How the modified Section 263A regulations impact producers

In this webcast, EY professionals discuss new definitions, methods and the treatment of negative adjustments under the final Section 263A regulations in addition to key opportunities and impacts for producers and resellers.

Final regulations for the allocation of costs under the simplified methods of accounting under Section 263A (uniform capitalization rules) were released Monday, 19 November 2018.

Simultaneously, Revenue Procedure 2018-56 (2018-50 IRB) was issued to provide automatic method change procedures through which a taxpayer can conform to these final regulations. Similar to the 2012 proposed regulations, the final regulations contain a highly anticipated new modified simplified production method (MSPM) and a new definition of Section 471 costs. In addition, there are new definitions, methods, de minimis rules and a safe harbor to help taxpayers comply with the new rules.

Although the regulations are effective for tax years beginning on or after 20 November 2018 (e.g., 2019 calendar years), taxpayers have the option to adopt the new methods for the tax year beginning before 20 November 2018 (e.g., 2018 calendar years) and many taxpayers may want to early adopt the new rules. The new regulations and automatic accounting method changes that can be made for 2018 or 2019 tax years provide flexibility that will be helpful as taxpayers review all inventory costing methodologies in conjunction with tax reform planning.

The following topics will be discussed:

  • New MSPM for allocating additional Section 263A costs to ending inventory
  • New definition of Section 471 costs
  • New rules for appropriate treatment of “negative adjustments”
  • Temporary new automatic accounting method changes to revoke a historic absorption ratio (HAR) election or change to a non-HAR Section 263A method of accounting
  • Inventory costing/cost of goods sold and Section 263A methodologies in conjunction with tax reform planning


  • Brandon Carlton, Principal, Central Region Quantitative Services Leader, Ernst & Young LLP
  • Shannon McNamara, Partner, Southwest Region, Quantitative Services, Ernst & Young LLP
  • Dan Penrith, Senior Manager, National Tax, Quantitative Services, Ernst & Young LLP


  • Kristine Mora, Partner, National Tax, Inventory Practice Leader, Ernst & Young LLP


Download our full webcast survey results Executives react to the final Section 263A regulations (pdf).


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