NOTICE

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

2

Credits

Revenue Procedure 2014-12 – Scope

Background• Issued in response to the Historic Boardwalk case• Only applies to partnerships claiming rehabilitation tax credits under section 47• Does not provide substantive rules

– No inference should be drawn from any requirements• Effective Date of December 30, 2013

– IRS will not challenge allocations for properties placed in service earlier if they meet the safe harbor

Partnership can be structured as either a Developer Partnership or a Master Tenant Partnership• Allocations must satisfy section 704(b)• Credits must be allocated under section 1.704-1(b)(4)(ii)• Credit must follow the taxable income

4

Revenue Procedure 2014-12 – Partnership Structures

5

PRS

Investor Principal

Rehab Property

$

99% 1%

Flip Point

5% 95%

Developer Partnership

PRS

Investor Principal

Master Tenant Partnership

Developer

PRS

Head Lease

$

Rehab Property

Sublease

Unrelated ThirdParty

PrincipalInvestor

$

99% 1%

Revenue Procedure 2014-12 – Safe Harbor Requirements Certain Specific Requirements for Master Tenant Partnerships

• Investor may not hold an interest in the Developer Partnership other than an indirect interest through the Master Tenant Partnership

• Cannot sublease the property back to the Developer• Sublease must be shorter than Head Lease• Cannot terminate the Head Lease while Investor is a partner

Allocation Percentages • Principal must have minimum 1% interest at all times• Investor must have minimum % equal to at least 5% of Investor’s greatest interest

Investor’s Partnership Interest• Investor’s Partnership interest must constitute a bona fide equity investment• No unreasonable fee arrangements that reduce the value of the Investor’s interest by siphoning

off the Partnership’s income• No disproportionate rights to distributions

6

Revenue Procedure 2014-12 – Safe Harbor Requirements (Cont’d) Investor’s Equity Requirements

• The Investor must contribute 20% of its total expected capital contributions before the property is placed in service. Must maintain its 20% as long as it is a partner

• At least 75% of the Investor’s total expected capital contributions to the Partnership must be fixed prior to the placed in service date

Permissible Guarantees• Unfunded performance guarantees are generally permissible (i.e., acts necessary to claim the

rehab credit, and avoidance of acts (or omissions) to fail to qualify or result in recapture of rehab credits)

• Guarantees are unfunded as long as no money is set aside and the guarantor does not have a net worth requirement in connection with the guarantee

7

Revenue Procedure 2014-12 – Safe Harbor Requirements (Cont’d) Impermissible Guarantees

• No guarantees of Investor’s ability to claim the rehab credits, receive any kind of cash equivalent, or a refund of contributed capital

• Investor may not be reimbursed for its costs related to challenges from the IRS

Loans• Partnership and Principal may not loan Investor funds to acquire any of its interest • They may not guarantee any debt incurred by Investor to acquire its interest

Purchase and Sale Rights• No call option to purchase or redeem Investor’s interest is allowed• Investor may have a put option at a price no greater than the fair market value of the Investor’s

interest in the Partnership at the time of exercise• Investor may not acquire its interest with the intent of abandoning it after completion of the

project

8

ASU 2014-1: Qualifying for the Proportional Amortization Method Proportional amortization method: This method is permissible if the following criteria met:

• Probable that tax credits allocable to Investor will be available;• Investor does not exercise significant influence over investee’s operating/financial policies;• Substantially all projected benefits are from tax credits and other tax benefits;• Investor’s return > 0, based on cash flows from tax credits and other tax benefits; • Investor holds limited interest (LLP, LLC) in project for legal & tax purposes; and • Investor’s liability is limited to its capital investment.

Other Investee Transactions: Investor’s other transactions with investee (e.g., bank loans) may result in the above criteria not being met. Investor may ignore other transactions if:• The investor is in the business of entering into such other transactions;• The transactions are at market rates; and • The investor does not have significant influence as a result of the transaction.

If no proportional amortization method: Investors that do not qualify for (or do not elect) the proportional amortization method should continue to account for their investments either under the equity or cost method in accordance with ASC 970-323.

9

ASU 2014-1: Applying the Proportional Amortization Method Application

• Investment cost (less residual value, if any) is amortized in proportion to (and over the same period as) the total expected tax benefits– Investment costs include commitments, if accrued

• Amortization is included in income tax expense along with the tax credits and other current tax benefits

• Deferred taxes are generally not recognized on basis differences in the investment• As a practical expedient, other methods that achieve substantially similar results would be

acceptable

10

Information Reporting

FATCA – Overview

The Foreign Account Tax Compliance Act (FATCA) was enacted on March 18, 2010• The goals of FATCA are to identify U.S. persons and have their investment information provided to the

IRS• Under FATCA, payments to Foreign Financial Institutions (FFIs) are potentially subject to punitive 30%

withholding on “withholdable payments”• An FFI can avoid the punitive 30% withholding by entering into an agreement with the IRS and

becoming a “Participating” Foreign Financial Institution (PFFI)• If 30% FATCA withholding is not required, then regular non-U.S. person withholding rules (Chapter 3)

continue to apply• FATCA also requires punitive 30% withholding on withholdable payments to certain Non-Financial

Foreign Entities (NFFEs) that fail to either: disclose substantial U.S. owners or certify that none exist• Withholdable Payments:

– Any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income (FDAP income), if such payment is from sources within the United States; and,

– Any gross proceeds from the sale or disposition of any property of a type which can produce interest or dividends from sources within the United States.

12

FATCA – 2014 Updates

FATCA Amendments & Harmonization Regulations (February 20, 2014)• Amendment to 2013 regulations that takes into account certain comments and suggestions regarding

ways to further reduce burdens consistent with the compliance objectives of the statute

• Coordinate with pre-existing reporting and withholding rules, to harmonize the requirements contained in pre-FATCA rules under Ch. 3 (i.e., reporting and withholding rules relating to payments of certain U.S. source income to non-U.S. persons) and under Ch. 61 and section 3406 (reporting and withholding requirements for various types of payments made to certain U.S. persons (U.S. non-exempt recipients))

• Rules for identification of payees – removing inconsistencies in the Ch. 3 and FATCA documentation requirements (including inconsistencies regarding presumption rules in the absence of valid documentation)

• Coordination of the withholding requirements under Ch. 3, section 3406, and FATCA – providing rules so that payments are not subject to withholding under both Ch. 3 and FATCA, or under both section 3406 and FATCA

• Coordination of Ch. 61 and FATCA regarding information reporting with respect to U.S. persons – under existing FATCA regulations, certain FFIs may be able to mitigate duplicative reporting under FATCA and Ch. 61 through an election

13

FATCA – 2014 Updates (Cont’d)

Transition Relief under Notice 2014-33 released on May 2, 2014• Calendar year 2014 and 2015 will be regarded as a transition period for purposes of:

– IRS enforcement and administration with respect to the implementation of FATCA by withholding agents, FFIs, and other entities with chapter 4 responsibilities; and,

– Certain related due diligence and withholding provisions under chapter 3 and 61, and section 3406, that were modified by the harmonization regulations.

• Entities that have not made good faith efforts to comply with the new requirements will not be given any relief from the IRS enforcement during the transition period

Other• IRS releases updated forms and instructions for Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP,

and W-8IMY• Rev Proc. 2014-29: Updated the qualified intermediary agreement to reflect the FATCA regime

14

FATCA – 2014 Updates (Cont’d)

U.S. withholding agent responsibilities:• Documentation and Due Diligence – (1) Determine which payments are in scope (i.e.,

withholdable payments); (2) For all withholdable payments, document FATCA status of entity payee (i.e., W-8/W-9); and, (3) Classify payees as compliant or non-compliant

• Withholding – Withhold on withholdable payments made to non-compliant payees• Reporting – (1) File an expanded Form 1042-S for most U.S. source FDAP payments; and, (2)

File a new Form 8966 in limited cases

15

Significant Dates in 2014 for USWAs (considering relief under Notice 2014‐33)

March 1, 2014 Must use revised Form W‐9

June 30 ,2014 Obligations entered into on or before this date are Grandfathering Obligations

July 1, 2014 (1) New account identification and due diligence procedures begin for non‐U.S. individual accounts AND (2) FATCA withholding begins on withholdable payments made to NPFFIs

September 1, 2014 Must use revised Form W‐8BEN (for individuals)

December 31, 2014 Complete due diligence on Preexisting Prima Facie FFI Accounts

The Common Reporting Standard On July 21, 2014, the OECD published the Standard for Automatic Exchange of Financial Account Information in

Tax Matters (commonly referred to as the “Common Reporting Standard”, or “CRS”), drawing extensively on the intergovernmental approach to implementing FATCA. The CRS is intended to help governments combat offshore tax evasion.• The G20 has called on all countries to adopt the CRS, and more than 65 countries have publicly committed to

implementation, and more than 44 countries have agreed to implement the new standard by December 31, 2015.

• Reporting will be required annually.

• Essentially the same information must be reported under the CRS as under FATCA (i.e., the identity and residence of financial account holders (including certain entities and their controlling persons), account details, reporting entity, accountbalance/value and income/sale or redemption proceeds).

• Reporting Entity: Financial institutions (generally defined consistently with the definition under FATCA intergovernmental agreements) that are a resident or have a branch in a participating country.

• Reportable persons include any individual identified by a reporting entity in one country as a resident for tax purposes in areportable country (i.e., a country with which the participating country has in effect an automatic exchange of information (AEol) agreement), as well as certain entities resident in that country or certain entities (‘passive non-financial entities (NFEs)’) having individual controlling (reportable) persons.

• The scope of the CRS is substantially greater than FATCA, due to a lack of thresholds for review of pre-existing individual accounts, potentially fewer exceptions for reporting financial institutions, and the fact that the CRS applies not just to U.S. taxpayers but to residents of many other countries.

16

Country-by-Country Reporting On September 16, 2014, the OECD released guidance on transfer pricing documentation and country-by-country

reporting.

The G20 Finance Ministers and Central Bank Governors are expected to endorse the guidance by September 21, 2014, and it is anticipated that several countries will begin implementing the guidance (or pieces thereof) in the near future.• The guidance would overhaul traditional transfer pricing (TP) documentation and would require companies to report

country-by-country data

• Multinational corporations (MNCs) would need to prepare a country-by-country reporting template that would be shared with all tax authorities in which the MNC group does business and that includes the following types of information:

– Revenues (related and unrelated), profits before taxes, taxes paid and accrued, and a list of legal entities by country

– Number of employees by country

• MNCs would also need to prepare a master file. The master file would be shared with all relevant tax authorities and include the following types of information:

– Core elements of international supply chains

– International intellectual property ownership and development

– Details of international financing arrangements

• Concerns

– Difficulties in gathering data

– How data will be used by tax administrators

17

Regulatory

Tax Sharing Agreements

Background• In 1998, the FDIC, OCC, and FRB (the “Agencies) issued guidance addressing insured depository

institutions (“IDIs”) that prepare and file their federal and state income tax returns as part of a consolidated group– Tax sharing agreements (TSAs) governing the intercorporate tax allocations of a group are required

to be conducted in a manner that is no less favorable than if the IDIs filed as separate taxpayers– Guidance further established that a parent company that received a refund on behalf of a

consolidated group received the funds as an agent• Recent court decisions have arrived at varying conclusions as to whether current TSAs create a

creditor-debtor or agency relationship between a holding company and its IDI

2014 Guidance• In June 2014, the Agencies released an addendum requiring consolidated groups to review existing

TSAs to ensure the agreements: (1) Clearly acknowledge that an agency relationship exists between the holding company and its subsidiary IDIs with respect to tax refunds; and, (2) Do not contain other language to suggest a contrary intent

• The addendum also provides model language that should be included in the consolidated group’s tax sharing agreement

19

Basel III – Background

The FDIC and OCC approved the Final Rule on July 9, 2013 to adopt the U.S. implementation of the Basel III capital guidelines.• Effective dates of Final Rule

– 1/1/14 for Advanced Approaches banking organizations (AA Banks)– 1/1/15 for Non-AA Banks– Adoption of adjustments and deductions are generally phased in over a five-year period

• All banking organizations must meet the following minimum capital requirements– 4.5% common equity tier 1 (CET1) capital ratio;– 6.0% tier 1 capital ratio;– 8.0% total capital ratio;– 4.0% leverage ratio; and,– Capital conservation buffer greater than 2.5%, to avoid restrictions on capital distributions and

discretionary bonus payments to executive officers.– AA Banks have additional requirements

20

Basel III – Background (Cont’d)

Significant changes to Impact of Deferred Taxes on Capital• Current U.S. bank regulatory rules for taxes

– “Good” DTAs for regulatory capital purposes are determined as follows:• DTAs are allocated to the extent they can be netted against DTLs;

• Net DTAs are allowed if they can be carried back against taxes previously paid; and,

• Remaining net DTAs are allowed if they can be absorbed against projected taxable income for the 12 months following the reporting date; if they do not exceed 10% of a bank’s Tier 1 capital.

• Specific rules for AOCI items

• Deferred tax guidelines under Basel III– DTLs allocated pro-rata against all DTAs (netting limited to DTAs in same taxing jurisdiction and

character)– NOLs & credit carry forward DTAs (net of allocated DTLs) subtracted from CET1– Remaining DTAs qualify as good assets if (1) They can be carried back against previously paid

taxes on a jurisdictional basis AND (2) Do not exceed caps set in the Threshold Calculations– AOCI, except cash flow hedges, included in CET1, unless the institution “opts out”– DTA/DTL netting is allowed against other regulatory adjustments subject to certain rules

21

Stress Testing/CCAR

Stress testing is performing forward-looking exercises to ensure that financial institutions have robust capital planning processes and adequate capital. Different levels of stress testing are required for different sizes of banks

Stress scenarios are provided by the regulatory agency on an annual basis, but may be determined by the company semi-annually

DTAs and DTLs must be calculated based on the changes in income and assets in the stressed scenarios and analyzed to determine if any portion of the DTA could potentially be disallowed

Scenarios look out 9 quarters requiring Basel III implications to be considered in determining disallowed DTAs in those quarters that a bank will be subject to Basel III

Who it impacts:• CCAR: Bank Holding Companies with assets greater than $50 billion• DFAST Annual and Mid-cycle Company/Supervisory Stress Test: Bank Holding Companies with

assets greater than $50 billion and non-bank SIFI’s• DFAST Annual Company-Run Stress Test : Institutions with assets greater than $10 billion

22

Basel III, In Practice…..

Fed applied a common effective tax rate to all stress test filers in doing its own computations.

Increasingly filers look to the severely adverse stress test to determine tax choices with respect to Basel Capital computations.

Banks have found a need to strike a balance between materiality and strict precision in taking into account state deferred taxes on a jurisdictional basis.

In recent rounds, Tax Departments have done more due diligence with respect to both:• input into their calculations, and • use of their tax output by compliance departments

Banks are seeing increasing reviews of Basel calculations, including tax, by outside Firms as a matter of Bank risk management.

23

Legislative

Extenders

Fifty-five tax incentive provisions expired on December 31, 2013• Major Provisions

– R&D credit– CFC look through rule– Active financing exception– Bonus depreciation

• Issues– Revenue costs– Tax Reform

• Prospects and Timing

25

With the ______________ win by the House ________________,(adjective) (political party)

and the ______________ victory by the Senate ________________,(adjective) (political party)

an Extenders Bill is now expected to pass in _______________. (month /year)

Extenders (Cont’d)

26

Tax Reform – Principal Proposals

Camp Discussion Draft The President’s Framework Other

• Baucus discussion drafts on reform of international taxation, cost recovery administration• The President’s Fiscal Responsibility Commission (“Simpson-Bowles”)• Debt reduction tax force (“Domenici-Rivlin”)• Wyden-Coats-Begich• Rangel “Mother” bill (2007)

27

Tax Reform – Themes

Common Elements• Eliminate tax expenditures; and • Lower rates

Variations • Tax capital gains as ordinary income; • End deferral of tax or impose minimum tax on foreign earnings; • VAT; • Reduce deduction for interest expense; and• Tax large partnerships as corporations

28

Camp Discussion Draft

General• Corporate rate – 25%

– Phased in over 5 years, beginning in 2015– Repeals corporate AMT– Territorial taxation of foreign earnings, with 95% DRD

• Revenue offsets (highlights)– Accelerated cost recovery repealed; lengthened recovery lives for property placed in service after

2015 (basis indexed to chained CPI)– Amortization of research and advertising expenses– Phase-out of manufacturing deduction– Limit use of NOLs– Treat partnership carried interest income as ordinary– Repeal like-kind exchanges– Repeal LIFO, LCOM– Bank tax: 0.14% of total assets in excess of $500 billion

29

Camp Discussion Draft (Cont’d)

Significant Items Impacting Banking Industry• Deduction limits for FDIC premiums for bank’s with consolidated assets in excess of $10B• Extension of 265(b) to all C corporations and repeal of qualified small issuer exception• Mark-to-market on derivatives with all income, deduction, gain or loss treated as ordinary• GAAP hedge designation treated as valid hedge identification for tax purposes• Coordinate OID rules with financial statements• Conform NOL carryover and carryback rule to AMT rule (i.e., limited to 90% of taxable income)• Excise tax on systemically important financial institutions – .14% of total assets in excess of

$500B• Revisions to market discount rules• Expand rules related to debt-for-debt exchanges• Require interest on private activity bonds and advanced refunding bonds to be included in

income• Repeal rules related to tax credit bonds

30

The President’s Framework for Business Tax Reform

General• Reduce corporate rate to 28%• Repeal “dozens” of tax preferences and incentives including:

– Oil and gas production incentives– MACRS– LIFO– Carried interest at capital gains rates

• Additional revenue proposals:– Limit corporate interest deduction– Minimum current tax on deferred foreign earnings– Tax large partnerships

31

Section 871(m) Regulations

Background• Congress felt taxpayers were exploiting different withholding tax results from economically

similar transactions – Dividend payments on U.S. stock are generally sourced as U.S. source income whereas

payments on notional principal contracts referencing stock of a U.S. corporation are sourced to the residence of the recipient of the income

– Allowed foreign persons to escape the withholding tax regime on U.S. sourced dividends by entering into derivatives on U.S. stocks prior to the dividend payment date

• In 2010, section 871(m) was enacted to treat “dividend equivalent” payments as dividends sourced within the U.S.

• Instruments subject to section 871(m) – (1) repos/securities lending; (2) specified notional principal contracts; and, (3) substantially similar payments

• Dividend Equivalents – Generally amounts paid under certain contracts that are contingent upon, or determined from, the payment of a U.S. source dividend

32

Section 871(m) Regulations (Cont’d)

New Final Regulations• On December 5, 2013, Treasury issued final and proposed regulations under section 871(m) • Final Regulations

– Extend the current “four factor test” through December 31, 2015– Under the “four factor test” the following contracts will meet the definition of a specified

notional principal contact:• In connection with entering into the contract, any long party to the contract transfers the underlying

security to any short party to the contract;

• In connection with the termination of the contract, any short party to the contract transfers the underlying security to any long party to the contract;

• The underlying security is not readily tradable on an established securities market; or,

• In connection with entering into the contract, the underlying security is posted as collateral by any short party to the contract with any long party to the contract.

33

Section 871(m) Regulations (Cont’d)

Proposed Regulations• Applies to payments made on or after January 1, 2016

• Types of contracts expanded to include equity linked instruments (‘ELIs’) – forward contracts, option contracts, convertible debt or debt with payments linked to underlying securities

– Exceptions for certain equity linked debt

• Specified NPCs and ELIs – Contracts, upon acquisition, with a “delta” of .70 or greater

– Delta: The ratio of the change in the FMV of the NPC or ELI to the change in the FMV of the property referenced by the NPC or ELI

• Transactions that reference the same security can be combined

• Dividend equivalent subject to withholding includes actual dividends, estimate dividends, and “implicit dividends”

– Repos/securities lending: Dividend equivalent equal to full amount of per share dividend

– Specified NPCs and ELIs: Amount of the dividend equivalent is reduced to consider the delta

• Exceptions: (1) qualified dealer; (2) corporate acquisition exception; and, (3) qualified index exception

• Very generally, broker, dealer, or short party determines whether withholding is proper

34

Other Federal Tax Developments

PLR 201426002 – Information Reporting Requirements on Bank’s Fee Credit Program Facts

• Bank provides fee credit program to certain account holders (“customers”) in which customers can offset fees for certain banking services (e.g., check processing, transaction processing, wire transfers) with credits.

• The credits are provided in lieu of paying interest on a customer’s deposit account. In certain arrangements, the credits can be used to pay third party vendors where the customer contracts directly with the vendor.

Conclusion/Analysis• Deposit is a below market loan provided in exchange for services.• However, arrangement qualifies under exception that otherwise would require the bank to impute

and report interest to the customers.– Taxpayers are not required to impute interest in arrangements that do not have a significant

effect on the tax liability of the lender or borrower. In the facts above, items of income and deductions (i.e., fees and interest payments) offset each other.

• Fee credits used to pay third party vendors selected by the customer do require the bank to impute interest.

36

R&D Update

FedEx Case – 2013 and 2014• Summary judgment: Taxpayer may apply the traditional high threshold of innovation test for internal use

software without the “unique or novel” requirement and without the “discovery test.”• February 15, 2013: Parties asked for the judge to enter a final judgment in the District Court in favor of

the taxpayer.• August 29, 2013: The Sixth Circuit dismissed the government’s appeal upon the parties’ stipulation• January 23, 2014: The District Court dismissed a related case dealing with certain Internal-Use

Software (“IUS”) claims for different tax years– Terms of settlement were not disclosed

CCA 201423023 – Indicates IRS’s intent to follow FedEx• CCA regarding IRS’ informal position on the standards to claim a research credit for IUS development

in light of the FedEx decision.• Before CCA: Significant grey area on standards for the Innovation Test for IUS; under audit, the IRS

frequently applied the more stringent “Unique or Novel” standard, and/or the Discovery Test.• After CCA: IUS development activities do not need to meet the “Unique or Novel” requirement or the

Discovery Test.

37

R&D Update (Cont’d)

Temporary Regulations on ASC Elections released June 2, 2014• Temporary regulations relating to the Alternative Simplified Credit (“ASC”) election for purposes

of the research credit that is available under section 41(c)(5).– Before Temp Regs: The election was required to be made on a timely filed return only,

including extensions. As a result, if a taxpayer had never made an ASC election and wanted to go back to claim credits on an amended return they would be required to claim those credits under the Traditional Method

– After Temp Regs: The ASC election is allowed on an amended return if certain criteria are met• Benefits: The old rule prevented many taxpayers from claiming credits on amended returns

because it required them to determine a fixed base %, generally based on activities from 1984-1988 where information may no longer be available. The new rule allows a taxpayer to file credit claims under the ASC method, which only requires information from the prior three years.

38

Tangible Property Regs. Update

Final 263(a) regulations and proposed disposition regulations• Released on September 13, 2013• Significant Changes

– Acquisition Costs• Materials and supplies definition includes $200 items (rather than $100)

• $5,000 per item book-tax conformity

– Repair and maintenance costs• Election to follow book capitalization policy

• Routine maintenance safe-harbor

• Casualty loss “double dip” rule relaxed

• Treatment of removal costs clarified

– Dispositions/GAAs• Disposition rules significantly modified

• Losses allowable for MACRS partial dispositions but generally not permitted for GAAs

39

Tangible Property Regs. – Guidance for Changes in Method of Accounting Rev. Proc. 2014-16, released January 24, 2014, provides the procedural rules

taxpayers must follow to change a method of accounting to comply with the final tangible property regulations.• Single Form 3115 can be filed for some common changes• Changes under the regulations generally require a 481(a) adjustment (except for certain

changes requiring a modified section 481(a) adjustment – materials and supplies and transaction costs)

• Scope limitations under section 4.02 of Rev. Proc. 2011-14 (e.g., taxpayers under examination, prior five-year changes) are generally waived for taxpayers making one or more covered method changes for tax years beginning before January 1, 2015

• Taxpayers are generally permitted to use statistical sampling in determining the section 481(a) adjustment for covered changes by following the guidance provided in Rev. Proc. 2011-42

• Provides automatic consent for a taxpayer to change to a method of accounting to stop capitalizing under section 263A(b)(2) costs of acquiring and holding property obtained through foreclosure (or similar transaction)

40

Tangible Property Regs. – Final Regs. on Dispositions of Tangible Depreciable Property Final regulations released on August 14 and primarily include clarifications to the

proposed rules (rather than significant changes)• Generally taxpayers may use a reasonable method only if it does not have accurate books and

records• Reasonable method must be applied consistently to all disposed of portions of an asset• If reasonable method is permissible, regulations require the use of the Producer Price Index

(PPI) for Finished Goods and not the Consumer Price Index (CPI)• General asset accounts (GAAs) – Rules clarify that an asset in a GAA is not subject to section

280B (allocation of building loss to non-depreciable land basis) unless the taxpayer makes either of the GAA termination elections– Taxpayers that place building property into GAAs may avoid the rule in section 280B– Taxpayers may be able to file late GAA elections with their 2013 returns by filing automatic

accounting method changes

41

Tangible Property Regs. – Common Method Changes and Elections

Election Method Change

Area of Focus ItemElection made

with affirmative statement

Election made byreporting on the

return

Method change with 481(a) adjustment

Method changewith limited 481(a)

Acquisition Costs

Book de minimis policy

Materials and supplies Election to capitalize & depreciate rotable or temporary spares

Repairs andImprovements

Repairs vs. improvements

Book conformity election

Dispositions

Partial disposition

Late partial disposition election

Complete asset disposition

42

Q&A

Questions?

43

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

44