United States

IRS issues updated list of automatic method changes

TAX ALERT  | 

On April 19, 2017, the IRS released Rev. Proc. 2017-30 (the guidance) that provides the list of automatic changes permitted to be filed under Rev. Proc. 2015-13 (see IRS releases updated procedures for changes in accounting methods). This guidance substantially supersedes Rev. Proc. 2016-29 (see IRS releases updated list of automatic method changes) that contained the previous list of automatic changes and makes multiple significant changes to the former guidance.

Some significant changes in the guidance include:

  1. An additional restriction for taxpayers changing the treatment of amounts paid or incurred for repair and maintenance costs from capitalizing to deducting. If a taxpayer has received a payment for specified energy property in lieu of tax credits under section 1603 of the American Recovery and Reinvestment Tax Act of 2009, the change is no longer applicable under the automatic provisions of Rev. Proc. 2015-13.
  2. An expansion of the change relating to capitalizing interest with respect to the production of designated property under sections 1.263A-8 through 14. This automatic change was previously only available to taxpayers changing from not capitalizing any interest or capitalizing interest in accordance with its book method of accounting, with respect to the production of designated property. Taxpayers may now change from an improper method of capitalizing interest under sections 1.263A-8 through 14 to capitalizing interest in accordance with sections 1.263A-8 through 14. However, all changes made under this section must now include details regarding taxpayer’s sub-methods of accounting for determining capitalizable interest in accordance with sections 1.263A-8 through 14.
  3. A clarification of the automatic changes for both impermissible and permissible methods of identification and valuation of inventory. This clarification provides that neither of these automatic changes can be used to allocate costs to inventory under section 471 or section 263A.
  4. The change for treatment of start-up expenditures has been modified to include a change in the amortization period of a start-up expenditure to 180 months.
  5. The section for start-up expenditures has been amplified to include additional changes. One for organizational expenditures under section 248 and one for organization fees under section 709.

In addition, the guidance also adds one additional automatic change – a change from currently deducting inventories to permissible methods of identification and valuation of inventories. Previous accounting method changes that were released between Rev. Proc. 2016-29 and Rev. Proc. 2017-30 (i.e., Notice 2016-36 and Rev. Proc. 2016-39) have also been codified in Rev. Proc. 2017-30.

Effective date

The revenue procedure is effective for a Form 3115 filed on or after April 19, 2017, for a year of change ending on or after Aug. 31, 2016, unless the taxpayer is within the scope of the following transition rules:

If before April 19. 2017, a taxpayer properly filed the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer may make that change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 for the year of change.

However, if the taxpayer did not properly file the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer must make that change in method of accounting under the non-automatic change procedures in Rev. Proc. 2015-13 outside of the normal time restrictions.

Additionally, if prior to April 19, 2017, a taxpayer filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13, but Rev. Proc. 2017-30 now allows the requested change to be made under the list of automatic changes, a taxpayer has a limited time to resubmit a Form 3115 under the automatic change procedures, provided the non-automatic Form 3115 is still pending with the IRS National Office on April 19, 2017. The guidance provides procedures for taxpayers to signal their intent with the IRS National Office and taxpayers must notify the national office contact person of that intent prior to the later of May 19, 2017, or the issuance of a letter ruling granting or denying change for that non-automatic change request.

Implications

The release of this guidance impacts every taxpayer requesting to change one of its methods of accounting using the automatic change procedures. With the immediate effective date for the majority of changes and the transition guidance provided for certain changes, taxpayers and their advisors must ensure the requested automatic change is still applicable to be filed under the automatic change procedures of Rev. Proc. 2015-13.

AUTHORS


Subscribe to Tax Alerts



How can we help you with your tax planning & compliance?