automobile Y is $17,315 ($30,000 less total depreciation allowable 
of $12,685 (($3,060 for 2000, $4,900 for 2001, $2,950 for 2002, and 
$1,775 for 2003)). Without taking section 280F into account, the 
additional first year depreciation deduction for the remaining 
exchanged basis is $8,658 ($17,315 x 0.5). Because this amount is 
less than $8,935 ($10,710 (the replacement automobile section 280F 
limit for 2003 for the Automobile Y)-$1,775 (the depreciation 
allowable for Automobile X for the 2003)) the additional first year 
depreciation deduction for the exchanged basis is $8,658. No 
depreciation deduction is allowable in 2003 for the depreciable 
exchanged basis because the depreciation deductions taken for 
Automobile X and the remaining exchanged basis exceed the exchanged 
automobile section 280F limit. An additional first year depreciation 
deduction of $278 is allowable for the excess basis of $15,000 in 
Automobile Y. Thus at the end of 2003 the adjusted depreciable basis 
in Automobile Y is $23,379 comprised of adjusted depreciable 
exchanged basis of $8,657 ($17,315 (exchanged basis) -$8,658 
(additional first year depreciation for exchanged basis)) and of an 
adjusted depreciable excess basis of $14,722 ($15,000 (excess 
basis)-$278 (additional first year depreciation for 2003)).
    Example 2. Same facts as in Example 1, except that H placed in 
service Automobile X in January 2002, and H elected not to claim the 
additional first year depreciation deduction for 5-year property 
placed in service in 2002 and 2003. The relinquished automobile 
section 280F limit for Automobile X for 2003 is $4,900. Because the 
replacement automobile section 280F limit for 2003 for Automobile Y 
($3,060) is less than the relinquished automobile section 280F limit 
for Automobile X for 2003 and is less than $5,388 (($30,000 (cost)-
$3,060 (depreciation allowable for 2002)) x 0.4 x 6/12), the 
depreciation allowable that would be allowable for Automobile X 
(determined without regard to section 280F) in the year of 
disposition, the depreciation for Automobile X in the year of 
disposition is limited to $3,060. For 2003 no depreciation is 
allowable for the excess basis and the exchanged basis in Automobile 
Y.
    Example 3. AB, a calendar-year taxpayer, purchased and placed in 
service Automobile X1 in February 2000 for $10,000. X1 is a 
passenger automobile subject to section 280F(a) and is used solely 
for AB's business. AB depreciated X1 using a five year recovery 
period, the double declining balance method and the half-year 
convention. As of January 1, 2003, the adjusted basis of X1 was 
$2,880 ($10,000 original cost minus $2,000 depreciation deduction 
for 2000, minus $3,200 depreciation deduction for 2001, and $1,920 
depreciation deduction for 2002). In November 2003, AB exchanges, in 
a like-kind exchange, Automobile X1 plus $14,000 cash for new 
Automobile Y1 that will be used solely in AB's business. Automobile 
Y1 is 50-percent bonus depreciation property for purposes of section 
168(k)(4) and qualifies for the expensing election under section 
179. Pursuant to paragraph Sec.  1.168(k)-1T(g)(3)(ii) and paragraph 
(k)(2)(i) of this section, AB decided to apply Sec.  1.168(i)-6T to 
the exchange of Automobile X1 for Automobile Y1, the replacement 
MACRS property. AB also makes the election under section 179 for the 
excess basis of Automobile Y1. AB depreciates Y1 using a five-year 
recovery period, the double declining balance method and the half-
year convention. For 2003, the relinquished automobile section 280F 
limit for Automobile X1 is $1,775 and the replacement automobile 
section 280F limit for 2003 for Automobile Y1 is $10,710.

    (i) The 2003 depreciation deduction for Automobile X1 is $576. 
The depreciation deduction calculated for X1 is $576 (the adjusted 
depreciable basis of Automobile X1 at the beginning of 2003 of 
$2,880 x 40% x \1/2\ year), which is less than the relinquished 
automobile section 280F limit and the replacement automobile section 
280F limit.
    (ii) The additional first year depreciation deduction for the 
exchanged basis is $1,152. The additional first year depreciation 
deduction of $1,152 (remaining exchanged basis of $2,304 ($2,880 
adjusted basis of Automobile X1 at the beginning of 2003 minus $576) 
x 0.5)) is less than the replacement automobile section 280F limit 
minus $576.
    (iii) AB's MACRS depreciation deduction allowable in 2003 for 
the remaining exchanged basis of $1,152 is $47 (the relinquished 
automobile section 280F limit of $1,775 less the depreciation 
deduction of $576 taken for Automobile X1 less the additional first 
year depreciation deduction of $1,152 taken for the exchanged basis) 
which is less than the depreciation deduction calculated for the 
depreciable exchanged basis.
    (iv) For 2003, AB takes a $1,400 section 179 deduction for the 
excess basis of

[[Page 9543]]

Automobile Y1. AB must reduce the excess basis of $14,000 by the 
section 179 deduction of $1,400 to determine the remaining excess 
basis of $12,600.
    (v) For 2003, AB is allowed a 50-percent additional first year 
depreciation deduction of $6,300 (the remaining excess basis of 
$12,600 multiplied by .50).
    (vi) For 2003, AB's depreciation deduction for the depreciable 
excess basis is limited to $1,235. The depreciation deduction 
computed without regard to the replacement automobile section 280F 
limit is $1,260 ($6,300 depreciable excess basis x 0.4 x 6/12). 
However the depreciation deduction for the depreciable excess basis 
is limited to $1,235 ($10,710 (replacement automobile section 280F 
limit)-$576 (depreciation deduction for Automobile X1)-$1,152 
(additional first year depreciation deduction for the exchanged 
basis)-$47 (depreciation deduction for exchanged basis) -$1,400 
(section 179 deduction) -$6,300 (additional first year depreciation 
deduction for remaining excess basis)).

    (4) Replacement MACRS property acquired and placed-in-service 
before disposition of relinquished MACRS property. If, in an 
involuntary conversion, a taxpayer acquires and places in service the 
replacement MACRS property before the date of disposition of the 
relinquished MACRS property, the taxpayer depreciates the unadjusted 
depreciable basis of the replacement MACRS property under section 168 
beginning in the taxable year when the replacement MACRS property is 
placed in service by the taxpayer and by using the applicable 
depreciation method, recovery period, and convention prescribed under 
section 168 for the replacement MACRS property at the placed-in-service 
date. However, at the time of disposition of the relinquished MACRS 
property, the taxpayer determines the exchanged basis and the excess 
basis of the replacement MACRS property and begins to depreciate the 
depreciable exchanged basis of the replacement MACRS property in 
accordance with paragraph (c) of this section. The depreciable excess 
basis of the replacement MACRS property continues to be depreciated by 
the taxpayer in accordance with the first sentence of this paragraph 
(d)(4). Further, in the year of disposition of the relinquished MACRS 
property, the taxpayer must include in taxable income the excess of the 
depreciation deductions allowable on the unadjusted depreciable basis 
of the replacement MACRS property over the depreciation deductions that 
would have been allowable to the taxpayer on the depreciable excess 
basis of the replacement MACRS property from the date the replacement 
MACRS property was placed in service by the taxpayer (taking into 
account the applicable convention) to the time of disposition of the 
relinquished MACRS property.
    (e) Use of optional depreciation tables--(1) Taxpayer not bound by 
prior use of table. If a taxpayer used an optional depreciation table 
for the relinquished MACRS property, the taxpayer is not required to 
use an optional table for the depreciable exchanged basis of the 
replacement MACRS property. Conversely, if a taxpayer did not use an 
optional depreciation table for the relinquished MACRS property, the 
taxpayer may use the appropriate table for the depreciable exchanged 
basis of the replacement MACRS property. If a taxpayer decides not to 
use the table for the depreciable exchanged basis of the replacement 
MACRS property, the depreciation allowance for this property for the 
year of replacement and subsequent taxable years is determined under 
paragraph (c) of this section. If a taxpayer decides to use the 
optional depreciation tables, no depreciation deduction is allowable 
for MACRS property placed in service by the acquiring taxpayer and 
subsequently exchanged or involuntarily converted by such taxpayer in 
the same taxable year, and, if, during the same taxable year, MACRS 
property is placed in service by the acquiring taxpayer, exchanged or 
involuntarily converted by such taxpayer, and the replacement MACRS 
property is disposed of by such taxpayer, no depreciation deduction is 
allowable for either MACRS property.
    (2) Determination of the depreciation deduction--(i) Relinquished 
MACRS property. In the year of disposition, the depreciation allowance 
for the relinquished MACRS property is computed by multiplying the 
unadjusted depreciable basis (less the amount of the additional first 
year depreciation deduction allowed or allowable, whichever is greater, 
under section 168(k) or section 1400L(b), as applicable) of the 
relinquished MACRS property by the annual depreciation rate (expressed 
as a decimal equivalent) specified in the appropriate table for the 
recovery year corresponding to the year of disposition. This product is 
then multiplied by a fraction, the numerator of which is the number of 
months (including fractions of months) the property is deemed to be 
placed in service during the year of the exchange or involuntary 
conversion (taking into account the applicable convention) and the 
denominator of which is 12. However, if the year of disposition is less 
than 12 months, the depreciation allowance determined under this 
paragraph (e)(2)(i) must be adjusted for a short taxable year (for 
further guidance, for example, see Rev. Proc. 89-15 (1989-1 C.B. 816) 
and Sec.  601.601(d)(2)(ii)(b) of this chapter).
    (ii) Replacement MACRS property--(A) Determination of the 
appropriate optional depreciation table. If a taxpayer chooses to use 
the appropriate optional depreciation table for the depreciable 
exchanged basis, the depreciation allowances for the depreciable 
exchanged basis beginning in the year of replacement are determined by 
choosing the optional depreciation table that corresponds to the 
recovery period, depreciation method, and convention of the replacement 
MACRS property determined under paragraph (c) of this section.
    (B) Calculating the depreciation deduction for the replacement 
MACRS property--(1) The depreciation deduction for the taxable year is 
computed by first determining the appropriate recovery year in the 
table identified under paragraph (e)(2)(ii)(A) of this section. The 
appropriate recovery year for the year of replacement is the same as 
the recovery year for the year of disposition, regardless of the 
taxable year in which the replacement property is acquired. For 
example, if the recovery year for the year of disposition would have 
been Year 4 in the table that applied before the disposition of the 
relinquished MACRS property, then the recovery year for the year of 
replacement is Year 4 in the table identified under paragraph 
(e)(2)(ii)(A) of this section.
    (2) Next, the annual depreciation rate (expressed as a decimal 
equivalent) for each recovery year is multiplied by a transaction 
coefficient. The transaction coefficient is the formula (1/(1-x)) where 
x equals the sum of the annual depreciation rates from the table 
identified under paragraph (e)(2)(ii)(A) of this section (expressed as 
a decimal equivalent) corresponding to the replacement MACRS property 
(as determined under paragraph (e)(2)(ii)(A) of this section) for the 
taxable years beginning with the placed-in-service year of the 
relinquished MACRS property through the taxable year immediately prior 
to the year of disposition. The product of the annual depreciation rate 
and the transaction coefficient is multiplied by the depreciable 
exchanged basis (taking into account paragraph (e)(2)(i) of this 
section). In the year of replacement, this product is then multiplied 
by a fraction, the numerator of which is the number of months 
(including fractions of months) the property is deemed to be placed in 
service by the acquiring taxpayer during the year of replacement 
(taking into account the applicable convention) and the denominator of

[[Page 9544]]

which is 12. However, if the year of replacement is the year the 
relinquished MACRS property is placed in service by the acquiring 
taxpayer, the preceding sentence does not apply. In addition, if the 
year of replacement is less than 12 months, the depreciation allowance 
determined under paragraph (e)(2)(ii) of this section must be adjusted 
for a short taxable year (for further guidance, for example, see Rev. 
Proc. 89-15 (1989-1 C.B. 816) and Sec.  601.601(d)(2)(ii)(b) of this 
chapter).
    (iii) Unrecovered basis. If the replacement MACRS property would 
have unrecovered depreciable basis after the final recovery year (for 
example, due to a deferred exchange), the unrecovered basis is an 
allowable depreciation deduction in the taxable year that corresponds 
to the final recovery year unless the unrecovered basis is subject to a 
depreciation limitation such as section 280F.
    (3) Excess basis. As provided in paragraph (d)(1) of this section, 
any excess basis in the replacement MACRS property is treated as 
property that is placed in service by the acquiring taxpayer at the 
time of replacement. Thus, if the taxpayer chooses to use the 
appropriate optional depreciation table for the depreciable excess 
basis in the replacement MACRS property, the depreciation allowances 
for the depreciable excess basis are determined by multiplying the 
depreciable excess basis by the annual depreciation rate (expressed as 
a decimal equivalent) specified in the appropriate table for each 
taxable year. The appropriate table for the depreciable excess basis is 
based on the depreciation method, recovery period, and convention 
applicable to the depreciable excess basis under section 168 at the 
time of replacement. However, if the year of replacement is less than 
12 months, the depreciation allowance determined under this paragraph 
(e)(3) must be adjusted for a short taxable year (for further guidance, 
for example, see Rev. Proc. 89-15 (1989-1 C.B. 816) and Sec.  
601.601(d)(2)(ii)(b) of this chapter).
    (4) Examples. The application of this paragraph (e) is illustrated 
by the following examples:

    Example 1. J, a calendar-year taxpayer, acquired 5-year property 
for $10,000 and placed it in service in January 2001. J uses the 
optional tables to depreciate the property. J uses the half-year 
convention and did not make any elections for the property. In 
December 2003, J exchanges the 5-year property for used 7-year 
property in a like-kind exchange. The depreciable exchanged basis of 
the 7-year property equals the adjusted depreciable basis of the 5-
year property at the time of disposition of the relinquished MACRS 
property, namely $3,840 ($10,000 less $2,000 depreciation in 2001, 
$3,200 depreciation in 2002, and $960 depreciation in 2003). J must 
first determine the appropriate optional depreciation table pursuant 
to paragraph (c) of this section. Since the replacement MACRS 
property has a longer recovery period and the same depreciation 
method as the relinquished MACRS property, J uses the optional 
depreciation table corresponding to a 7-year recovery period, the 
200% declining balance method, and the half-year convention (because 
the 5-year property was depreciated using a half-year convention). 
Had the replacement MACRS property been placed in service in the 
same taxable year as the placed-in-service year of the relinquished 
MACRS property, the depreciation allowance for the replacement MACRS 
property for the year of replacement would be determined using 
recovery year 3 of the optional table. The depreciation allowance 
equals the depreciable exchanged basis ($3,840) multiplied by the 
annual depreciation rate for the current taxable year (.1749 for 
recovery year 3) as modified by the transaction coefficient [1 / (1-
(.1429 + .2449))] which equals 1.6335. Thus, J multiplies $3,840, 
its depreciable exchanged basis in the replacement MACRS property, 
by the product of .1749 and 1.6335, and then by one-half, to 
determine the depreciation allowance for 2003, $549. For 2004, J 
multiplies its depreciable exchanged basis in the replacement MACRS 
property determined at the time of replacement of $3,840 by the 
product of the modified annual depreciation rate for the current 
taxable year (.1249 for recovery year 4) and the transaction 
coefficient (1.6335) to determine its depreciation allowance of 
$783.
    Example 2. K, a calendar-year taxpayer, acquired used Asset V 
for $100,000 and placed it in service in January 1999. K depreciated 
Asset V under the general depreciation system of section 168(a) by 
using a 5-year recovery period, the 200-percent declining balance 
method of depreciation, and the half-year convention. In December 
2003, as part of the involuntary conversion, Asset V is 
involuntarily converted due to an earthquake. In October 2005, K 
purchases used Asset W with the insurance proceeds from the 
destruction of Asset V and places Asset W in service to replace 
Asset V. If Asset W had been placed in service when Asset V was 
placed in service, it would have been depreciated using a 7-year 
recovery period, the 200-percent declining balance method, and the 
half-year convention. K uses the optional depreciation tables to 
depreciate Asset V and Asset W. For 2003 (recovery year 5 on the 
optional table), the depreciation deduction for Asset V is $5,760 
((0.1152)($100,000)(1/2)). Thus, the adjusted depreciable basis of 
Asset V at the time of replacement is $11,520 ($100,000 less $20,000 
depreciation in 1999, $32,000 depreciation in 2000, $19,200 
depreciation in 2001, $11,520 depreciation in 2002, and $5,760 
depreciation in 2003). Under the table that applied to Asset V, the 
year of disposition was recovery year 5 and the depreciation 
deduction was determined under the straight line method. The table 
that applies for Asset W is the table that applies the straight line 
depreciation method, the half-year convention, and a 7-year recovery 
period. The appropriate recovery year under this table is recovery 
year 5. The depreciation deduction for Asset W for 2005 is $1,646 
(($11,520)(0.1429)(1/(1-0.5))(1/2)). Thus, the depreciation 
deduction for Asset W in 2006 (recovery year 6) is $3,290 
($11,520)(0.1428)(1/(1-0.5)). The depreciation deduction for 2007 
(recovery year 7) is $3,292 (($11,520)(.1429)(1/(1-.5))). The 
depreciation deduction for 2008 (recovery year 8) is $3292 ($11,520 
less allowable depreciation for Asset W for 2005 through 2007 
($1,646 + $3,290 + $3,292)).
    Example 3. L, a calendar-year taxpayer, placed in service used 
Computer X in January 2002 for $5,000. L depreciated Computer X 
under the general depreciation system of section 168(a) by using the 
200-percent declining balance method of depreciation, a 5-year 
recovery period, and the half-year convention. Computer X is 
destroyed in a fire in March 2004. For 2004, the depreciation 
deduction allowable for Computer X equals $480 ([($5,000)(.1920)] x 
(1/2)). Thus, the adjusted depreciable basis of Computer X was 
$1,920 when it was destroyed ($5,000 unadjusted depreciable basis 
less $1,000 depreciation for 2002, $1,600 depreciation for 2003, and 
$480 depreciation for 2004). In April 2004, as part of the 
involuntary conversion, L acquired and placed in service used 
Computer Y with insurance proceeds received due to loss of Computer 
X. Computer Y will be depreciated using the same depreciation 
method, recovery period, and convention as Computer X. L elected to 
use the optional depreciation tables to compute the depreciation 
allowance for Computer X and Computer Y. The depreciation deduction 
allowable for 2004 for Computer Y equals $384 ([$1,920 x (.1920)(1/
(1-.52))] x (1/2)).

    (f) Mid-quarter convention. For purposes of applying the 40-percent 
test under section 168(d) and the regulations under section 168(d), the 
following rules apply:
    (1) Exchanged basis. If, in a taxable year, MACRS property is 
placed in service by the acquiring taxpayer (but not as a result of a 
like-kind exchange or involuntary conversion) and--
    (i) In the same taxable year, is disposed of by the acquiring 
taxpayer in a like-kind exchange or an involuntary conversion and 
replaced by the acquiring taxpayer with replacement MACRS property, the 
exchanged basis (determined without any adjustments for depreciation 
deductions during the taxable year) of the replacement MACRS property 
is taken into account in the year of replacement in the quarter the 
relinquished MACRS property was placed in service by the acquiring 
taxpayer; or
    (ii) In the same taxable year, is disposed of by the acquiring 
taxpayer in a like-kind exchange or an involuntary conversion, and in a 
subsequent taxable

[[Page 9545]]

year is replaced by the acquiring taxpayer with replacement MACRS 
property, the exchanged basis (determined without any adjustments for 
depreciation deductions during the taxable year) of the replacement 
MACRS property is taken into account in the year of replacement in the 
quarter the replacement MACRS property was placed in service by the 
acquiring taxpayer; or
    (iii) In a subsequent taxable year, disposed of by the acquiring 
taxpayer in a like-kind exchange or involuntary conversion, the 
exchanged basis of the replacement MACRS property is not taken into 
account in the year of replacement.
    (2) Excess basis. Any excess basis is taken into account in the 
quarter the replacement MACRS property is placed in service by the 
acquiring taxpayer.
    (3) Depreciable property acquired for nondepreciable property. Both 
the exchanged basis and excess basis of the replacement MACRS property 
described in paragraph (d)(2)(ii) of this section (depreciable property 
acquired for nondepreciable property), are taken into account for 
determining whether the mid-quarter convention applies in the year of 
replacement.
    (g) Section 179 election. In applying the section 179 election, 
only the excess basis, if any, in the replacement MACRS property is 
taken into account. If the replacement MACRS property is described in 
paragraph (d)(2)(ii) of this section (depreciable property acquired for 
nondepreciable property), only the excess basis in the replacement 
MACRS property is taken into account.
    (h) Additional first year depreciation deduction. See Sec.  
1.168(k)-1T(f)(5) (for qualified property or 50-percent bonus 
depreciation property) and Sec.  1.1400L(b)-1T(f)(5) (for qualified New 
York Liberty Zone property).
    (i) Election not to apply this section. A taxpayer may elect not to 
apply this section for any MACRS property involved in a like-kind 
exchange or involuntary conversion. An election under this paragraph 
(i) applies only to the taxpayer making the election and the election 
applies to both the relinquished MACRS property and the replacement 
MACRS property. If an election is made under this paragraph (i), the 
depreciation allowances for the replacement MACRS property beginning in 
the year of replacement and for the relinquished MACRS property in the 
year of disposition are not determined under this section. Instead, for 
depreciation purposes, the exchanged basis and excess basis, if any, in 
the replacement MACRS property are treated as being placed in service 
by the taxpayer at the time of replacement and the adjusted depreciable 
basis of the relinquished MACRS property is treated as being disposed 
of by the taxpayer at the time of disposition. Paragraphs (c)(5)(i) 
(determination of depreciation for relinquished MACRS property in the 
year of disposition), (c)(5)(iii) (rules for deferred transactions), 
(g) (section 179 election), and (h) (additional first year depreciation 
deduction) of this section apply to property to which this paragraph 
(i) applies. See paragraph (j) of this section for the time and manner 
of making the election under this paragraph (i).
    (j) Time and manner of making elections--(1) In general. The 
election provided in paragraph (i) of this section is made separately 
by each person acquiring replacement MACRS property. The election is 
made for each member of a consolidated group by the common parent of 
the group, by the partnership (and not by the partners separately) in 
the case of a partnership, or by the S corporation (and not by the 
shareholders separately) in the case of an S corporation. A separate 
election under paragraph (i) of this section is required for each like-
kind exchange or involuntary conversion. The election provided in 
paragraph (i) of this section must be made within the time and manner 
provided in paragraph (j)(2) and (3) of this section and may not be 
made by the taxpayer in any other manner (for example, the election 
cannot be made through a request under section 446(e) to change the 
taxpayer's method of accounting), except as provided in paragraph 
(k)(2) of this section.
    (2) Time for making election. The election provided in paragraph 
(i) of this section is made by the due date (including extensions) of 
the taxpayer's Federal tax return for the year of replacement.
    (3) Manner of making election. The election provided in paragraph 
(i) of this section is made by typing or legibly printing at the top of 
Form 4562, Depreciation and Amortization, ``ELECTION MADE UNDER SECTION 
1.168(i)-6T(i),'' or in the manner provided for on Form 4562 and its 
instructions. If Form 4562 is revised or renumbered, any reference in 
this section to that form is treated as a reference to the revised or 
renumbered form.
    (4) Revocation. The election provided in paragraph (i) of this 
section, once made, may be revoked only with the consent of the 
Commissioner of Internal Revenue. Such consent will be granted only in 
extraordinary circumstances. Requests for consent are requests for a 
letter ruling and must be filed with the Commissioner of Internal 
Revenue, Washington, DC 20224. Requests for consent may not be made in 
any other manner (for example, through a request under section 446(e) 
to change the taxpayer's method of accounting).
    (k) Effective date--(1) In general. (i) This section applies to a 
like-kind exchange or an involuntary conversion of MACRS property for 
which the time of disposition and the time of replacement both occur 
after February 27, 2004.
    (ii) The applicability of this section expires February 27, 2007.
    (2) Application to pre-effective date like-kind exchanges and 
involuntary conversions. For a like-kind exchange or an involuntary 
conversion of MACRS property for which the time of disposition, the 
time of replacement, or both occur on or before February 27, 2004, a 
taxpayer may:
    (i) Apply the provisions of this section. If a taxpayer's 
applicable federal income tax return has been filed on or before 
February 27, 2004, and the taxpayer has treated the replacement MACRS 
property as acquired, and the relinquished MACRS property as disposed 
of, in a like-kind exchange or an involuntary conversion, the taxpayer 
changes its method of accounting for depreciation of the replacement 
MACRS property and relinquished MACRS property in accordance with this 
paragraph (k)(2)(i) by following the applicable administrative 
procedures issued under Sec.  1.446-1T(e)(3)(ii) for obtaining the 
Commissioner's automatic consent to a change in method of accounting 
(for further guidance, see Rev. Proc. 2002-9 (2002-1 C.B. 327) and 
Sec.  601.601(d)(2)(ii)(b) of this chapter); or
    (ii) Rely on prior guidance issued by the Internal Revenue Service 
for determining the depreciation deductions of replacement MACRS 
property and relinquished MACRS property (for further guidance, for 
example, see Notice 2000-4 (2001-1 C.B. 313) and Sec.  
601.601(d)(2)(ii)(b) of this chapter). In relying on such guidance, a 
taxpayer may use any reasonable, consistent method of determining 
depreciation in the year of disposition and the year of replacement. If 
a taxpayer's applicable federal income tax return has been filed on or 
before February 27, 2004, and the taxpayer has treated the replacement 
MACRS property as acquired, and the relinquished MACRS property as 
disposed of, in a like-kind exchange or an involuntary conversion, the 
taxpayer changes its method of accounting for depreciation of the 
replacement MACRS property and relinquished MACRS property in 
accordance with this

[[Page 9546]]

paragraph (k)(2)(ii) by following the applicable administrative 
procedures issued under Sec.  1.446-1T(e)(3)(ii) for obtaining the 
Commissioner's automatic consent to a change in method of accounting 
(for further guidance, see Rev. Proc. 2002-9 (2002-1 C.B. 327) and 
Sec.  601.601(d)(2)(ii)(b) of this chapter).

0
Par. 11. Section 1.168(k)-1T is amended by:
0
1. Revising paragraphs (f)(5)(ii)(F)(2) and (f)(5)(v).
0
2. Redesignating paragraph (g)(1) as paragraph (g)(1)(i).
0
3. Revising the last sentence in newly designated paragraph (g)(1)(i) 
and redesignating as new paragraph (g)(1)(ii).
0
4. Redesignating paragraph (g)(3) as paragraph (g)(3)(i).
0
5. Adding paragraph (g)(3)(ii).
    The addition and revisions read as follows:


Sec.  1.168(k)-1T  Additional first year depreciation (temporary).

* * * * *
    (f) * * *
    (5) * * *
    (ii) * * *
    (F) * * *
    (2) The time of disposition of the exchanged or involuntarily 
converted property.
* * * * *
    (v) Examples. The application of this paragraph (f)(5) is 
illustrated by the following examples:

    Example 1. (i) In December 2002, EE, a calendar-year 
corporation, acquired for $200,000 and placed in service Canopy V1, 
a gas station canopy. Canopy V1 is qualified property under section 
168(k)(1) and is 5-year property under section 168(e). EE 
depreciated Canopy V1 under the general depreciation system of 
section 168(a) by using the 200-percent declining balance method of 
depreciation, a 5-year recovery period, and the half-year 
convention. EE elected to use the optional depreciation tables to 
compute the depreciation allowance for Canopy V1. On January 1, 
2003, Canopy V1 was destroyed in a fire and was no longer usable in 
EE's business. On June 1, 2003, in an involuntary conversion, EE 
acquired and placed in service Canopy W1 with all of the $160,000 of 
insurance proceeds EE received due to the loss of Canopy V1. Canopy 
W1 is 50-percent bonus depreciation property under section 168(k)(4) 
and is 5-year property under section 168(e). Pursuant to paragraph 
(g)(3)(ii) of this section and Sec.  1.168(i)-6T(k)(2)(i), EE 
decided to apply Sec.  1.168(i)-6T to the involuntary conversion of 
Canopy V1 with the replacement of Canopy W1, the acquired MACRS 
property.
    (ii) For 2002, EE is allowed a 30-percent additional first year 
depreciation deduction of $60,000 for Canopy V1 (the unadjusted 
depreciable basis of $200,000 multiplied by .30), and a regular 
MACRS depreciation deduction of $28,000 for Canopy V1 (the remaining 
adjusted depreciable basis of $140,000 multiplied by the annual 
depreciation rate of .20 for recovery year 1).
    (iii) For 2003, EE is allowed a regular MACRS depreciation 
deduction of $22,400 for Canopy V1 (the remaining adjusted 
depreciable basis of $140,000 multiplied by the annual depreciation 
rate of .32 for recovery year 2 x \1/2\ year).
    (iv) Pursuant to paragraph (f)(5)(iii)(A) of this section, the 
additional first year depreciation deduction allowable for Canopy W1 
equals $44,800 (.50 of Canopy W1's remaining carryover basis at the 
time of replacement of $89,600 (Canopy V1's remaining adjusted 
depreciable basis of $140,000 minus 2002 regular MACRS depreciation 
deduction of $28,000 minus 2003 regular MACRS depreciation deduction 
of $22,400).
    Example 2. (i) Same facts as in Example 1, except EE elected not 
to deduct the additional first year depreciation for 5-year property 
placed in service in 2002. EE deducted the additional first year 
depreciation for 5-year property placed in service in 2003.
    (ii) For 2002, EE is allowed a regular MACRS depreciation 
deduction of $40,000 for Canopy V1 (the unadjusted depreciable basis 
of $200,000 multiplied by the annual depreciation rate of .20 for 
recovery year 1).
    (iii) For 2003, EE is allowed a regular MACRS depreciation 
deduction of $32,000 for Canopy V1 (the unadjusted depreciable basis 
of $200,000 multiplied by the annual depreciation rate of .32 for 
recovery year 2 x \1/2\ year).
    (iv) Pursuant to paragraph (f)(5)(iii)(A) of this section, the 
additional first year depreciation deduction allowable for Canopy W1 
equals $64,000 (.50 of Canopy W1's remaining carryover basis at the 
time of replacement of $128,000 (Canopy V1's unadjusted depreciable 
basis of $200,000 minus 2002 regular MACRS depreciation deduction of 
$40,000 minus 2003 regular MACRS depreciation deduction of 
$32,000)).
    Example 3. (i) In December 2001, FF, a calendar-year 
corporation, acquired for $10,000 and placed in service Computer X2. 
Computer X2 is qualified property under section 168(k)(1) and is 5-
year property under section 168(e). FF depreciated Computer X2 under 
the general depreciation system of section 168(a) by using the 200-
percent declining balance method of depreciation, a 5-year recovery 
period, and the half-year convention. FF elected to use the optional 
depreciation tables to compute the depreciation allowance for 
Computer X2. On January 1, 2002, FF acquired Computer Y2 by 
exchanging Computer X2 and $1,000 cash in a like-kind exchange. 
Computer Y2 is qualified property under section 168(k)(1) and is 5-
year property under section 168(e). Pursuant to paragraph (g)(3)(ii) 
of this section and Sec.  1.168(i)-6T(k)(2)(i), FF decided to apply 
Sec.  1.168(i)-6T to the exchange of Computer X2 for Computer Y2, 
the acquired MACRS property.
    (ii) For 2001, FF is allowed a 30-percent additional first year 
depreciation deduction of $3,000 for Computer X2 (unadjusted basis 
of $10,000 multiplied by .30), and a regular MACRS depreciation 
deduction of $1,400 for Computer X2 (the remaining adjusted 
depreciable basis of $7,000 multiplied by the annual depreciation 
rate of .20 for recovery year 1).
    (iii) For 2002, FF is allowed a regular MACRS depreciation 
deduction of $1,120 for Computer X2 (the remaining adjusted 
depreciable basis of $7,000 multiplied by the annual depreciation 
rate of .32 for recovery year 2 x \1/2\ year).
    (iv) Pursuant to paragraph (f)(5)(iii)(A) of this section, the 
30-percent additional first year depreciation deduction for Computer 
Y2 is allowable for the remaining carryover basis at the time of 
replacement of $4,480 (Computer X2's unadjusted depreciable basis of 
$10,000 minus additional first year depreciation deduction allowable 
of $3,000 minus 2001 regular MACRS depreciation deduction of $1,400 
minus 2002 regular MACRS depreciation deduction of $1,120) and for 
the remaining excess basis at the time of replacement of $1,000 
(cash paid for Computer Y2). Thus, the 30-percent additional first 
year depreciation deduction for the remaining carryover basis at the 
time of replacement equals $1,344 ($4,480 multiplied by .30) and for 
the remaining excess basis at the time of replacement equals $300 
($1,000 multiplied by .30), which totals $1,644.
    Example 4. (i) In September 2002, GG, a June 30 year-end 
corporation, acquired for $20,000 and placed in service Equipment 
X3. Equipment X3 is qualified property under section 168(k)(1) and 
is 5-year property under section 168(e). GG depreciated Equipment X3 
under the general depreciation system of section 168(a) by using the 
200-percent declining balance method of depreciation, a 5-year 
recovery period, and the half-year convention. GG elected to use the 
optional depreciation tables to compute the depreciation allowance 
for Equipment X3. In December 2002, GG acquired Equipment Y3 by 
exchanging Equipment X3 and $5,000 cash in a like-kind exchange. 
Equipment Y3 is qualified property under section 168(k)(1) and is 5-
year property under section 168(e). Pursuant to paragraph (g)(3)(ii) 
of this section and Sec.  1.168(i)-6T(k)(2)(i), GG decided to apply 
Sec.  1.168(i)-6T to the exchange of Equipment X3 for Equipment Y3, 
the acquired MACRS property.
    (ii) Pursuant to paragraph (f)(5)(iii)(B) of this section, no 
additional first year depreciation deduction is allowable for 
Equipment X3 and, pursuant to Sec.  1.168(d)-1T(b)(3)(ii), no 
regular depreciation deduction is allowable for Equipment X3, for 
the taxable year ended June 30, 2003.
    (iii) Pursuant to paragraph (f)(5)(iii)(A) of this section, the 
30-percent additional first year depreciation deduction for 
Equipment Y3 is allowable for the remaining carryover basis at the 
time of replacement of $20,000 (Equipment X3's unadjusted 
depreciable basis of $20,000) and for the remaining excess basis at 
the time of replacement of $5,000 (cash paid for Equipment Y3). 
Thus, the 30-percent additional first year depreciation deduction 
for the remaining carryover basis at the time of replacement equals 
$6,000 ($20,000 multiplied by .30) and for the remaining excess 
basis at the time of replacement equals $1,500 ($5,000 multiplied by 
.30), which totals $7,500.

[[Page 9547]]

    Example 5. (i) Same facts as in Example 4. GG depreciated 
Equipment Y3 under the general depreciation system of section 168(a) 
by using the 200-percent declining balance method of depreciation, a 
5-year recovery period, and the half-year convention. GG elected to 
use the optional depreciation tables to compute the depreciation 
allowance for Equipment Y3. On July 1, 2003, GG acquired Equipment 
Z1 by exchanging Equipment Y3 in a like-kind exchange. Equipment Z1 
is 50-percent bonus depreciation property under section 168(k)(4) 
and is 5-year property under section 168(e). Pursuant to paragraph 
(g)(3)(ii) of this section and Sec.  1.168(i)-6T(k)(2)(i), GG 
decided to apply Sec.  1.168(i)-6T to the exchange of Equipment Y3 
for Equipment Z3, the acquired MACRS property.
    (ii) For the taxable year ending June 30, 2003, the regular 
MACRS depreciation deduction allowable for the remaining carryover 
basis at the time of replacement (after taking into account the 
additional first year depreciation deduction) of Equipment Y3 is 
$2,800 (the remaining carryover basis at the time of replacement of 
$20,000 minus the additional first year depreciation deduction of 
$6,000, multiplied by the annual depreciation rate of .20 for 
recovery year 1) and for the remaining excess basis at the time of 
replacement (after taking into account the additional first year 
depreciation deduction) of Equipment Y3 is $700 (the remaining 
excess basis at the time of replacement of $5,000 minus the 
additional first year depreciation deduction of $1,500, multiplied 
by the annual depreciation rate of .20 for recovery year 1), which 
totals $3,500.
    (iii) For the taxable year ending June 30, 2004, the regular 
MACRS depreciation deduction allowable for the remaining carryover 
basis (after taking into account the additional first year 
depreciation deduction) of Equipment Y3 is $2,240 (the remaining 
carryover basis at the time of replacement of $20,000 minus the 
additional first year depreciation deduction of $6,000, multiplied 
by the annual depreciation rate of .32 for recovery year 2 x \1/2\ 
year) and for the remaining excess basis (after taking into account 
the additional first year depreciation deduction) of Equipment Y3 is 
$560 (the remaining excess basis at the time of replacement of 
$5,000 minus the additional first year depreciation deduction of 
$1,500, multiplied by the annual depreciation rate of .32 for 
recovery year 2 x \1/2\ year), which totals $2,800.
    (iv) For the taxable year ending June 30, 2004, pursuant to 
paragraph (f)(5)(iii)(A) of this section, the 50-percent additional 
first year depreciation deduction for Equipment Z1 is allowable for 
the remaining carryover basis at the time of replacement of $11,200 
(Equipment Y3's unadjusted depreciable basis of $25,000 minus the 
total additional first year depreciation deduction of $7,500 minus 
the total 2003 regular MACRS depreciation deduction of $3,500 minus 
the total 2004 regular depreciation deduction (taking into account 
the half-year convention) of $2,800). Thus, the 50-percent 
additional first year depreciation deduction for the remaining 
carryover basis at the time of replacement equals $5,600 ($11,200 
multiplied by .50).
* * * * *
    (g) * * * (1) * * * (i) * * *
    (ii) Except as provided in paragraph (g)(3)(ii) of this section, 
the applicability of this section expires on or before September 4, 
2006.
    (2) * * *
    (3) * * *--(i). * * *
    (ii) Paragraph (f)(5)(ii)(F)(2) of this section and paragraph 
(f)(5)(v) of this section apply to a like-kind exchange or an 
involuntary conversion of MACRS property and computer software for 
which the time of disposition and the time of replacement both occur 
after February 27, 2004. For a like-kind exchange or an involuntary 
conversion of MACRS property for which the time of disposition, the 
time of replacement, or both occur on or before February 27, 2004, see 
Sec.  1.168(i)-6T(k)(2)(ii). For a like-kind exchange or involuntary 
conversion of computer software for which the time of disposition, the 
time of replacement, or both occur on or before February 27, 2004, a 
taxpayer may rely on prior guidance issued by the Internal Revenue 
Service for determining the depreciation deductions of the acquired 
computer software and the exchanged or involuntarily converted computer 
software (for further guidance, see Sec.  1.168(k)-1T(f)(5) published 
in the Federal Register on September 8, 2003 (68 FR 53000)). In relying 
on such guidance, a taxpayer may use any reasonable, consistent method 
of determining depreciation in the year of disposition and the year of 
replacement. The applicability of paragraph (f)(5) of this section 
expires on or before February 27, 2007.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: February 17, 2004.
Pamela F. Olson,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 04-3992 Filed 2-27-04; 8:45 am]
BILLING CODE 4830-01-P