§ 1.263(a)-2 Amounts paid to acquire or produce tangible property.
(a) Overview. This section provides rules for applying section 263(a) to amounts paid to acquire or produce a unit of real or personal property. Paragraph (b) of this section contains definitions. Paragraph (c) of this section contains the rules for coordinating this section with other provisions of the Internal Revenue Code ( Code). Paragraph (d) of this section provides the general requirement to capitalize amounts paid to acquire or produce a unit of real or personal property. Paragraph (e) of this section provides the requirement to capitalize amounts paid to defend or perfect title to real or personal property. Paragraph (f) of this section provides the rules for determining the extent to which taxpayers must capitalize transaction costs related to the acquisition of tangible property. Paragraphs (g) and (h) of this section address the treatment and recovery of capital expenditures. Paragraph (i) of this section provides for changes in methods of accounting to comply with this section, and paragraph (j) of this section provides the effective and applicability dates for the rules under this section.
(b) Definitions. For purposes of this section, the following definitions apply:
(1) Amount paid. In the case of a taxpayer using an accrual method of accounting, the terms amount paid and payment mean a liability incurred (within the meaning of § 1.446-1(c)(1)(ii)). A liability may not be taken into account under this section prior to the taxable year during which the liability is incurred.
(2) Personal property means tangible personal property as defined in § 1.48-1(c).
(3) Real property means land and improvements thereto, such as buildings or other inherently permanent structures (including items that are structural components of the buildings or structures) that are not personal property as defined in paragraph (b)(2) of this section. Any property that constitutes other tangible property under § 1.48-1(d) is treated as real property for purposes of this section. Local law is not controlling in determining whether property is real property for purposes of this section.
(4) Produce means construct, build, install, manufacture, develop, create, raise, or grow. This definition is intended to have the same meaning as the definition used for purposes of section 263A(g)(1) and § 1.263A-2(a)(1)(i), except that improvements are excluded from the definition in this paragraph (b)(4) and are separately defined and addressed in § 1.263(a)-3.
(c) Coordination with other provisions of the Code—(1) In general. Nothing in this section changes the treatment of any amount that is specifically provided for under any provision of the Code or the Treasury Regulations other than section 162(a) or section 212 and the regulations under those sections. For example, see section 263A requiring taxpayers to capitalize the direct and allocable indirect costs of property produced by the taxpayer and property acquired for resale. See also section 195 requiring taxpayers to capitalize certain costs as start-up expenditures.
(2) Materials and supplies. Nothing in this section changes the treatment of amounts paid to acquire or produce property that is properly treated as materials and supplies under § 1.162-3.
(d) Acquired or produced tangible property—(1) Requirement to capitalize. Except as provided in § 1.162-3 (relating to materials and supplies) and in § 1.263(a)-1(f) (providing a de minimis safe harbor election), a taxpayer must capitalize amounts paid to acquire or produce a unit of real or personal property (as determined under § 1.263(a)-3(e)), including leasehold improvements, land and land improvements, buildings, machinery and equipment, and furniture and fixtures. Section 1.263(a)-3(f) provides the rules for determining whether amounts are for leasehold improvements. Amounts paid to acquire or produce a unit of real or personal property include the invoice price, transaction costs as determined under paragraph (f) of this section, and costs for work performed prior to the date that the unit of property is placed in service by the taxpayer (without regard to any applicable convention under section 168(d)). A taxpayer also must capitalize amounts paid to acquire real or personal property for resale.
(2) Examples. The following examples illustrate the rules of this paragraph (d). Unless otherwise provided, assume that the taxpayer does not elect the de minimis safe harbor under § 1.263(a)-1(f) and that the property is not acquired for resale under section 263A.
Example 1. Acquisition of personal property.
A purchases new
cash registers
for use in its retail store located in leased space in a shopping mall. Assume each
cash register is a unit of
property as determined under
§ 1.263(a)-3(e) and is not a material or supply under
§ 1.162-3. A must
capitalize under paragraph (d)(1) of this section
the amount paid to acquire each
cash register.
Example 2.
Acquisition of
personal property that is a material or supply; coordination with
§ 1.162-3.
B operates a fleet of aircraft. In
Year 1, B acquires a
stock of
component parts, which it intends to use to maintain and repair its aircraft. Assume that each
component part is a material or supply under
§ 1.162-3(c)(1) and B does not make
elections under
§ 1.162-3(d) to treat
the materials and supplies as
capital expenditures. In
Year 2, B uses
the component parts in
the repair and maintenance of its aircraft. Because
the parts are
materials and supplies under
§ 1.162-3, B is not required to
capitalize the amounts paid for
the parts under paragraph (d)(1) of this section. Rather, to determine
the treatment of these
amounts, B must apply
the rules under § 1.162-3, governing
the treatment of
materials and supplies.
Example 3.
Acquisition of unit of
personal property; coordination with
§ 1.162-3.
C operates a rental
business that
rents out a variety of small
individual items to
customers (rental items). C maintains a supply of rental items on hand to replace worn or damaged items. C purchases a large quantity of rental items to be used in its
business. Assume that each of these rental items is a unit of
property under
§ 1.263(a)-3(e). Also assume that a portion of
the rental items are
materials and supplies under
§ 1.162-3(c)(1). Under paragraph (d)(1) of this section, C must
capitalize the amounts paid for
the rental items that are not
materials and supplies under § 1.162-3(c)(1). However, C must apply
the rules in § 1.162-3 to determine
the treatment of
the rental items that are
materials and supplies under § 1.162-3(c)(1).
D purchases and produces jigs, dies, molds, and patterns
for use in
the manufacture of D's
products. Assume that each of these items is a unit of
property as determined under
§ 1.263(a)-3(e) and is not a material and supply under
§ 1.162-3(c)(1). D is required to
capitalize under paragraph (d)(1) of this section
the amounts paid to acquire and
produce the jigs, dies, molds, and patterns.
Example 5. Acquisition of land.
F purchases a parcel of undeveloped real
estate. F must
capitalize under paragraph (d)(1) of this section
the amount paid to acquire
the real
estate. See
paragraph (f) of this section for
the treatment of
amounts paid to facilitate
the acquisition of
real property.
Example 6. Acquisition of building.
G purchases a
building. G must
capitalize under paragraph (d)(1) of this section
the amount paid to acquire
the building. See
paragraph (f) of this section for
the treatment of
amounts paid to facilitate
the acquisition of
real property.
Example 7. Acquisition of property for resale and
production of
property for sale; coordination with section 263A.
H purchases goods for resale and produces other goods for sale. H must capitalize under paragraph (d)(1) of this section the amounts paid to acquire and produce the goods. See section 263A for the amounts required to be capitalized to the property produced or to the property acquired for resale.
Example 8. Production of building; coordination with section 263A.
J constructs a building. J must capitalize under paragraph (d)(1) of this section the amount paid to construct the building. See section 263A for the costs required to be capitalized to the real property produced by J.
K owns tangible and
intangible assets that constitute a
trade or business. L purchases all
the assets of K in a taxable
transaction. L must
capitalize under paragraph (d)(1) of this section
the amount paid for
the tangible assets of K. See § 1.263(a)-4 for
the treatment of
amounts paid to acquire or create intangibles and § 1.263(a)-5 for
the treatment of
amounts paid to facilitate
the acquisition of assets that constitute a
trade or business. See section 1060 for
special allocation rules for certain
asset acquisitions.
Example 10.
Work performed prior to placing
the property in
service.
In
Year 1, M purchases a
building for use as a
business office. Prior to placing
the building in
service, M pays amounts to repair cement steps, refinish wood floors, patch holes in walls, and paint
the interiors and exteriors of
the building. In
Year 2, M places
the building in
service and begins using
the building as its
business office. Assume that
the work that M performs does not constitute an improvement to
the building or its
structural components under
§ 1.263(a)-3. Under
§ 1.263-3(e)(2)(i),
the building and its
structural components is a single unit of
property. Under paragraph (d)(1) of this section,
the amounts paid must be capitalized as amounts to acquire
the building unit of
property because they were for
work performed prior to M's placing
the building in
service.
Example 11. Work performed prior to placing the property in service.
In January
Year 1, N purchases a new machine
for use in an existing
production line of its
manufacturing business. Assume that
the machine is a unit of
property under
§ 1.263(a)-3(e) and is not a material or supply under
§ 1.162-3. N pays amounts to install
the machine, and after
the machine is installed, N pays amounts to perform a critical test on
the machine to ensure that it will operate in accordance with quality standards. On November 1,
Year 1,
the critical test is complete, and N places
the machine in
service on
the production line. N pays amounts to perform periodic
quality control testing after
the machine is
placed in service. Under paragraph (d)(1) of this section,
the amounts paid for
the installation and
the critical test performed before
the machine is
placed in service must be capitalized by N as amounts to acquire
the machine. However,
amounts paid for periodic
quality control testing after N placed
the machine in
service are not required to be capitalized as
amounts paid to acquire
the machine.
(e) Defense or perfection of title to property—(1) In general. Amounts paid to defend or perfect title to real or personal property are amounts paid to acquire or produce property within the meaning of this section and must be capitalized.
(2) Examples. The following examples illustrate the rule of this paragraph (e):
Example 1. Amounts paid to contest condemnation
X owns
real property located in County. County files an eminent domain complaint condemning a portion of X's property to use as a roadway. X hires an attorney to contest
the condemnation.
The amounts that X paid to
the attorney must be capitalized because they were to defend X's title to
the property.
Example 2. Amounts paid to invalidate ordinance.
Y is in
the business of quarrying and supplying
for sale sand and stone in a certain municipality. Several
years after Y establishes its
business,
the municipality in which it is located passes an ordinance that prohibits
the operation of Y's
business. Y incurs
attorney's fees in a successful prosecution of a suit to invalidate
the municipal ordinance. Y prosecutes
the suit to preserve its
business activities and not to defend Y's title in
the property. Therefore,
the attorney's fees that Y
paid are not required to be capitalized under paragraph (e)(1) of this section.
Example 3. Amounts paid to challenge building line.
The board of
public works of a municipality establishes a
building line across Z's
business property, adversely affecting
the value of
the property. Z incurs legal fees in unsuccessfully litigating
the establishment of
the building line.
The amounts Z paid to
the attorney must be capitalized because they were to defend Z's title to
the property.
(f) Transaction costs—(1) In general. Except as provided in § 1.263(a)-1(f)(3)(i) (for purposes of the de minimis safe harbor), a taxpayer must capitalize amounts paid to facilitate the acquisition of real or personal property. See § 1.263(a)-5 for the treatment of amounts paid to facilitate the acquisition of assets that constitute a trade or business. See § 1.167(a)-5 for allocations of facilitative costs between depreciable and non-depreciable property.
(2) Scope of facilitate—(i) In general. Except as otherwise provided in this section, an amount is paid to facilitate the acquisition of real or personal property if the amount is paid in the process of investigating or otherwise pursuing the acquisition. Whether an amount is paid in the process of investigating or otherwise pursuing the acquisition is determined based on all of the facts and circumstances. In determining whether an amount is paid to facilitate an acquisition, the fact that the amount would (or would not) have been paid but for the acquisition is relevant but is not determinative. Amounts paid to facilitate an acquisition include, but are not limited to, inherently facilitative amounts specified in paragraph (f)(2)(ii) of this section.
(ii) Inherently facilitative amounts. An amount is paid in the process of investigating or otherwise pursuing the acquisition of real or personal property if the amount is inherently facilitative. An amount is inherently facilitative if the amount is paid for—
(A) Transporting the property (for example, shipping fees and moving costs);
(B) Securing an appraisal or determining the value or price of property;
(C) Negotiating the terms or structure of the acquisition and obtaining tax advice on the acquisition;
(D) Application fees, bidding costs, or similar expenses;
(E) Preparing and reviewing the documents that effectuate the acquisition of the property (for example, preparing the bid, offer, sales contract, or purchase agreement);
(F) Examining and evaluating the title of property;
(G) Obtaining regulatory approval of the acquisition or securing permits related to the acquisition, including application fees;
(H) Conveying property between the parties, including sales and transfer taxes, and title registration costs;
(I) Finders' fees or brokers' commissions, including contingency fees (defined in paragraph (f)(3)(iii) of this section);
(J) Architectural, geological, survey, engineering, environmental, or inspection services pertaining to particular properties; or
(K) Services provided by a qualified intermediary or other facilitator of an exchange under section 1031.
(iii) Special rule for acquisitions of real property—(A) In general. Except as provided in paragraph (f)(2)(ii) of this section (relating to inherently facilitative amounts), an amount paid by the taxpayer in the process of investigating or otherwise pursuing the acquisition of real property does not facilitate the acquisition if it relates to activities performed in the process of determining whether to acquire real property and which real property to acquire.
(B) Acquisitions of real and personal property in a single transaction. An amount paid by the taxpayer in the process of investigating or otherwise pursuing the acquisition of personal property facilitates the acquisition of such personal property, even if such property is acquired in a single transaction that also includes the acquisition of real property subject to the special rule set out in paragraph (f)(2)(iii)(A) of this section. A taxpayer may use a reasonable allocation method to determine which costs facilitate the acquisition of personal property and which costs relate to the acquisition of real property and are subject to the special rule of paragraph (f)(2)(iii)(A) of this section.
(iv) Employee compensation and overhead costs—(A) In general. For purposes of paragraph (f) of this section, amounts paid for employee compensation (within the meaning of § 1.263(a)-4(e)(4)(ii)) and overhead are treated as amounts that do not facilitate the acquisition of real or personal property. However, section 263A provides rules for employee compensation and overhead costs required to be capitalized to property produced by the taxpayer or to property acquired for resale.
(B) Election to capitalize. A taxpayer may elect to treat amounts paid for employee compensation or overhead as amounts that facilitate the acquisition of property. The election is made separately for each acquisition and applies to employee compensation or overhead, or both. For example, a taxpayer may elect to treat overhead, but not employee compensation, as amounts that facilitate the acquisition of property. A taxpayer makes the election by treating the amounts to which the election applies as amounts that facilitate the acquisition in the taxpayer's timely filed original Federal tax return (including extensions) for the taxable year during which the amounts are paid. Sections 301.9100-1 through 301.9100-3 of this chapter provide the rules governing extensions of the time to make regulatory elections. In the case of an S corporation or a partnership, the election is made by the S corporation or by the partnership, and not by the shareholders or partners. A taxpayer may revoke an election made under this paragraph (f)(2)(iv)(B) with respect to each acquisition only by filing a request for a private letter ruling and obtaining the Commissioner's consent to revoke the election. The Commissioner may grant a request to revoke this election if the taxpayer acted reasonably and in good faith and the revocation will not prejudice the interests of Government. See generally § 301.9100-3 of this chapter. The manner of electing and revoking the election to capitalize under this paragraph (f)(2)(iv)(B) may be modified through guidance of general applicability (see §§ 606.601(d)(2) and 601.602 of this section). An election may not be made or revoked through the filing of an application for change in accounting method or, before obtaining the Commissioner's consent to make the late election or to revoke the election, by filing an amended Federal tax return.
(3) Treatment of transaction costs—(i) In general. Except as provided under § 1.263(a)-1(f)(3)(i) (for purposes of the de minimis safe harbor), all amounts paid to facilitate the acquisition of real or personal property are capital expenditures. Facilitative amounts allocable to real or personal property must be included in the basis of the property acquired.
(ii) Treatment of inherently facilitative amounts allocable to property not acquired. Inherently facilitative amounts allocable to real or personal property are capital expenditures related to such property, even if the property is not eventually acquired. Except for contingency fees as defined in paragraph (f)(3)(iii) of this section, inherently facilitative amounts allocable to real or personal property not acquired may be allocated to those properties and recovered as appropriate in accordance with the applicable provisions of the Code and the Treasury Regulations (for example, sections 165, 167, or 168). See paragraph (h) of this section for the recovery of capitalized amounts.
(iii) Contingency fees. For purposes of this section, a contingency fee is an amount paid that is contingent on the successful closing of the acquisition of real or personal property. Contingency fees must be included in the basis of the property acquired and may not be allocated to the property not acquired.
(4) Examples. The following examples illustrate the rules of paragraph (f) of this section. For purposes of these examples, assume that the taxpayer does not elect the de minimis safe harbor under § 1.263(a)-1(f):
Example 1. Broker's fees to facilitate an acquisition
A decides to
purchase a
building in which to relocate its offices and hires a real
estate broker to find a suitable
building. A pays fees to
the broker to find
property for A to acquire. Under
paragraph (f)(2)(ii)(I) of this section, A must
capitalize the amounts paid to
the broker because these
costs are inherently facilitative of
the acquisition of
real property.
Example 2. Inspection and survey costs to facilitate an acquisition
B decides to
purchase Building X and pays amounts to third-party
contractors for a termite inspection and an environmental survey of
Building X. Under
paragraph (f)(2)(ii)(J) of this section, B must
capitalize the amounts paid for
the inspection and
the survey of
the building because these
costs are inherently facilitative of
the acquisition of
real property.
Example 3. Moving costs to facilitate an acquisition
C purchases all
the assets of D and, in connection with
the purchase, hires a
transportation company to move storage tanks from D's plant to C's
plant. Under
paragraph (f)(2)(ii)(A) of this section, C must
capitalize the amount paid to move
the storage tanks from D's plant to C's
plant because this
cost is inherently facilitative to
the acquisition of
personal property.
Example 4. Geological and geophysical costs; coordination with other provisions
E is in
the business of exploring, purchasing, and developing
properties in
the United States for
the production of
oil and gas. E considers
acquiring a particular
property but first incurs
costs for
the services of an engineering firm to perform geological and geophysical studies to determine if
the property is suitable for
oil or gas
production. Assume that
the amounts that E paid to
the engineering firm constitute geological and geophysical expenditures under section 167(h). Although
the amounts that E
paid for
the geological and geophysical
services are inherently facilitative to
the acquisition of
real property under
paragraph (f)(2)(ii)(J) of this section, E is not required to include those
amounts in
the basis of
the real property acquired. Rather, under
paragraph (c) of this section, E must
capitalize these
costs separately and amortize such
costs as required under section 167(h) (addressing
the amortization of geological and geophysical expenditures).
Example 5. Scope of facilitate
F is in
the business of providing
legal services to
clients. F is interested in
acquiring a new conference
table for its office. F hires and incurs fees for an interior designer to shop for, evaluate, and make recommendations to F regarding which new table to acquire. Under paragraphs (f)(1) and (2) of this section, F must
capitalize the amounts paid to
the interior designer to provide these
services because they are
paid in
the process of investigating or otherwise pursuing
the acquisition of
personal property.
Example 6. Transaction costs allocable to multiple properties
G, a retailer, wants to acquire
land for
the purpose of
building a new
distribution facility for its
products. G considers various
properties on Highway X in
State Y. G incurs fees for
the services of an architect to advise and evaluate
the suitability of
the sites for
the type of
facility that G intends to construct on
the selected site. G must
capitalize the architect fees as
amounts paid to acquire
land because these
amounts are inherently facilitative to
the acquisition of
land under
paragraph (f)(2)(ii)(J) of this section.
Example 7. Transaction costs; coordination with section 263A
H, a retailer, wants to acquire
land for
the purpose of
building a new
distribution facility for its
products. H considers various
properties on Highway X in
State Y. H incurs fees for
the services of an architect to prepare preliminary floor
plans for a
building that H could construct at any of
the sites. Under these
facts,
the architect's fees are not facilitative to
the acquisition of
land under
paragraph (f) of this section. Therefore, H is not required to
capitalize the architect fees as
amounts paid to acquire
land. However,
the amounts paid for
the architect's fees may be subject to capitalization under section 263A if these
amounts comprise
the direct or allocable
indirect cost of
property produced by H, such as
the building.
Example 8. Special rule for acquisitions of real property
J owns several retail stores. J decides to examine
the feasibility of opening a new store in City X. In October,
Year 1, J hires and incurs
costs for a development consulting firm to study City X and perform market surveys, evaluate zoning and environmental
requirements, and make preliminary reports and recommendations as to areas that J should consider for purposes of locating a new store. In December,
Year 1, J continues to consider whether to
purchase real property in City X and which property to acquire. J hires, and incurs fees for, an appraiser to perform appraisals on
two different sites to determine a fair offering price for each site. In March,
Year 2, J decides to acquire one of these
two sites for
the location of its new store. At
the same time, J determines not to acquire
the other site. Under
paragraph (f)(2)(iii) of this section, J is not required to
capitalize amounts paid to
the development consultant in
Year 1 because
the amounts relate to
activities performed in
the process of determining whether to acquire
real property and which
real property to acquire, and
the amounts are not inherently facilitative
costs under
paragraph (f)(2)(ii) of this section. However, J must
capitalize amounts paid to
the appraiser in
Year 1 because
the appraisal
costs are inherently facilitative
costs under
paragraph (f)(2)(ii)(B) of this section. In
Year 2, J must include
the appraisal
costs allocable to
property acquired in
the basis of
the property acquired. In
addition, J may recover
the appraisal
costs allocable to
the property not acquired in accordance with paragraphs (f)(3)(ii) and (h) of this section. See, for
example, § 1.165-2 for
losses on
the permanent withdrawal of non-depreciable
property.
Example 9. Contingency fee
K owns several restaurant
properties. K decides to open a new restaurant in City X. In October,
Year 1, K hires a real
estate consultant to identify potential
property upon which K may locate its restaurant, and is obligated to compensate
the consultant upon
the acquisition of property.
The real
estate consultant identifies three
properties, and K decides to acquire one of those
properties. Upon closing of
the acquisition of that
property, K pays
the consultant its fee.
The amount paid to
the consultant constitutes a contingency fee under
paragraph (f)(3)(iii) of this section because
the payment is contingent on
the successful closing of
the acquisition of property. Accordingly, under
paragraph (f)(3)(iii) of this section, K must include
the amount paid to
the consultant in
the basis of
the property acquired. K is not permitted to allocate
the amount paid between
the properties acquired and not acquired.
Example 10. Employee compensation and overhead
L, a freight carrier, maintains an
acquisition department whose sole function is to arrange for
the purchase of vehicles and aircraft from
manufacturers or
other parties to be used in its freight carrying
business. As provided in paragraph (f)(2)(iv)(A) of this section, L is not required to
capitalize any portion of
the compensation paid to
employees in its
acquisition department or any portion of its overhead allocable to its
acquisition department. However, under
paragraph (f)(2)(iv)(B) of this section, L may elect to
capitalize the compensation and/or overhead
costs allocable to
the acquisition of a vehicle or aircraft by treating these
amounts as
costs that facilitate
the acquisition of that
property in its timely filed original Federal
tax return for
the year the amounts are
paid.
(g) Treatment of capital expenditures. Amounts required to be capitalized under this section are capital expenditures and must be taken into account through a charge to capital account or basis, or in the case of property that is inventory in the hands of a taxpayer, through inclusion in inventory costs.
(h) Recovery of capitalized amounts—(1) In general. Amounts that are capitalized under this section are recovered through depreciation, cost of goods sold, or by an adjustment to basis at the time the property is placed in service, sold, used, or otherwise disposed of by the taxpayer. Cost recovery is determined by the applicable provisions of the Code and regulations relating to the use, sale, or disposition of property.
(2) Examples. The following examples illustrate the rule of paragraph (h)(1) of this section. For purposes of these examples, assume that the taxpayer does not elect the de minimis safe harbor under § 1.263(a)-1(f).
Example 1. Recovery when property placed in service
X owns a 10-unit apartment
building.
The refrigerator in one of
the apartments stops functioning, and X purchases a new refrigerator to replace
the old one. X pays for
the acquisition, delivery, and
installation of
the new refrigerator. Assume that
the refrigerator is
the unit of
property, as determined under
§ 1.263(a)-3(e), and is not a material or supply under
§ 1.162-3. Under paragraph (d)(1) of this section, X is required to
capitalize the amounts paid for
the acquisition, delivery, and
installation of
the refrigerator. Under this paragraph (h),
the capitalized
amounts are recovered through
depreciation, which begins when
the refrigerator is
placed in service by X.
Example 2. Recovery when property used in the production of property
Y operates a
plant where it manufactures widgets. Y purchases a tractor loader to move raw materials into and around
the plant for use in
the manufacturing process. Assume that
the tractor loader is a unit of
property, as determined under
§ 1.263(a)-3(e), and is not a material or supply under
§ 1.162-3. Under paragraph (d)(1) of this section, Y is required to
capitalize the amounts paid to acquire
the tractor loader. Under this paragraph (h),
the capitalized
amounts are recovered through
depreciation, which begins when Y places
the tractor loader in
service. However, because
the tractor loader is used in
the production of
property, under section 263A
the cost recovery (that is,
the depreciation) may also be capitalized to Y's
property produced, and, consequently, recovered through
cost of goods sold. See § 1.263A-1(e)(3)(ii)(I).
(i) Accounting method changes. Unless otherwise provided under this section, a change to comply with this section is a change in method of accounting to which the provisions of sections 446 and 481 and the accompanying regulations apply. A taxpayer seeking to change to a method of accounting permitted in this section must secure the consent of the Commissioner in accordance with § 1.446-1(e) and follow the administrative procedures issued under § 1.446-1(e)(3)(ii) for obtaining the Commissioner's consent to change its accounting method.
(j) Effective/applicability date—(1) In general. Except for paragraphs (f)(2)(iii), (f)(2)(iv), and (f)(3)(ii) of this section, this section generally applies to taxable years beginning on or after January 1, 2014. Paragraphs (f)(2)(iii), (f)(2)(iv), and (f)(3)(ii) of this section apply to amounts paid in taxable years beginning on or after January 1, 2014. Except as provided in paragraphs (j)(1) and (j)(2) of this section, § 1.263(a)-2 as contained in 26 CFR part 1 edition revised as of April 1, 2011, applies to taxable years beginning before January 1, 2014.
(2) Early application of this section—(i) In general. Except for paragraphs (f)(2)(iii), (f)(2)(iv), and (f)(3)(ii) of this section of this section, a taxpayer may choose to apply this section to taxable years beginning on or after January 1, 2012. A taxpayer may choose to apply paragraphs (f)(2)(iii), (f)(2)(iv), and (f)(3)(ii) of this section to amounts paid in taxable years beginning on or after January 1, 2012.
(ii) Transition rule for election to capitalize employee compensation and overhead costs on 2012 or 2013 returns. If under paragraph (j)(2)(i) of this section, a taxpayer chooses to make the election to capitalize employee compensation and overhead costs under paragraph (f)(2)(iv)(B) of this section for amounts paid in its taxable year beginning on or after January 1, 2012, and ending on or before September 19, 2013 (applicable taxable year), and the taxpayer did not make the election specified in paragraph (f)(2)(iv)(B) of this section on its timely filed original Federal tax return for the applicable taxable year, the taxpayer must make the election specified in paragraph (f)(2)(iv)(B) of this section for the applicable taxable year by filing an amended Federal tax return for the applicable taxable year on or before 180 days from the due date including extensions of the taxpayer's Federal tax return for the applicable taxable year, notwithstanding that the taxpayer may not have extended the due date.
(3) Optional application of TD 9564. Except for § 1.263(a)-2T(f)(2)(iii), (f)(2)(iv), (f)(3)(ii), and (g), a taxpayer may choose to apply § 1.263(a)-2T as contained in TD 9564 (76 FR 81060) December 27, 2011, to taxable years beginning on or after January 1, 2012, and before January 1, 2014. A taxpayer may choose to apply § 1.263(a)-2T(f)(2)(iii), (f)(2)(iv), (f)(3)(ii) and (g) as contained in TD 9564 (76 FR 81060) December 27, 2011, to amounts paid in taxable years beginning on or after January 1, 2012, and before January 1, 2014.
