179D Tax Update – Designers No Longer Permitted to File a Form 3115

Overview

The Energy 179D policy came effective 1/1/2006. This allowed property owners who designed energy efficient buildings that year to claim up to $1.80 tax deduction. The policy also extended these tax benefits to architects, engineers and contractors who were the primary designers of governmental buildings. The policy has since been extended twice and now is set to expire at the end of 2013.

First Option

From 2006 through 2011, the policy only allowed the property owner or designer two methods to take tax benefit. They could file the tax benefit with their current tax return if the building generating the tax benefit was placed into service that same year. If either the property owner or designer missed the tax benefit from previous years, they also had the opportunity to amend tax returns.

2011 Revision

The IRS made available a third option in 2011 under procedures of Rev. Proc. 2011-14 whereby the tax benefit could also be filed with a 3115 form to catch up the missed benefits in previous years in the current year’s tax return. This made the whole process much easier for the taxpayer. The notice did not state whether this beneficial method was available to the designers, however, and the IRS promised more clarity in late 2011. Since that time, many CPA firms used the filing position for their design clients to avoid the complications that can sometimes come with amending tax returns.

2012 Clarification

The attached notice from the IRS now clarifies that Designers will no longer be permitted to file a 3115 as of September of 2012. To claim previous tax benefits in previous years, they must now file amended tax returns. Rev. Proc. 2012-39, which modifies the automatic change procedures of Rev. Proc. 2011-14 and specifically states that designers of Energy Efficient Commercial Property that have been allocated tax deductions under the EPAct’s Section 179D, will not be eligible to apply for a change in accounting method. The IRS further stated that a designer claiming a 179D deduction is making a permanent change in its taxable income, unlike a property owner who is making a temporary change and thus going forward the designer is not entitled to deduct the amount of the 179D deduction by another method such as depreciation.

Engineered Tax Services has consistently held the stance that designers of government buildings should amend previous years taxes rather than file a Form 3115 in the case of look-back studies.

Julio P. Gonzalez, CEO

Engineered Tax Services

Author

Engineered Tax Services

Engineered Tax Services

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