Rev. Proc. 2018-60 was released by the IRS to allow taxpayers to obtain consent to change from their current method of accounting to take into account the requirements of IRC §451(b)(1)(A), added by the Tax Cuts and Jobs Act, effective for tax years beginning in 2018. But is that automatic change still available if the method the taxpayer had previously been using was one not allowed for tax purposes?
In CCA 201852019 the IRS Chief Counsel’s office decided the answer was yes.
IRC §451(b)(1)(A) provides:
(A) In General.
In the case of a taxpayer the taxable income of which is computed under an accrual method of accounting, the all events test with respect to any item of gross income (or portion thereof) shall not be treated as met any later than when such item (or portion thereof) is taken into account as revenue in --
(i) an applicable financial statement of the taxpayer, or
(ii) such other financial statement as the Secretary may specify for purposes of this subsection.
The memorandum poses the following facts for analysis:
Taxpayer is an accrual method taxpayer with an applicable financial statement that files its tax return on a calendar year basis. Taxpayer proposes to adopt a method under Rev. Proc. 2018-60 to comply with § 451(b), as amended by section 13221 of the Tax Cuts and Jobs Act, Pub. L. No. 115-97 (December 22, 2017)(TCJA). Taxpayer’s present method of accounting is an impermissible method that does not comply with either the all events test of § 451, as amended by the TCJA or with § 451, prior to being amended by the TCJA.
The memo notes that the Revenue Procedure applies to a taxpayer who seeks to change to a method that “treats an item of gross income, or portion thereof, as meeting the all events test no later than when such item, or portion thereof, is taken into account as revenue in its AFS under § 451(b)(1)(A).”
An election under this method will, by its nature, automatically also require the taxpayer to use a proper accounting method under the all events test for tax purposes even if the AFS is not reporting revenue as rapidly as the all events test. As the memorandum provides:
Rev. Proc. 2018-60 provides automatic consent for method changes to comply with § 451(b)(1)(A), as amended by the TCJA. The operative rule set forth in § 451(b)(1)(A) includes the requirements of the all events test under § 451(b)(1)(C). Thus, to satisfy § 451(b)(1)(A), a taxpayer must also comply with the all events test as defined in § 451(b)(1)(C).
Thus, the CCA concludes:
Accordingly, a taxpayer that complies with all the terms and conditions set forth in Rev. Proc. 2018-60, may obtain automatic consent of the Commissioner to change from a method that is impermissible under § 451(b)(1)(C) to a permissible method that complies with § 451(b)(1)(A), as amended by TCJA.
Note that the taxpayer in this case will not be allowed to use its prior inappropriate tax method for cases where the AFS may still use that old method to slow recognition of revenue for tax purposes. Rather, for tax purposes the taxpayer will need to move to a correct application of the all events test in those cases.
It seems possible, based on this analysis, that this result would be available even if the taxpayer’s AFS never creates a situation where a more rapid recognition would be required—thus creating an opportunity for a taxpayer to obtain automatic permission to change from an otherwise impermissible method of recognizing revenue in cases where the all events test would normally apply.
 Applicable financial statement as defined in ARS §451(b)(3)