Mixed Service Costs Information Document Request (IDR) #1
Note: Most taxpayers are using the three-year average to determine the amount of over capitalized costs with respect to self constructed assets and the resulting computation of the Section 481(a) adjustment. The only issue with respect to the use of the 3-year average is to determine whether the 3-years that the TP is using in their calculations are a reasonable representation of the earlier year under the facts of the particular case
If the 3 years are a reasonable representation of the earlier years, the Taxpayer can use the 3-year average or the weighted average method in 1.263A-7(c)(2)(iv)(B).
If the method the Taxpayer uses to calculate the § 481(a) adjustment is determined not to be a reasonable representation, please contact either the Utilities Technical Advisors or the Section 263A Technical Advisors for additional guidance.