Rev. Proc. 98-60

Audio summary

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

What it holds

Expanded automatic consent to cover both under-depreciation and over-depreciation corrections, applying a symmetric four-year Section 481(a) framework to both favorable and unfavorable adjustments.

Where this comes from

The earlier automatic procedures focused on under-depreciation, meaning cases where a taxpayer had claimed too little. That made sense: under-depreciation harms the taxpayer, so the IRS had little reason to resist the correction.

But over-depreciation, where a taxpayer claims too much, also needs a correction path. Rev. Proc. 98-60 addressed both sides, creating a symmetric system with automatic consent available for either type of error.

What it established

The procedure gave automatic consent to change from an impermissible depreciation method to a permissible one, whether the result was more deductions or fewer. For favorable adjustments, the catch-up was spread over four years. The same four-year framework applied to unfavorable ones.

This symmetry was important. It meant the automatic procedures were not just a taxpayer-friendly shortcut. They were a genuine correction mechanism that could run in either direction.

How it shows up in a study

Cost segregation studies usually produce favorable adjustments. The study finds assets that should have been on shorter lives, and the Section 481(a) catch-up brings the missed depreciation forward.

But a study can also reveal assets that were incorrectly put on a short life when the law required a longer one. Rev. Proc. 98-60 was the first automatic procedure that explicitly covered that correction too, making it a full-circle authority for any depreciation method change.

What it does not mean

This procedure is superseded. It was replaced by Rev. Proc. 99-49 in 1999, which was itself part of a chain that led to the current Rev. Proc. 2015-13. Taxpayers doing method changes today use the current procedure.

The four-year spread in this procedure also differs from how the current rules treat favorable adjustments. Under Rev. Proc. 2015-13, a negative adjustment (extra deductions) is taken all at once in the year of change, not over four years. The current procedure is more favorable on that point.

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.