On November 5, 2018, the Internal Revenue Service released a practice unit presentation for their Large Business & International division agents. A practice unit is a training module in presentation format used for IRS internal training purposes. This practice unit focuses on familiarizing LB&I agents with the rules and audit steps for reviewing partial asset dispositions under the Tangible Property Regulations (“TPR”). The following bullet points highlight the interesting aspects of this document.
The document is primarily intended for the review of large, public companies. This means that the audit steps focus on annual statements and 10-Ks. For smaller taxpayers, only the steps that focus on reviewing the fixed asset ledger are relevant.
The document highlights the fact that there are two types of partial dispositions: mandatory and elective.
Mandatory partial asset dispositions include dispositions arising from step-in-the-shoes transactions, LKEs, involuntary conversions, sales, and casualties.
As we have discussed in prior blog postings, mandatory partial asset dispositions remain eligible for recovery through the automatic method change procedures.
Since this practice unit is geared towards LB&I taxpayers, it entirely neglects situations in which a taxpayer adopted the TPR via the small taxpayer provisions of Rev. Proc. 2015-20.
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