Rev. Proc. 97-27

Audio summary

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

What it holds

Sets out the non-automatic (advance consent) procedures for changing a method of accounting under Section 446(e), including depreciation changes. A negative Section 481(a) adjustment, meaning extra deductions owed to the taxpayer, is spread over four years under the non-automatic path.

Where this comes from

The tax law has two paths for changing a method of accounting. The automatic path, which exists for routine corrections, requires no advance ruling. The non-automatic path requires the taxpayer to file a request with the IRS National Office and wait for consent.

Rev. Proc. 97-27 was the governing procedure for the non-automatic path when it was issued in 1997. It set the rules for who could apply, what to file, and how the resulting catch-up was taken.

What it established

Under this procedure, a taxpayer seeking to change a depreciation method outside the automatic list had to file a request with the National Office. The IRS would review the facts and issue consent if the change was appropriate.

For favorable adjustments, the Section 481(a) catch-up was spread over four tax years. That differs from the automatic path, where a negative adjustment is taken all in one year. The four-year spread gives the IRS more time to review while still allowing the correction to happen.

How it shows up in a study

Most cost segregation studies use the automatic procedure, not this one. The automatic path is faster, does not require an advance ruling, and is available for the standard impermissible-to-permissible depreciation change that a study creates.

Rev. Proc. 97-27 is relevant when the study involves an unusual change that the automatic list does not cover, or when a taxpayer is already under examination and cannot use the automatic path. In those cases, the non-automatic procedure is the correct route.

What it does not mean

This procedure does not guarantee the IRS will consent to the change. The National Office reviews each request and can deny or modify it. The advance consent path gives the IRS more control than the automatic path.

It is also superseded. Today the non-automatic procedures are governed by Rev. Proc. 2015-13. The 1997 version is part of the historical record but is not the current authority.

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.