The IRS and Treasury have published final regulations on the treatment of ‘negative additional’ Section 263A costs, which arise when a taxpayer uses a simplified method to allocate costs to ending inventory (EI). The final regulations generally apply for tax years beginning on or after November 20, 2018. Thus, calendar-year taxpayers must comply with the regulations beginning in 2019. For tax years that both begin before and end after November 20, 2018 (for example, calendar year 2018), the preamble states that the IRS will not challenge tax positions consistent with the final regulations. The final regulations can be accessed here.
The IRS also released Rev. Proc. 2018-56, which provides automatic consent and procedures for taxpayers to change their methods of accounting consistent with the final regulations for the first, second, or third tax year ending on or after November 20, 2018. The revenue procedure can be accessed here.
This insight highlights significant provisions of the final regulations. PwC will publish a detailed analysis of the Section 263A final regulations within the coming days. PwC professionals also will discuss the regulations in a forthcoming webcast.
The final Section 263A regulations are complex. Although the regulations include some welcome simplification from the proposed rules, many taxpayers currently including negative amounts in additional Section 263A costs will be required to change their methods of accounting.