Rev. Proc. 92-20

Audio summary

A short audio walkthrough of this rule: what it says and why it matters for your study.

What it holds

The IRS gave automatic consent for the first time to a taxpayer who claimed less depreciation than allowable to change to the correct method using a Section 481(a) catch-up adjustment. No advance ruling was needed for this correction.

Where this comes from

Before 1992, changing a depreciation method generally required advance consent from the IRS. That meant filing a request, waiting for a ruling, and sometimes not getting one at all.

Rev. Proc. 92-20 changed that for one important case: a taxpayer who had claimed less depreciation than the law allowed. For that correction, the IRS said automatic consent would be enough. File the change, take the catch-up, and no advance ruling is needed.

What it established

The procedure created the first automatic-consent path for correcting under-depreciation. The correction runs through a Section 481(a) adjustment, which brings all the missed deductions into the year of change in a single catch-up amount.

This was a significant shift. It told taxpayers that getting their depreciation right is something the IRS wants to support, not obstruct. Under-depreciation harms the taxpayer, not the government, and the IRS was willing to clear the path for fixing it.

How it shows up in a study

When a cost segregation study is done on a building that has been owned for years, the study identifies components that should have been on 5, 7, or 15-year lives but were lumped into 39-year property instead. The fix is a method change filed on Form 3115.

The legal chain that makes that change valid starts with this 1992 procedure. Each later revision built on it, expanded it, and eventually became the current Rev. Proc. 2015-13. Knowing the origin of the chain helps explain why the IRS accepts this correction as routine.

What it does not mean

Rev. Proc. 92-20 is superseded. It is part of the historical chain, not the current procedure. A cost segregation study filed today uses Rev. Proc. 2015-13 and its companion Rev. Proc. 2015-14, not this 1992 version.

The procedure also only granted consent. It did not decide which assets qualified for shorter lives or how to measure the missed depreciation. Those questions still came from the classification rules, and a study filed under a bad classification was still wrong even if the procedure was followed.

Category

Methodology & procedure

Applies to

All property types

Status

Vetted

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.