[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.263A-15]

[Page 561-562]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.263A-15  Effective dates, transitional rules, and anti-abuse rule.

    (a) Effective dates--(1) Sections 1.263A-8 through 1.263A-15 
generally apply to interest incurred in taxable years beginning on or 
after January 1, 1995. In the case of property that is inventory in the 
hands of the taxpayer, however, these sections are effective for taxable 
years beginning on or after January 1, 1995. Changes in methods of 
accounting necessary as a result of the rules in Sec. Sec. 1.263A-8 
through 1.263A-15 must be made under the terms and conditions prescribed 
by the Commissioner. Under these terms and conditions, the principles of 
Sec. 1.263A-7 must be applied in revaluing inventory property.
    (2) For taxable years beginning before January 1, 1995, taxpayers 
must take reasonable positions on their federal income tax returns when 
applying section 263A(f). For purposes of this paragraph (a)(2), a 
reasonable position is a position consistent with the temporary 
regulations, revenue rulings, revenue procedures, notices, and 
announcements concerning section 263A applicable in taxable years 
beginning before January 1, 1995. See Sec. 601.601(d)(2)(ii)(b) of this 
chapter. For this purpose, Notice 88-99, 1988-2 C.B. 422, applies to 
taxable years beginning after August 17, 1988, in the case of inventory, 
and to interest incurred in taxable years beginning after August 17, 
1988, in all other cases. Finally, under administrative procedures 
issued

[[Page 562]]

by the Commissioner, taxpayers may elect early application of Sec. Sec. 
1.263A-8 through 1.263A-15 to taxable years beginning on or after 
January 1, 1994, in the case of inventory property, and to interest 
incurred in taxable years beginning on or after January 1, 1994, in the 
case of property that is not inventory in the hands of the taxpayer.
    (b) Transitional rule for accumulated production expenditures--(1) 
In general. Except as provided in paragraph (b)(2) of this section, 
costs incurred before the effective date of section 263A are included in 
accumulated production expenditures (within the meaning of Sec. 1.263A-
11) with respect to noninventory property only to the extent those costs 
were required to be capitalized under section 263 when incurred and 
would have been taken into account in determining the amount of interest 
required to be capitalized under former section 189 (relating to the 
capitalization of real property interest and taxes) or pursuant to an 
election that was in effect under section 266 (relating to the election 
to capitalize certain carrying charges).
    (2) Property used to produce designated property. The basis of 
property acquired prior to 1987 and used to produce designated 
noninventory property after December 31, 1986, is included in 
accumulated production expenditures in accordance with Sec. 1.263A-
11(d) without regard to whether the basis would have been taken into 
account under former section 189 or section 266.
    (c) Anti-abuse rule. The interest capitalization rules contained in 
Sec. Sec. 1.263A-8 through 1.263A-15 must be applied by the taxpayer in 
a manner that is consistent with and reasonably carries out the purposes 
of section 263A(f). For example, in applying Sec. 1.263A-10, regarding 
the definition of a unit of property, taxpayers may not divide a single 
unit of property to avoid property classifying the property as 
designated property. Similarly, taxpayers may not use loans in lieu of 
advance payments, tax-exempt parties, loan restructurings at measurement 
dates, or obligations bearing an unreasonably low rate of interest (even 
if such rate equals or exceeds the applicable Federal rate under section 
1274(d)) to avoid the purposes of section 263A(f). For purposes of this 
paragraph (c), the presence of back-to-back loans with different rates 
of interest, and other uses of related parties to facilitate an 
avoidance of interest capitalization, evidences abuse. In such cases, 
the District Director may, based upon all the facts and circumstances, 
determine the amount of interest that must be capitalized in a manner 
that is consistent with and reasonably carries out the purposes of 
section 263A(f).

[T.D. 8584, 59 FR 67215, Dec. 29, 1994, as amended by T.D. 8728, 62 FR 
42062, Aug. 5, 1997]