The IRS has updated the long (now 333 pages) document listing all of the automatic accounting method changes in Revenue Procedure 2018-31. This is the document that outlines the changes that can be made by attaching a Form 3115, Application for Change in Accounting Method, to the taxpayer’s tax return for the year of change (along with a copy to the IRS processing center in Covington, KY) rather than going through the process of applying for approval of the change and awaiting the IRS’s decision.
If you were hoping to see automatic change procedures outlined for changes added by the Tax Cuts and Jobs Act (TCJA), those are not in this document. There were a few changes made to prior automatic changes (such as those impacting IRC §263A) to get ready for the new small business changes, but none of the small business changes, nor the revenue conformity change required for some businesses by IRC §451(b) as revised by TCJA are found in this document.
The IRS in the Notice does address the small business accounting rule by indicating that a later Revenue Procedure will take care of those changes:
Because of the amendments made to §§ 263A, 448, and 471 by § 13102 of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017) (the “Act”), the Department of the Treasury and the Internal Revenue Service expect to issue a revenue procedure providing procedures for making changes implementing § 13102 of the Act.
Presumably the IRS will also address the changes that will be required under IRC §451(b) for entities with an applicable financial statement in a similar revenue procedure.
The IRS provides a list of significant changes beginning on page 324 of the posted document. Most of the changes get rid of obsolete method changes in addition to preparing for the small business accounting method changes noted above.
The new Revenue Procedure applies to changes of methods filed on after May 9, 2018 (the date the new procedure was issued) for tax years ending after September 30, 2017. If a taxpayer had previously filed for a non-automatic change of accounting method and the change request was still pending with the National Office on May 9, 2018 and the change is now available as an automatic change, the taxpayer can request that the change now be processed as an automatic change by notifying the National Office by the later of:
- June 8, 2018 or
- The issuance of a letter ruling granting or denying the request for change.
A taxpayer who switches to the use of an automatic method under this revenue procedure will be notified by the National Office that the request was received and, probably of interest to the taxpayer, the user fee will be refunded.
If the taxpayer faces the opposite problem—that is, what was available as an automatic method under the prior revenue procedure is no longer available—a different set of transition rules apply. If the application was filed by the taxpayer before May 9, 2018, then the taxpayer can proceed with the change in method under the prior automatic change option. If, however, the request has not yet been filed (that is, the return had not been filed before May 9, 2018) then a taxpayer who wishes to move forward with a change in method must convert to the non-automatic change methods. The due date for the Form 3115 for a taxpayer in such a situation is subject to a special relief provision. For the last tax year ending before May 9, 2018 the due date for the Form 3115 is now required to be filed on or before the due date of the taxpayer’s return of the year in question. As well, that date will be set to the extended due date for that return even if the taxpayer did not file for an extension of time to file the return.
As the new list is effective immediately, any professional that has a change of accounting method request in process for a not-yet-filed tax return should consult this list to determine what changes, if any, will affect the request for change of accounting method for the impacted taxpayer(s).