IRS releases updated procedures for changes in accounting methods
TAX ALERT |
On Jan. 16, 2015, the IRS issued two revenue procedures (Rev. Proc. 2015-13 and Rev. Proc. 2015-14), providing updated and modified procedural guidance under section 446 for taxpayers requesting IRS consent to change one or more methods of accounting. Rev. Proc. 2015-13 modifies and supersedes Rev. Procs. 2011-14 and Rev. Proc. 97-27 by providing combined procedures for taxpayers requesting automatic and advance consent (non-automatic) accounting method changes. Rev. Proc. 2015-14 provides a list of automatic method changes to which the automatic procedures in Rev. Proc. 2015-13 apply. Rev. Proc. 2015-14 modifies and supersedes the appendix of Rev. Proc. 2011-14.
Rev. Proc. 2015-13 provides significant clarifications and modifications to the general procedures and scope limitations applicable to taxpayers filing one or more Forms 3115. For instance, Rev. Proc. 2015-13 (this is not an all-inclusive list):
- Clarifies that a technical termination under section 708(b)(1)(B) constitutes a cessation of a partnership's trade or business for purposes of the revenue procedure, resulting in the acceleration of any positive (unfavorable) section 481(a) adjustment.
- Replaces the 90-day window period with a three-month window period that begins on the fifteenth day of the seventh month into an eligible taxpayer's year and ends on the fifteenth day of the tenth month into such year, to correspond to the extended due date of a taxpayer's return.
- Modifies the rules regarding when a taxpayer under exam may file a Form 3115. Specifically, broad eligibility rules have replaced the director consent requirement.
- Allows taxpayers to now elect a one-year section 481(a) adjustment period for all positive (unfavorable) section 481(a) adjustments for the year of change if an eligible acquisition transaction occurs during the year of change or in the subsequent taxable year on or before the due date (including any extension) for filing the taxpayer's federal income tax return for the year of change.
- Decreases the spread period for positive (unfavorable) section 481(a) adjustments to two taxable years for taxpayers under examination unless an exception applies.
- Increases the de minimis section 481(a) adjustment amount from $25,000 to $50,000, allowing taxpayers to elect to recognize any positive (unfavorable) section 481(a) adjustment of less than $50,000 in full in the year of change.
- Modifies the rules regarding when a taxpayer under examination may obtain audit protection for the filing of a Form 3115.
- Specifies that all requests under the automatic consent procedures should now be filed with the IRS's Ogden, Utah address.
- Clarifies that the IRS will generally not grant consent for a change in accounting method in the taxpayer's final year of its trade or business.
Rev. Proc. 2015-13 is effective for Forms 3115 filed on or after Jan. 16, 2015, for a year of change ending on or after May 31, 2014. However, Rev. Proc. 2015-13 provides transition rules for taxpayers that currently have one or more Forms 3115 pending with the IRS National Office (or Ogden, Utah) under the automatic procedures of Rev. Proc. 2011-14 or the advance consent procedures of Rev. Proc. 97-27. In this case, a taxpayer can convert the Form 3115 into a request filed under Rev. Proc. 2015-13 by following certain procedures.
This alert provides only a high-level overview of the new procedural rules in Rev. Proc. 2015-13. In the coming weeks, RSM will release a more detailed article that discusses specific modifications and updates, including changes to the list of automatic method changes under Rev. Proc. 2015-14. Because the new procedures apply to Forms 3115 filed on or after Jan. 16, 2015, taxpayers that still need to file one or more Forms 3115 to comply with the final tangible property regulations should make sure they are following the procedures of Rev. Proc. 2015-13 rather than those in Rev. Proc. 2011-14. Taxpayers should consult with their tax advisors to determine the impact the new procedures will have on future and pending requests for a change in accounting method.