In a Revenue Procedure, IRS has issued an updated list of accounting method changes to which IRS’s automatic change procedures apply.
Background. Under Code Sec. 446(e), taxpayers must obtain IRS’s consent before changing a method of accounting for federal income tax purposes. In most cases, a taxpayer that wishes to change its accounting method must apply and secure the prior consent of IRS. For some accounting method changes, IRS provides an automatic procedure for obtaining its consent to the change. Automatic consent procedures are only available for certain kinds of changes. In general, a taxpayer uses Form 3115 (Application for Change in Accounting Method) for an accounting method change.
In April 2017, IRS updated its list of accounting method changes to which IRS automatic procedures applied (Rev Proc 2017-30, 2017-18 IRB 1131, see “Updated list of automatic accounting changes is issued by IRS” (4/27/2017)).
New list of automatic changes.Rev Proc 2018-31 contains an updated list of accounting method changes to which IRS automatic procedures apply.
Specifically, Rev Proc 2018-31 states that it updates the List of Automatic Changes to which the automatic change procedures in Rev Proc 2015-13, 2015-5 IRB 419, as clarified and modified by Rev Proc 2015-33, 2015-24 IRB 1067, and as modified by Rev Proc 2017-59, 2017-48 IRB 543, and by Rev Proc 2016-1, 2016-1 IRB 1, Section 17.02.
Rev Proc 2018-31 sets out several of the updates that it contains as “significant changes” to the List of Automatic Changes in Rev Proc 2017-30. Many of these changes are modifications to reflect material that has become obsolete. The significant changes include:
…Rev Proc 2017-30, Section 6.11, relating to a change in the depreciation of leasehold improvements, is modified to remove a paragraph relating to the temporary waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(f), because it is obsolete. The waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(d), continues to apply to this change;
…Rev Proc 2017-30, Section 6.18, relating to the revocation of the partial disposition election under the remodel-refresh safe harbor described in Rev Proc 2015-56, is obsolete and is removed in its entirety;
…Rev Proc 2017-30, Section 11.10, relating to a change to the remodel-refresh safe harbor described in Rev Proc 2015-56, is modified to remove a paragraph relating to the temporary waiver of the eligibility rules in Rev Proc 2015-13, Sections 5.01(1)(d) and (f), because they are obsolete;
…Because of the amendments made to Code Sec. 263A, Code Sec. 448, and Code Sec. 471 by §13102 of the Tax Cut and Jobs Act (TCJA, P.L. 115-97, 12/22/2017), IRS expects to issue a revenue procedure providing procedures for making changes implementing §13102 of TCJA. Accordingly, the following sections are modified:
(a) Rev Proc 2017-30, Section 12.01, relating to certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers, is modified to provide that a small reseller, as defined in Rev Proc 2018-31, Section 12.01(3)(b), is not permitted to make a change in method of accounting described in Rev Proc 2018-31, Section 12.01(1)(a)(i), for any tax year beginning after Dec. 31, 2017; and
(b) Rev Proc 2017-30, Section 15.03, relating to taxpayers changing to overall cash receipts and disbursements (cash) method, and Rev Proc 2017-30, Section 21.03 (now Rev Proc 2018-31, Section 22.03), relating to the small taxpayer exception from requirement to account for inventories under Code Sec. 471, are modified to provide that these changes do not apply for any tax year beginning after Dec. 31, 2017;
…Because of the amendments made to Code Sec. 118 by §13312 of the TCJA, Rev Proc 2017-30, Section 15.14, relating to nonshareholder contributions to capital, is modified to provide that the change described in Section 15.14(1)(a)(ii) does not apply to contributions made after Dec. 22, 2017 (the date of enactment of TCJA);
…Pursuant to Notice 2018-35, 2018-18 IRB 520, Rev Proc 2017-30, Section 16.07, relating to changes for advance payments, is modified to provide that the eligibility rule in Rev Proc 2015-13, 2015-5 IRB 419, Section 5.01(1)(f), does not apply to a taxpayer that changes to an accounting method provided under Rev Proc 2018-31, Section 16.07(1)(a)(i), for the taxpayer’s first or second tax year ending on or after May 9, 2018;
…Because of the amendments made to Code Sec. 451 by §13221 of the TCJA, Rev Proc 2017-30, Section 16.07 is also modified to provide that a taxpayer is not permitted to make a change in an accounting method described in Rev Proc 2018-31, Section 16.07(1)(a)(ii), for any tax year beginning after Dec. 31, 2017;
…Rev Proc 2017-30, Section 21.15 (now Rev Proc 2018-31, Section 22.15), relating to sales-based vendor chargebacks, is modified to remove a paragraph relating to the temporary waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(f), because it is obsolete;
…Rev Proc 2017-30, Section 23.01 (now Rev Proc 2018-31, Section 24.01), relating to certain taxpayers that have elected the mark-to-market accounting method under Code Sec. 475(e) or Code Sec. 475(f), is modified to provide that the waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(f), no longer applies to this change. The waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(d), continues to apply to this change; and
…Rev Proc 2017-30, Section 23.02 (now Rev Proc 2018-31, Section 24.02), relating to a taxpayer changing its accounting method for securities or commodities from the mark-to-market method of accounting described in Code Sec. 475 to a realization method of accounting, is modified to provide that the waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(f), no longer applies to this change. The waiver of the eligibility rule in Rev Proc 2015-13, Section 5.01(1)(d), continues to apply to this change.
References: For accounting method changes, see FTC 2d/FIN ¶G-2100 et seq.; United States Tax Reporter ¶4464.21.
