[Federal Register Volume 69, Number 122 (Friday, June 25, 2004)]
[Rules and Regulations]
[Pages 35513-35515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14390]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9133]
RIN 1545-BB06


Depreciation of Vans and Light Trucks

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains regulations relating to the definition 
of passenger automobile for purposes of the dollar limits on 
depreciation deductions for passenger automobiles. These regulations 
affect certain taxpayers that use vans and light trucks in their trade 
or business.

DATES: Effective Date. These regulations are effective June 25, 2004.
    Applicability Dates. These regulations apply to property placed in 
service by a taxpayer on or after July 7, 2003. For regulations 
applicable to property placed in service before July 7, 2003, see Sec.  
1.280F-6T as in effect prior to July 7, 2003 (Sec.  1.280F-6T as 
contained in 26 CFR part 1, revised as of April 1, 2003). Taxpayers may 
choose to apply Sec.  1.280F-6(c)(3)(iii) to property placed in service 
prior to July 7, 2003, and if necessary may either amend returns for 
open taxable years or file a Form 3115 in order to apply Sec.  1.280F-
6(c)(3)(iii) to such property.

FOR FURTHER INFORMATION CONTACT: Bernard P. Harvey, (202) 622-3110 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On July 7, 2003, the IRS published temporary regulations (TD 9069) 
in the Federal Register (68 FR 40129) containing amendments to 26 CFR 
part 1 under section 280F of the Internal Revenue Code of 1986 (Code), 
including the addition of Sec.  1.280F-6T(c)(3)(iii). On the same date, 
the IRS published proposed regulations (REG-138495-02) in the Federal 
Register (68 FR 40224) inviting comments under section 280F and 
inviting requests to hold a public hearing. Several comments were 
received, but no requests to hold a public hearing. After consideration 
of all the comments, the rules in TD 9069 and the proposed regulations 
are made retroactive for taxpayers that choose to apply the rules to 
property placed in service before the proposed effective date and are 
adopted as final regulations. In addition, a conforming amendment is 
made to Sec.  1.280F-6T, and Sec.  1.280F-6T is redesignated as Sec.  
1.280F-6.

Explanation of Provisions

    Section 280F(a) of the Code imposes annual dollar limits on the 
depreciation deduction allowable with respect to passenger automobiles. 
TD 9069 and the proposed regulations provide that a truck or van is not 
subject to these limits if it is a qualified nonpersonal use vehicle as 
defined in Sec.  1.274-5T(k). This rule applies to vehicles placed in 
service on or after July 7, 2003.
    Commentators suggested that the rule announced by TD 9069 and the 
proposed regulations be made available retroactively to owners of 
qualified nonpersonal use vehicles placed in service during the period 
beginning January 1, 2003, and ending July 6, 2003, and that taxpayers 
who have filed fiscal-year returns be allowed to amend those returns to 
claim additional deductions for such vehicles. Commentators have also 
requested that we give some measure of audit protection to taxpayers 
who placed qualified nonpersonal use vehicles in service prior to 2003 
and depreciated the vehicles in a manner consistent with TD 9069 and 
the proposed regulations. We have amended the effective date provision 
to allow taxpayers to use the exclusion for qualified nonpersonal use 
vehicles for vehicles placed in service prior to July 7, 2003, and to 
permit taxpayers either to amend tax returns for open taxable years, or 
to treat the change as a change in method of accounting by filing a 
Form 3115, ``Application for Change in Accounting Method''.
    Comments received from the funeral services industry requested 
amendments to the definition of qualified nonpersonal use vehicles in 
the temporary regulations under section 274 to clarify that certain 
vehicles used in the funeral services industry are qualified 
nonpersonal use vehicles for purposes of the substantiation 
requirements under that section. We believe that such an amendment is 
beyond the scope of these regulations, which are specific to section 
280F(a).
    Another commentator indicated that the relief afforded by TD 9069 
and the proposed regulations is too narrow, and requested that we amend 
the regulations to establish a use-based test that would exclude more 
trucks and vans from section 280F(a). The comment suggested a test that 
would exclude all trucks and vans for which the taxpayer could 
demonstrate a specific business need, and which are used for a valid 
business purpose. We believe that the proposed test is inherently 
subjective and would cause administrative difficulty of the type that 
the proposed regulations were designed to avoid. We continue to 
encourage suggestions for objective use-based tests that could serve as 
the basis for future guidance.
    We were asked by the Office of Advocacy of the U.S. Small Business 
Administration (Advocacy) to perform a regulatory flexibility analysis 
because Advocacy believes that TD 9069 and the proposed regulations 
constitute a legislative rule as defined in the Regulatory Flexibility 
Act. A Regulatory Flexibility Act (RFA) analysis must be performed for 
legislative rules having a significant impact on small business, but 
not for interpretive rules or for legislative rules with no significant 
impact on small businesses. It is the position of the IRS and Treasury 
that TD 9069 and the proposed regulations constitute an interpretive 
rule for which no regulatory flexibility analysis is necessary. In any 
event, the rule proposed in the regulations is in all cases beneficial 
to taxpayers and does not have a significant impact on small business 
for purposes of the Regulatory Flexibility Act.

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, and because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking was submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Bernard P. Harvey, 
Office of Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS

[[Page 35514]]

and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended by adopting the rules of section 
1.280F-6T as final regulations, by making conforming amendments to 
sections 1.280F-1T through 1.280F-7, and by updating the authority 
citation as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the entry for ``Section 1.280F-6T'' and adding an entry in numerical 
order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.280F-6 also issued under 26 U.S.C. 280F. * * *


Sec.  1.280F-1T  [Amended]

0
Par. 2. Section 1.280F-1T is amended as follows:
0
1. The heading in the fifth column of the table of paragraph (b) is 
amended by removing ``Sec.  1.280F-6T'' and adding ``Sec.  1.280F-6'' 
in its place.
0
2. The first sentence in paragraph (c)(1) is amended by removing 
``1.280F-6T'' and adding ``1.280F-6'' in its place.
0
3. The first sentence in paragraph (c)(2) is amended by removing 
``1.280F-6T'' and adding ``1.280F-6'' in its place.


Sec.  1.280F-2T  [Amended]

0
Par. 3. Section 1.280F-2T is amended as follows:
    The first sentence in paragraph (i) is amended by removing ``Sec.  
1.280F-6T(d)(3)'' and adding ``Sec.  1.280F-6(d)(3)'' in its place.


Sec.  1.280F-3T  [Amended]

0
Par. 4. Section 1.280F-3T is amended as follows:
0
1. The first sentence in paragraph (a) is amended by removing ``Sec.  
1.280F-6T(b)'' and adding ``Sec.  1.280F-6(b)'' in its place.
0
2. The last sentence in paragraph (a) is amended by removing ``Sec.  
1.280F-6T(d)'' and adding ``Sec.  1.280F-6(d)'' in its place.
0
3. The first sentence in paragraph (b)(1) is amended by removing 
``Sec.  1.280F-6T(d)(1)'' and adding ``Sec.  1.280F-6(d)(1)'' in its 
place.
0
4. The third sentence in paragraph (b)(1) is amended by removing 
``Sec.  1.280F-6T(d)(3)'' and adding ``Sec.  1.280F-6(d)(3)'' in its 
place, and by removing ``Sec.  1.280F-6T(d)(2)(i)'' and adding ``Sec.  
1.280F-6(d)(2)(i)'' in its place.
0
5. The first sentence in paragraph (b)(2) is amended by removing 
``Sec.  1.280F-6T(d)(3)'' and adding ``Sec.  1.280F-6(d)(3)'' in its 
place.
0
6. The third sentence in paragraph (b)(2) is amended by removing 
``Sec.  1.280F-6T(d)(1)'' and adding ``Sec.  1.280F-6(d)(1)'' in its 
place.
0
7. The first sentence in paragraph (c)(1) is amended by removing 
``Sec.  1.280F-6T(b)'' and adding ``Sec.  1.280F-6(b)'' in its place, 
and by removing ``Sec.  1.280F-6T(d)(4)'' and adding ``Sec.  1.280F-
6(d)(4)'' in its place.
0
8. The first sentence in paragraph (c)(2) is amended by removing 
``Sec.  1.280F-6T(d)(4)'' and adding ``Sec.  1.280F-6(d)(4)'' in its 
place.
0
9. Paragraph (d)(1) is amended by removing ``Sec.  1.280F-6T(d)(4)'' 
and adding ``Sec.  1.280F-6(d)(4)'' in its place.


Sec.  1.280F-4T  [Amended]

0
Par. 5. Section 1.280F-4T is amended as follows:
0
The fifth sentence in paragraph (a)(1) is amended by removing ``Sec.  
1.280F-6T(d)(2)'' and adding ``Sec.  1.280F-6(d)(2)'' in its place.


Sec.  1.280F-5T  [Amended]

0
Par. 6. Section 1.280F-5T is amended as follows:
0
The first sentence in paragraph (d)(1) is amended by removing ``Sec.  
1.280F-6T(d)(3)(i)'' and adding ``Sec.  1.280F-6(d)(3)(i)'' in its 
place.


Sec.  1.280F-6T  [Redesignated as Sec.  1.280F-6 and amended]

0
Par. 7. Section 1.280F-6T is redesignated as Sec.  1.280F-6 and the 
word ``(temporary)'' is removed from the section heading. Newly-
designated Sec.  1.280F-6 is amended as follows:
0
1. Paragraph (b)(1)(iv) is amended by removing ``section 168(j)(5)(D)'' 
and adding ``section 168(i)(2)(B)'' in its place.
0
2. Paragraph (f) is added.
    The addition reads as follows:


Sec.  1.280F-6  Special rules and definitions.

* * * * *
    (f) Effective date--(1) In general. Except as provided in paragraph 
(f)(2) of this section, this section applies to property placed in 
service by a taxpayer on or after July 7, 2003. For regulations 
applicable to property placed in service before July 7, 2003, see Sec.  
1.280F-6T as in effect prior to July 7, 2003 (Sec.  1.280F-6T as 
contained in 26 CFR part 1, revised as of April 1, 2003).
    (2) Property placed in service before July 7, 2003. The following 
rules apply to property that is described in paragraph (c)(3)(iii) of 
this section, was placed in service by the taxpayer before July 7, 
2003, and was treated by the taxpayer as a passenger automobile under 
Sec.  1.280F-6T as in effect prior to July 7, 2003 (pre-effective date 
vehicle):
    (i) Except as provided in paragraphs (f)(2)(ii), (iii), and (iv) of 
this section, a pre-effective date vehicle will be treated as a 
passenger automobile to which section 280F(a) applies.
    (ii) A pre-effective date vehicle will be treated as property to 
which section 280F(a) does not apply if the taxpayer adopts that 
treatment in determining depreciation deductions on the taxpayer's 
original return for the year in which the vehicle is placed in service.
    (iii) A pre-effective date vehicle will be treated, to the extent 
provided in this paragraph (f)(2)(iii), as property to which section 
280F(a) does not apply if the taxpayer adopts that treatment on an 
amended Federal tax return in accordance with this paragraph 
(f)(2)(iii). This paragraph (f)(2)(iii) applies only if, on or before 
December 31, 2004, the taxpayer files, for all applicable taxable 
years, amended Federal tax returns (or qualified amended returns, if 
applicable (for further guidance, see Rev. Proc. 94-69 (1994-2 C.B. 
804) and Sec.  601.601(d)(2)(ii)(b) of this chapter)) treating the 
vehicle as property to which section 280F(a) does not apply. The 
applicable taxable years for this purpose are the taxable year in which 
the vehicle was placed in service by the taxpayer (or, if the period of 
limitation for assessment under section 6501 has expired for such year 
or any subsequent year (a closed year), the first taxable year 
following the most recent closed year) and all subsequent taxable years 
in which the vehicle was treated on the taxpayer's return as property 
to which section 280F(a) applies. If the earliest applicable taxable 
year is not the year in which the vehicle was placed in service, the 
adjusted depreciable basis of the property as of the beginning of the 
first applicable taxable year is recovered over the remaining recovery 
period. If the remaining recovery period as of the beginning of the 
first applicable taxable year is less than 12 months, the entire 
adjusted depreciable basis of the property as of the beginning of the 
first applicable taxable year is recovered in that year.
    (iv) A pre-effective date vehicle will be treated, to the extent 
provided in this paragraph (f)(2)(iv), as property to which section 
280F(a) does not apply if the taxpayer adopts that treatment on Form 
3115, Application for Change in Accounting Method, in accordance with 
this paragraph (f)(2)(iv). The taxpayer must follow the applicable 
administrative procedures issued under Sec.  1.446-1(e)(3)(ii) for 
obtaining the

[[Page 35515]]

Commissioner's automatic consent to a change in method of accounting 
(for further guidance, for example, see Rev. Proc. 2002-9 (2002-1 C.B. 
327) and Sec.  601.601(d)(2)(ii)(b) of this chapter). If the taxpayer 
files a Form 3115 treating the vehicle as property to which section 
280F(a) does not apply, the taxpayer will be permitted to treat the 
change as a change in method of accounting under section 446(e) of the 
Internal Revenue Code and to take into account the section 481 
adjustment resulting from the method change. For purposes of Form 3115, 
the designated number for the automatic accounting method change 
authorized for this paragraph (f)(2)(iv) is 89.


Sec.  1.280F-7  [Amended]

0
Par. 8. Section 1.280F-7 is amended as follows:
0
1. Paragraph (a)(2)(iii) is amended by removing ``Sec.  1.280F-
6T(d)(3)(i)'' and adding ``Sec.  1.280F-6(d)(3)(i)'' in its place.
0
2. The second sentence in paragraph (b)(1) is amended by removing 
``Sec.  1.280F-6T(d)(1)'' and adding ``Sec.  1.280F-6(d)(1)'' in its 
place.
0
3. Paragraph (b)(2)(i)(B) is amended by removing ``Sec.  1.280F-
6T(d)(3)(i)'' and adding ``Sec.  1.280F-6(d)(3)(i)'' in its place, and 
by removing ``Sec.  1.280F-6T(d)(1)'' and adding ``Sec.  1.280F-
6(d)(1)'' in its place.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: June 17, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-14390 Filed 6-24-04; 8:45 am]
BILLING CODE 4830-01-P