As tax professionals, staying abreast of the latest guidance from the Internal Revenue Service (IRS) is paramount to ensuring compliance and providing accurate advice to our clients. Revenue Procedure 2025-23, effective for Forms 3115 filed on or after June 9, 2025, for a year of change ending on or after October 31, 2024, provides a comprehensive list of automatic changes in accounting methods. This Revenue Procedure clarifies and modifies previous guidance, specifically Rev. Proc. 2015-13, 2015-5 I.R.B. 419, and its subsequent modifications. It is an essential resource for taxpayers seeking to change their accounting methods without obtaining advance consent from the Commissioner.

The Nature of Automatic Accounting Method Changes

Revenue Procedure 2025-23 functions as the "List of Automatic Changes" to which the automatic change procedures in Rev. Proc. 2015-13 apply. These procedures allow taxpayers to change specified accounting methods by filing Form 3115, "Application for Change in Accounting Method," under streamlined procedures, often without prior IRS approval. The Revenue Procedure specifically references numerous sections of the Internal Revenue Code (IRC) and related regulations that govern various accounting methods, including §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 195, 197, 248, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467, 471, 472, 475, 481, 585, 709, 807, 816, 832, 833, 846, 860A-860G, 861, 904, 953, 985, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N.

The designated automatic accounting method change numbers (DCNs) are unique identifiers for each specific change permissible under these procedures. For instance, a change for up-front payments for network upgrades received by utilities has a DCN of "91". Changes involving advances made by a lawyer on behalf of clients use DCN "2", while ISO 9000 costs use DCN "3". Similarly, restaurant or tavern smallwares packages have a DCN of "4". These DCNs simplify the process of identifying and reporting the specific accounting method change being requested on Form 3115.

Key Modifications Introduced by Rev. Proc. 2025-23

Revenue Procedure 2025-23 introduces several significant changes to the prior list of automatic changes, Rev. Proc. 2024-23. These modifications are crucial for tax professionals to understand for proper application and compliance.

Removal of Obsolete Provisions:
- Late Elections under § 168(j)(8), § 168(l)(3)(D), and § 181(a)(1): Section 6.22, which addressed these late elections, has been removed because the provision is now obsolete.
- SRE Expenditure Changes for Initial Taxable Year: Section 7.01(3)(a), related to changes in method of accounting for specified research or experimental (SRE) expenditures for a taxpayer’s first taxable year beginning after December 31, 2021, has been removed. This indicates that the temporary relief for that initial period is no longer necessary. Additionally, references to a year of change later than the first taxable year beginning after December 31, 2021, have been removed from the newly redesignated section 7.01(3)(a) (formerly section 7.01(3)(b)) as the language is obsolete.
- Obsolete References in Long-Term Contract Changes: Section 19.01, concerning changes for certain exempt long-term construction contracts and the cessation of capitalizing costs under § 263A for home construction contracts, has been modified by removing references to "proposed § 1.460-3(b)(1)(ii)" as these references are obsolete.
- Obsolete SRE Expenditure Changes in Long-Term Contracts: Section 19.02, which details changes to account for long-term contracts under § 460 by relying on interim guidance for SRE expenditures (Notice 2023-63), has been modified to remove section 19.02(3)(a). This removed provision related to a change in the treatment of SRE expenditures under § 460 for the taxpayer’s first taxable year beginning after December 31, 2021, indicating its obsolescence.
- Obsolete Inventory Method Provision: Section 22.10, which outlines permissible methods of identification and valuation of inventories, has been modified by removing section 22.10(1)(d), as this provision is obsolete.
Clarifications and Specific Modifications:
- § 481(a) Adjustment Clarification: Several paragraphs related to the § 481(a) adjustment have been clarified by adding the phrase "for any taxable year in which the election was made." This includes paragraph (2) of section 3.07, relating to wireline network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-27. This emphasizes the specific period for which the election impacts the adjustment.
- MACRS Property Depreciation Changes: Section 6.05, concerning changes in method of accounting for depreciation due to a change in the use of MACRS property, has been modified to remove section 6.05(2)(b). This removed provision offered a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, implying that this temporary waiver is no longer in effect.
- Disposition of Building or Structural Component: Section 6.13, addressing dispositions of a building or structural component, has been clarified by adding the parenthetical "including the taxable year immediately preceding the year of change" to sections 6.13(3)(b), (c), (d), and (e). This highlights the inclusion of the immediately preceding taxable year in certain covered changes.
- Disposition of Tangible Depreciable Assets (Non-Building): Similarly, section 6.14, pertaining to dispositions of tangible depreciable assets other than buildings or structural components, has been clarified by adding the parenthetical "including the taxable year immediately preceding the year of change" to sections 6.14(3)(b), (c), (d), and (e). This ensures consistent treatment regarding the preceding taxable year for these types of dispositions.
- Interest Capitalization Inapplicability: Section 12.14, which deals with interest capitalization, has been modified to specify that changes under this section do not apply if a taxpayer wants to use current §§ 1.263A-11(e)(1)(ii) and (iii) or proposed §§ 1.263A-8(d)(3) and 1.263A-11(e) and (f) (REG-133850-13). This clarifies the specific interest capitalization methods that are outside the scope of this automatic change provision.
- Overall Accrual Method Change (Obsolete Language Removal): Section 15.01, related to a change in overall method to an accrual method, has been modified by removing the first sentence of section 15.01(5). This removed sentence disregarded prior overall accounting method changes to the cash method made under obsolete Revenue Procedures (Rev. Proc. 2001-10 or Rev. Proc. 2002-28) for purposes of the eligibility rule in section 5.01(e) of Rev. Proc. 2015-13.
- Foreign Income Tax Exclusion from Specific Item Accrual Change: Section 15.08, which governs changes from the cash method to an accrual method for specific items, now includes a new section 15.08(1)(b)(ix). This new provision explicitly states that this change does not apply to a change in the method of accounting for any foreign income tax as defined in § 1.901-2(a).
- Farmers Changing to Cash Method (Scope Clarification): Section 15.12, regarding farmers changing to the cash method, has been clarified. The change under section 15.12 is now explicitly stated to be applicable only to a taxpayer’s trade or business of farming, and not to a non-farming trade or business the taxpayer might be engaged in.
- Nonshareholder Contributions to Capital (§ 118) – Requirement for Non-Automatic Change: Section 15.13, concerning nonshareholder contributions to capital under § 118, has been significantly modified. Changes related to a regulated public utility under former § 118(c) (specifically sections 15.13(1)(a)(i) and (ii) of the prior revenue procedure) are now required to be requested under the non-automatic change procedures of Rev. Proc. 2015-13. This means these specific changes are no longer automatic. The prior section 15.13(1)(a)(i) has been removed, and language referencing public utilities in section 15.13(1)(b) has also been removed due to this reclassification.
- Rebates and Allowances (Reward Programs Exclusion): Section 20.07, dealing with changes in accounting methods for liabilities for rebates and allowances to the recurring item exception, has been clarified. A new section 20.07(1)(b)(ii) has been added, specifying that this change does not apply to liabilities arising from reward programs.
- Inventory Changes (Previously Deducting Inventories): Section 22.17(1)(b)(iii), which covers changes from currently deducting inventories to permissible identification and valuation methods, has been highlighted. This indicates a specific focus or clarification on this type of inventory method change.

Tax professionals should carefully review Rev. Proc. 2025-23 to ensure proper application of these updated rules for their clients.

Prepared with assistance from NotebookLM.