Tax Pros See Smooth Implementation for Natural Gas Safe Harbor
Tax attorney Bradley Seltzer spoke with Tax Notes about the implementation of the U.S. Treasury-IRS priority guidance plan, Rev. Proc. 2023-15, 2023-18 IRB 1 (Rev. Proc. 2023-15). This 10-year industry issue resolution program process delivers a safe harbor method of accounting for taxpayers' natural gas transmission and distribution property. Mr. Seltzer and other tax professionals praised the flexibility and specificity the guidance provides.
He commented that "although taxpayers and advisers could want for a little more or less at the margins, as a comprehensive approach for applying section 263(a) to the natural gas industry, it’s a pretty good step, and the IRS shouldn’t expect to receive many complaints."
With regard to adopting the new natural gas safe harbor method of accounting (NGSH), Mr. Seltzer explained that the IRS and Treasury often must balance the benefits of specificity and taxpayer options for using any reasonable method. While the government often prefers specificity for administration and compliance, Rev. Proc. 2023-15 reflects an attempt to allow taxpayers flexibility to apply the “any reasonable method” standard, he said.
He went on to explain that this type of specificity can benefit both the IRS and taxpayers, noting that Rev. Proc. 2023-15 has several bright-line rules, such as one that says replacing less than 10 percent of a unit of linear transmission property or less than four miles of linear distribution mains can be expensed, and larger changes must be capitalized.
“Regulated utilities prize certainty above the specific final tax result,” he said. “That’s because taxes can be incorporated into regulatory rate-setting proceedings but utilities can’t recover benefits already passed along to customers.”
He also praised the inclusion of dozens of examples in Rev. Proc. 2023-15, noting that they may be helpful for taxpayers awaiting guidance under the Inflation Reduction Act.
“The words of the rules are helpful, but there’s nothing like a good example,” he said.
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