The IRS has released a revenue procedure that provides a safe harbor method of accounting that taxpayers may use to determine whether certain expenditures to maintain, repair, replace, or improve natural gas transmission and distribution property must be capitalized as improvements under Code Sec. 263(a) or as the costs of property produced by the taxpayer for use in its trade or business under Code Sec. 263A, or are allowable as deductions under Code Sec. 162. The revenue procedure also provides procedures for taxpayers to obtain automatic consent to change their method of accounting to the safe harbor method of accounting permitted by this revenue procedure. (Rev Proc 2023-15, 2023-18 IRB)
To reduce uncertainty and associated disputes between taxpayers and the IRS regarding whether expenditures to maintain, repair, replace, or improve natural gas transmission and distribution property must be capitalized or are allowable as deductions, the revenue procedure provides a “natural gas transmission and distribution property safe harbor method of accounting” or “NGSH Method” for determining whether certain costs of maintaining, repairing, replacing, and improving natural gas transmission and distribution property are required to be capitalized under Code Sec. 263(a) or Code Sec. 263A, or may be treated as ordinary and necessary business expenses for which a deduction is allowable under Code Sec. 162(a).
For more information regarding repair regs (regs provide guidance on the application of Code Sec. 162(a) and Code Sec. 263(a) to amounts paid to acquire, produce, or improve tangible property), see Checkpoint’s Federal Tax Coordinator ¶L-5600.1.
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