Par. 2. Sections 1.167(n)-0 through 1.167(n)-7 are added to read as follows:
(a) In general. The depreciation allowance under § 1.167(n)-4 may be computed under the income forecast method only with respect to eligible property. Eligible property is limited to an interest (including interests involving limited rights in property) in the following property—
(1) Property described in section 168(f)(3) and (4);
(2) Copyrights;
(3) Books;
(4) Patents;
(5) Theatrical productions; and
(6) Other property as designated in published guidance by the Commissioner.
(b) Specific exclusions. The income forecast method does not apply to any amortizable section 197 intangible (as defined in section 197(c) and § 1.197-2(d)).
(c) Costs treated as separate property —(1) Costs giving rise to a significant increase in income —(i) In general. For purposes of § 1.167(n)-1 through § 1.167(n)-6, any amount paid or incurred after the income forecast property is placed in service must be treated as a separate property if the cost is significant and gives rise to an increase in income that is significant and that was not included in either forecasted total income or revised forecasted total income in a prior taxable year.
(ii) Exception for de minimis amounts. For purposes of this paragraph, a cost that is less than the lesser of 5 percent of the depreciable basis (as of the date the amount is paid or incurred) of the income forecast property to which the amount relates or $100,000 is not significant. Such a cost is therefore not treated as separate property but is instead treated as a basis redetermination amount in accordance with § 1.167(n)-2(b).
(2) Significant increase in income. For purposes of this paragraph, whether an increase in income is significant is determined by comparing the amount that would be considered revised forecasted total income from the amounts treated as separate property to the most recent estimate of forecasted total income or revised forecasted total income used in calculating an allowance for depreciation with respect to the income forecast property.
(3) Special rule for costs paid or incurred after the end of the final year. For purposes of § 1.167(n)-1 through § 1.167(n)-6, any amount paid or incurred with respect to an income forecast property in a taxable year following the year in which the taxpayer claims a depreciation allowance in accordance with the final year depreciation rules of § 1.167(n)-4(d)(1) is treated as a basis redetermination amount under § 1.167(n)-2(b) provided the amount is not expected to give rise to a significant increase in current year income in any taxable year.
(4) Time separate property is placed in service. Separate property is treated as placed in service in the year the amount giving rise to the property is paid or incurred.
(5) Examples. The provisions of this paragraph (c) are illustrated in the following examples:
Example 1.
G releases a film in 2001 and begins to recover the depreciable basis in the film using the income forecast method in the year 2001. In 2003, the film is re-edited and restored, and director's commentary is added in order to prepare the film for release on DVD. The total cost of preparing the film for the DVD release exceeds both 5 percent of the depreciable basis of the film and $100,000. G did not anticipate the income from the DVD market, and did not include any DVD release income in the income projections for the film in prior years. If G anticipates that the additional DVD release income will be significant in relation to the forecasted total income used in calculating an allowance for depreciation for 2002 (the previous taxable year), the additional amount gives rise to separate property and must be recovered over the forecasted total income from the DVD. If not, G must treat the additional amounts as additions to basis under § 1.167(n)-2(b).
Example 2.
G releases a film in 2001 and recovers the depreciable basis in the film using the income forecast method in the years 2001 through 2011. In 2018, the film is re-edited and restored, and director's commentary is added in order to prepare the film for release on a newly discovered technology. If G anticipates that the additional new technology release income will be significant in relation to the revised forecasted total income used in calculating an allowance for depreciation for 2011 (the last taxable year for which an allowance was claimed), the cost of preparing the release gives rise to separate property and must be recovered over the forecasted total income from the new technology release. If not, G may deduct the cost in 2018, the year paid or incurred.
(d) Aggregations treated as a single income forecast property. Taxpayers must apply the income forecast method on a property-by-property basis, unless one of the aggregation rules provided in paragraphs (d)(1) through (4) of this section applies. If a taxpayer applies one of the aggregation rules provided in paragraphs (d)(1) through (4) of this section, costs incurred in taxable years after the initial income forecast property is placed in service are treated as basis redeterminations under § 1.167(n)-2; however, the additional allowance for depreciation provided in § 1.167(n)-4(c)(1) does not apply. The application of the provisions of paragraphs (d)(1) through (d)(4) is a method of accounting that may not be changed without the consent of the Commissioner. Permissible aggregations are limited to the following:
(1) Multiple episodes of a television series produced in the same taxable year. The producer of a television series may treat multiple episodes of a single television series produced in the same taxable year as a single unit of property for purposes of the income forecast method.
(2) Multiple episodes of a television series produced in more than one taxable year. The producer of a television series may treat multiple episodes of a single television series that are produced as a single season of episodes and placed in service over a period not in excess of twelve consecutive calendar months as a single unit of property for purposes of the income forecast method notwithstanding that the twelve-month period may span more than one taxable year.
(3) Multiple interests acquired pursuant to a single contract. Multiple interests in specifically identified income forecast properties acquired for broadcast pursuant to a single contract may be treated as a single unit of property for purposes of the income forecast method.
(4) Videocassettes and DVDs. The purchaser or licensee of videocassettes and DVDs for rental to the public may treat multiple copies of the same title purchased or licensed in the same taxable year as a single unit of property for purposes of the income forecast method.