[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.168(i)-1T]

[Page 1050-1053]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.168(i)-1T  General asset accounts (temporary).

    (a) through (c)(2)(ii)(D) [Reserved]. For further guidance, see 
Sec. 1.168(i)-1(a) through (c)(2)(ii)(D).
    (c)(2)(ii)(E) [Reserved].
    (d)(1) [Reserved]. For further guidance, see Sec. 1.168(i)-1(d)(1).
    (2) Special rule for passenger automobiles. For purposes of applying 
section 280F(a), the depreciation allowance for a general asset account 
established for passenger automobiles is limited for each taxable year 
to the amount prescribed in section 280F(a) multiplied by the excess of 
the number of automobiles originally included in the account over the 
number of automobiles disposed of during the taxable year or in any 
prior taxable year in a transaction described in paragraph

[[Page 1051]]

(e)(3)(iii) (disposition of an asset in a qualifying disposition), 
(e)(3)(iv) (transactions subject to section 168(i)(7)), (e)(3)(v) 
(transactions subject to section 1031 or 1033), (e)(3)(vi) (anti-abuse 
rule), (g) (assets subject to recapture), or (h)(1) (conversion to 
personal use) of this section.
    (e)(1) through (e)(2) [Reserved]. For further guidance, see Sec. 
1.168(i)-1(e)(1) through (e)(2).
    (e)(3) Special rules--(i) In general. This paragraph (e)(3) provides 
the rules for terminating general asset account treatment upon certain 
dispositions. While the rules under paragraphs (e)(3)(ii) and (iii) of 
this section are optional rules, the rules under paragraphs (e)(3)(iv), 
(v), and (vi) of this section are mandatory rules. A taxpayer applies 
paragraph (e)(3)(ii) or (iii) of this section by reporting the gain, 
loss, or other deduction on the taxpayer's timely filed Federal income 
tax return (including extensions) for the taxable year in which the 
disposition occurs. For purposes of applying paragraph (e)(3)(iii) 
through (vi) of this section, see paragraph (i) of this section for 
identifying the unadjusted depreciable basis of a disposed asset.
    (e)(3)(ii) through (e)(3)(iii)(B)(3) [Reserved]. For further 
guidance, see Sec. 1.168(i)-1(e)(3)(ii) through (e)(3)(iii)(B)(3).
    (e)(3)(iii)(B)(4) A transaction, other than a transaction described 
in paragraph (e)(3)(iv) of this section (pertaining to transactions 
subject to section 168(i)(7)) and (e)(3)(v) of this section (pertaining 
to transactions subject to section 1031 or 1033), to which a 
nonrecognition section of the Code applies (determined without regard to 
this section).
    (e)(3)(iii)(C) through (e)(3)(iv) [Reserved]. For further guidance, 
see Sec. 1.168(i)-1(e)(iii)(C) through (e)(3)(iv).
    (e)(3)(v) Transactions subject to section 1031 or section 1033--(A) 
Like-kind exchange or involuntary conversion of all assets remaining in 
a general asset account. If all the assets, or the last asset, in a 
general asset account are transferred by a taxpayer in a like-kind 
exchange (as defined under Sec. 1.168-6T(b)(11)) or in an involuntary 
conversion (as defined under Sec. 1.168-6T(b)(12)), the taxpayer must 
apply this paragraph (e)(3)(v)(A) (instead of applying paragraph (e)(2), 
(e)(3)(ii), or (e)(3)(iii) of this section). Under this paragraph 
(e)(3)(v)(A), the general asset account terminates as of the first day 
of the year of disposition (as defined in Sec. 1.168(i)-6T(b)(5)) and--
    (1) The amount of gain or loss for the general asset account is 
determined under section 1001(a) by taking into account the adjusted 
depreciable basis of the general asset account at the time of 
disposition (as defined in Sec. 1.168(i)-6T(b)(3)). The depreciation 
allowance for the general asset account in the year of disposition is 
determined in the same manner as the depreciation allowance for the 
relinquished MACRS property (as defined in Sec. 1.168(i)-6T(b)(2)) in 
the year of disposition is determined under Sec. 1.168(i)-6T. The 
recognition and character of gain or loss are determined in accordance 
with paragraph (e)(3)(ii)(A) of this section (notwithstanding that 
paragraph (e)(3)(ii) of this section is an optional rule); and
    (2) The adjusted depreciable basis of the general asset account at 
the time of disposition is treated as the adjusted depreciable basis of 
the relinquished MACRS property.
    (B) Like-kind exchange or involuntary conversion of less than all 
assets remaining in a general asset account. If an asset in a general 
asset account is transferred by a taxpayer in a like-kind exchange or in 
an involuntary conversion and if paragraph (e)(3)(v)(A) of this section 
does not apply to this asset, the taxpayer must apply this paragraph 
(e)(3)(v)(B) (instead of applying paragraph (e)(2), (e)(3)(ii), or 
(e)(3)(iii) of this section). Under this paragraph (e)(3)(v)(B), general 
asset account treatment for the asset terminates as of the first day of 
the year of disposition (as defined in Sec. 1.168(i)-6T(b)(5)), and--
    (1) The amount of gain or loss for the asset is determined by taking 
into account the asset's adjusted basis at the time of disposition (as 
defined in Sec. 1.168(i)-6T(b)(3)). The adjusted basis of the asset at 
the time of disposition equals the unadjusted depreciable basis

[[Page 1052]]

of the asset less the depreciation allowed or allowable for the asset, 
computed by using the depreciation method, recovery period, and 
convention applicable to the general asset account in which the asset 
was included. The depreciation allowance for the asset in the year of 
disposition is determined in the same manner as the depreciation 
allowance for the relinquished MACRS property (as defined in Sec. 
1.168(i)-6T(b)(2)) in the year of disposition is determined under Sec. 
1.168(i)-6T. The recognition and character of the gain or loss are 
determined in accordance with paragraph (e)(3)(iii)(A) of this section 
(notwithstanding that paragraph (e)(3)(iii) of this section is an 
optional rule); and
    (2) As of the first day of the year of disposition, the taxpayer 
must remove the relinquished asset from the general asset account and 
make the adjustments to the general asset account described in paragraph 
(e)(3)(iii)(C)(2) through (4) of this section.
    (e)(3)(vi) Anti-abuse rule--(A) In general. If an asset in a general 
asset account is disposed of by a taxpayer in a transaction described in 
paragraph (e)(3)(vi)(B) of this section, general asset account treatment 
for the asset terminates as of the first day of the taxable year in 
which the disposition occurs. Consequently, the taxpayer must determine 
the amount of gain, loss, or other deduction attributable to the 
disposition in the manner described in paragraph (e)(3)(iii)(A) of this 
section (notwithstanding that paragraph (e)(3)(iii)(A) of this section 
is an optional rule) and must make the adjustments to the general asset 
account described in paragraph (e)(3)(iii)(C)(1) through (4) of this 
section.
    (B) Abusive transactions. A transaction is described in this 
paragraph (e)(3)(vi)(B) if the transaction is not described in paragraph 
(e)(3)(iv) or (e)(3)(v) of this section and the transaction is entered 
into, or made, with a principal purpose of achieving a tax benefit or 
result that would not be available absent an election under this 
section. Examples of these types of transactions include--
    (1) A transaction entered into with a principal purpose of shifting 
income or deductions among taxpayers in a manner that would not be 
possible absent an election under this section in order to take 
advantage of differing effective tax rates among the taxpayers; or
    (2) An election made under this section with a principal purpose of 
disposing of an asset from a general asset account in order to utilize 
an expiring net operating loss or credit. The fact that a taxpayer with 
a net operating loss carryover or a credit carryover transfers an asset 
to a related person or transfers an asset pursuant to an arrangement 
where the asset continues to be used (or is available for use) by the 
taxpayer pursuant to a lease (or otherwise) indicates, absent strong 
evidence to the contrary, that the transaction is described in this 
paragraph (e)(3)(vi)(B).
    (f) Assets generating foreign source income--(1) In general. This 
paragraph (f) provides the rules for determining the source of any 
income, gain, or loss recognized, and the appropriate section 904(d) 
separate limitation category or categories for any foreign source 
income, gain, or loss recognized, on a disposition (within the meaning 
of paragraph (e)(1) of this section) of an asset in a general asset 
account that consists of assets generating both United States and 
foreign source income. These rules apply only to a disposition to which 
paragraph (e)(2) (general disposition rules), (e)(3)(ii) (disposition of 
all assets remaining in a general asset account), (e)(3)(iii) 
(disposition of an asset in a qualifying disposition), (e)(3)(v) 
(transactions subject to section 1031 or 1033), or (e)(3)(vi) (anti-
abuse rule) of this section applies.
    (2) Source of ordinary income, gain or loss--(i) Source determined 
by allocation and apportionment of depreciation allowed. The amount of 
any ordinary income, gain, or loss that is recognized on the disposition 
of an asset in a general asset account must be apportioned between 
United States and foreign sources based on the allocation and 
apportionment of the--
    (A) Depreciation allowed for the general asset account as of the end 
of the taxable year in which the disposition occurs if paragraph (e)(2) 
of this section applies to the disposition;

[[Page 1053]]

    (B) Depreciation allowed for the general asset account as of the 
time of disposition if the taxpayer applies paragraph (e)(3)(ii) of this 
section to the disposition of all assets, or the last asset, in the 
general asset account, or if all the assets, or the last asset, in the 
general asset account are disposed of in a transaction described in 
paragraph (e)(3)(v)(A) of this section; or
    (C) Depreciation allowed for the disposed asset for only the taxable 
year in which the disposition occurs if the taxpayer applies paragraph 
(e)(3)(iii) of this section to the disposition of the asset in a 
qualifying disposition, if the asset is disposed of in a transaction 
described in paragraph (e)(3)(v)(B) of this section (like-kind exchange 
or involuntary conversion), or if the asset is disposed in a transaction 
described in paragraph (e)(3)(vi) of this section (anti-abuse rule).
    (f)(2)(ii) through (h) [Reserved]. For further guidance, see Sec. 
1.168(i)-1(f)(2)(ii) through (h).
    (i) Identification of disposed or converted asset. A taxpayer may 
use any reasonable method that is consistently applied to the taxpayer's 
general asset accounts for purposes of determining the unadjusted 
depreciable basis of a disposed or converted asset in a transaction 
described in paragraph (e)(3)(iii) (disposition of an asset in a 
qualifying disposition), (e)(3)(iv) (transactions subject to section 
168(i)(7)), (e)(3)(v) (transactions subject to section 1031 or 1033), 
(e)(3)(vi) (anti-abuse rule), (g) (assets subject to recapture), or 
(h)(1) (conversion to personal use) of this section.
    (j) Effect of adjustments on prior dispositions. The adjustments to 
a general asset account under paragraph (e)(3)(iii), (e)(3)(iv), 
(e)(3)(v), (e)(3)(vi), (g), or (h)(1) of this section have no effect on 
the recognition and character of prior dispositions subject to paragraph 
(e)(2) of this section.
    (k) [Reserved]. For further guidance, see Sec. 1.168(i)-1(k).
    (l) Effective date--(1) In general. Except as provided in paragraphs 
(l)(2) and (l)(3) of this section, this section applies to depreciable 
assets placed in service in taxable years ending on or after October 11, 
1994. For depreciable assets placed in service after December 31, 1986, 
in taxable years ending before October 11, 1994, the Internal Revenue 
Service will allow any reasonable method that is consistently applied to 
the taxpayer's general asset accounts.
    (2) [Reserved].
    (3) Like-kind exchanges and involuntary conversions. (i) This 
section applies for an asset transferred by a taxpayer in a like-kind 
exchange (as defined under Sec. 1.168-6T(b)(11)) or in an involuntary 
conversion (as defined under Sec. 1.168-6T(b)(12)) for which the time 
of disposition (as defined in Sec. 1.168(i)-6T(b)(3)) and the time of 
replacement (as defined in Sec. 1.168(i)-6T(b)(4)) both occur after 
February 27, 2004. For an asset transferred by a taxpayer in a like-kind 
exchange or in an involuntary conversion for which the time of 
disposition, the time of replacement, or both occur on or before 
February 27, 2004, see Sec. 1.168(i)-1 in effect prior to February 27, 
2004, (Sec. 1.168(i)-1 as contained in 26 CFR part 1 edition revised as 
of April 1, 2003).
    (ii) The applicability of this section expires on or before February 
27, 2007.

[T.D. 9115, 69 FR 9535, Mar. 1, 2004]