Revenue procedure · 2004
Rev. Proc. 2004-11
Rev. Proc. 2004-11, 2004-3 I.R.B. 311
IRS revenue procedure
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
Modified Rev. Proc. 2002-9 to extend automatic consent for depreciation method changes to property that has already been disposed of, and waived the two-year rule of Rev. Rul. 90-38 for certain depreciation changes. Conformed to Treas. Reg. 1.446-1T(e)(2)(ii)(d).
Why it matters for your study: This modification closed a gap in the automatic method-change framework. Before it, a cost segregation study could not easily correct depreciation on property the taxpayer had already sold. Rev. Proc. 2004-11 cleared that path.
Where this comes from
Rev. Proc. 2002-9 was a major step: the first permanent, comprehensive automatic method-change procedure for depreciation. But it left one gap. If a taxpayer had already sold or disposed of property, it was not clear whether they could still use the automatic path to correct how that property had been depreciated.
Rev. Proc. 2004-11 modified 2002-9 directly to fill that gap.
What it established
The procedure extended automatic consent to depreciation changes on property that had already been disposed of. A taxpayer who sold a building years ago but later realized the cost segregation was done incorrectly could now file a Form 3115 on the automatic track to make the correction.
It also waived the two-year rule from Rev. Rul. 90-38, which had required taxpayers to use a method for at least two years before seeking a change. For depreciation, that requirement was creating problems for newly acquired properties, and the waiver addressed it.
The procedure conformed these changes to the updated temporary regulation at Treas. Reg. 1.446-1T(e)(2)(ii)(d).
How it shows up in a study
The disposed-property extension matters most for look-back studies on portfolios. A taxpayer may have sold one building and still own others from the same acquisition. Before 2004-11, correcting the sold building's depreciation required the non-automatic path. After, it joined the rest on the automatic track.
The waiver of the two-year rule also helps when a study is done shortly after a property is acquired. The taxpayer does not have to wait two years before correcting a misclassification from the original purchase.
What it does not mean
Extending the automatic path to disposed property does not mean the underlying classification was right. A Section 481(a) adjustment on a sold property changes the depreciable basis history, but the IRS can still examine whether the reclassified amounts were correct.
This procedure is also part of the historical chain. Its changes were absorbed into subsequent procedures, and the current authority for automatic method changes is Rev. Proc. 2015-13.
Primary source
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This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.