Relief Extended By One Year to Make Certain Accounting Method Change Requests Under Automatic Procedures to Comply with Tangible Property Regulations

The IRS has extended a special eligibility rule for taxpayers making an automatic change of accounting method by one year in Notice 2017-6

Taxpayers were required to make various changes in their accounting methods to comply with the revised tangible property regulations that took effect in 2014.  However, some of these taxpayers have discovered they need to make additional changes to comply with those regulations they had not noticed previously.

Under the general rules for requesting an automatic accounting method change found in Revenue Procedure 2015-13 the taxpayers might discover they are blocked from obtaining automatic consent due to a rule limiting the ability to make a second request to change the method of accounting for an item within five years of an earlier automatic change.

Specifically the IRS notes:

Section 5 of Rev. Proc. 2015-13 provides certain eligibility rules for a taxpayer that applies for the Commissioner's consent to make a change in method of accounting under the automatic change procedures. Section 5.01(1)(f) provides that the automatic change procedures may not be utilized if the taxpayer has made or requested a change for the same item during any of the five taxable years ending with the year of change. This rule generally precludes a taxpayer from using the automatic change procedures to change the treatment of the same item more than once within a five-year period.

The IRS had waived this rule for certain changes related to the tangible property regulations for any year beginning before January 1, 2016 (Revenue Procedure 2016-29).  Thus, calendar year 2017 returns would no longer be covered by that rule—but taxpayers continue to discover issues.

That has lead to taxpayers filing requests for consents to non-automatic changes since IRS permission would now be required to change the method of accounting for any of these items if a prior change had been made within five years.  Presumably the IRS has been receiving such requests and has now decided they will extend the special rule for one more year.

As the ruling holds:

The Treasury Department and the IRS are aware that taxpayers continue to request consent to change their methods of accounting to utilize the final tangible property regulations and final depreciation and disposition regulations. To continue to ease taxpayers' transition to these final regulations and to reduce the administrative burden that would result from requiring taxpayers to apply for non-automatic changes of accounting methods for each of the changes specified above, this notice modifies the applicable sections of Rev. Proc. 2016-29 to extend the waiver of the eligibility rule under section 5.01(1)(f) of Rev. Proc. 2015-13 for one year to any taxable year beginning before January 1, 2017. The applicable sections are:

(1) Section 6.14, relating to a change from a permissible to another permissible method of accounting for depreciation of MACRS property under § 1.168(i)-1, § 1.168(i)-7, and § 1.168(i)-8, as applicable;

(2) Section 6.15, relating to a change in method of accounting for dispositions of a building or structural component under § 1.168(i)-8;

(3) Section 6.16, relating to a change in method of accounting for dispositions of tangible depreciable assets (other than a building or its structural components) under § 1.168(i)-8;

(4) Section 6.17, relating to a change in method of accounting for dispositions of tangible depreciable assets in a general asset account under § 1.168(i)-1; and

(5) Section 11.08, relating to changes in methods of accounting for tangible property under the final tangible property regulations.

The IRS also has provided a transition rule that will allow taxpayers that had filed for consent to a non-automatic change that would be covered by the extension of the relief noted above to make their change under the automatic procedures.  Such a Form 3115 must have been pending with the National Office of the IRS on December 20, 2016.