2017 Revision of Comprehensive List of Automatic Accounting Method Changes Issued by IRS

In what now appears to be an annual event, the IRS has released a revised comprehensive list of accounting method changes in Rev. Proc. 2017-30.  The new ruling replaces Rev. Proc. 2016‑29, issued approximately one year earlier.

The document is 337 pages long in the original PDF format published by the IRS.  The significant changes section begins on page 325 and continues through to page 330 of the document.  The new revenue procedure is effective for a Form 3115 filed on or after April 19, 2017 for a year of change ending on or after August 31, 2016.

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IRS Releases Proposed Revenue Procedure to Deal with Accounting Method Change Requests Related to FASB Revenue Recognition Standard

One of the key developments keeping those CPAs who specialize on the “accounting and auditing” (or A&A as we tend to refer to it) side of the profession jumping has been the soon to be implemented standard titled “Revenue from Contracts with Customers” FASB Accounting Standards Update 2014-09, which makes significant changes to revenue recognition, particularly the timing of such recognition of revenue. 

Of course, for those of us working in the tax arena, when you start talking about timing of recognition you realize that if any of this either does flow onto a tax return or a taxpayer reasonably would like to have it do so to keep tax and book the same in this area you realize you are dealing with an “accounting method” which would require IRS permission to change under IRC §446.  And we also realize the timing of the inclusion of an item of income is governed under the IRC by IRC §451.

The IRS has been aware of this potential problem as well, and now has released a proposed Revenue Procedure to allow for certain automatic changes in accounting methods.  This proposed procedure, on which the IRS is seeking comments, is found in IRS Notice 2017-17.

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IRS Grants Relief to Taxpayer When CPA Firm Inadvertently Failed to Have Taxpayer File Form 3115

Mistakes are made in preparing tax returns and, especially in the heat of tax season, items can be overlooked.  In PLR 201702021 the IRS granted relief in a situation where a CPA firm had accidentally neglected to attach a Form 3115 and have the taxpayer file a copy of the Form 3115 with the IRS for an automatic change of accounting methods.

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Cash Basis Taxpayer Never Received Permission to Change Method to Defer Deduction for Paying Independent Contractors

In the case of Nebeker v. Commissioner, TC Memo 2016-155 a taxpayer had changed its method of reporting payments for independent contractors in 2004.  That sets up a case where the IRS would prevail—but perhaps in the end it might end up with a result that reduced the taxpayer’s tax for the year in question.

The taxpayer had operated a business since 1995.  In his business he would bill clients (often governments) for his work and various expenses incurred, including the expenses related to payments to independent contractors.

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New Comprehensive List of Automatic Accounting Method Changes Issued by IRS

When the IRS issued the list of automatic accounting method changes as a separate Revenue Procedure in Revenue Procedure 2015-13 in early 2015 rather than as an appendix to the general Revenue Procedure in accounting method changes, the clear implication was that this would allow the IRS to issue a comprehensive list of changes on a more regular basis.  Revenue Procedure 2016-29 is the first time the IRS takes advantage of this structure, creating a comprehensive list of automatic changes, update for new automatic changes issued since Revenue Procedure 2015-13, superseding that procedure and incorporating changes made since the issuance of that procedure.

Following the issuance of Revenue Procedure 2015-13, the IRS had issued modifications/additions to the automatic list in Revenue Procedures 2015-33 and Revenue Procedure 2016-1.  Thus to obtain the complete list of automatic changes and current rules an adviser would need to check Revenue Procedure 2015-13 along with those changes.  

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Use of Old Form 3115 Allowed For Accounting Method Change Requests Filed on or Before April 20, 2016

The IRS announced that, for forms filed on or before April 19, 2016, the agency will generally accept either the current December 2015 version of Form 3115 or the prior December 2009 version of the form [Announcement 2016-14].  However, the use of the new form will be mandated in those situations where situations where the IRS has mandated the use of new form specifically in guidance published in the Internal Revenue Bulletin.

In the vast majority of cases the form is being filed to be granted automatic consent to a change in method of accounting under provisions promulgated by the IRS well before the December 2015 form was published, so this relief will cover the vast majority of filings, albeit only for a relative short period (on April 19 the new form will become mandated)

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Guidance Requested By IRS on Dealing with FASB's Pending Changes to Revenue Recognition

CPAs on the “auditing and accounting” side of the profession have been studying FASB Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)” since it’s issuance last year.  It turns out, though, that not only CPAs dealing with A&A issues have concerns—the IRS now has issued a notice asking for guidance of the impact of ASU 2014-09 on accounting methods for tax purposes in Notice 2015-40.

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Existence of §754 Election Does Not Impact Whether Change in Treatment of an Item is an Accounting Method Change

In Chief Counsel Advice 201521012 the IRS concluded that an adjustment of the treatment of an item will not cease to be required to be treated as a change in a method of accounting merely because the taxpayer was a partnership with an election under §754 in place that would have caused a change in the §743(b) adjustment had the new method of accounting been used in the past.

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Simplified Accounting Method Change Procedures Issued by IRS for Small Taxpayers to Comply with Repair/Tangible Property Regulations

Facing mounting pressure from various parties to grant relief, the IRS has provided an optional “simplified” method of complying with the new repair/tangible property capitalization regulations in Revenue Procedure 2015-20.  In addition to issuing the ruling, the IRS also issued a press release (IR-2015-29) describing the relief.

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