Rev. Proc. 97-37

Audio summary

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

What it holds

Provided automatic consent for taxpayers to change from impermissible to permissible depreciation methods, adopting a four-year Section 481(a) spread for IRS-favorable adjustments. It was the second major link in the automatic method-change chain.

Where this comes from

Rev. Proc. 92-20 opened the door for automatic consent to correct under-depreciation. But it was limited in scope. Rev. Proc. 97-37 expanded that opening, giving automatic consent to a broader range of changes from impermissible to permissible depreciation.

The second half of 1997 was a busy time for method-change guidance. The IRS was building toward a permanent framework, and 97-37 was a significant step in that direction.

What it established

This procedure covered changes where a taxpayer had been using a depreciation method the tax law did not allow and wanted to switch to the correct one. For those changes, automatic consent was available, with no advance ruling required.

The IRS-favorable adjustment, meaning extra deductions the taxpayer was owed, was spread over four tax years under this procedure. That four-year structure became a standard feature of the automatic method-change rules and carries forward to the current procedures.

How it shows up in a study

For properties placed in service in the late 1990s, a study done at that time would have used this procedure or its immediate successor to convert misclassified assets to the correct recovery periods.

Today, the current procedure (Rev. Proc. 2015-13) governs all new method changes. But understanding this earlier procedure helps explain why studies done in the 1997-1998 window were authorized and why a look-back study on an older building sits on a solid legal foundation.

What it does not mean

Like the 1992 procedure, this one was about consent, not classification. The IRS approved the mechanism for changing the method, but the specific assets that qualified for shorter lives still had to be identified correctly under the section 1245 rules and the case law.

The procedure is also superseded. Rev. Proc. 98-60 replaced it the following year, and the current governing authority is Rev. Proc. 2015-13.

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.