IRS updates the list of automatic method changes

The IRS has issued guidance (Rev. Proc. 2025-23) that updates the list of automatic accounting method changes by modifying, clarifying and eliminating certain changes previously found in Rev. Proc. 2024-23. The new guidance is effective as of June 9, 2025, for taxable years ending on or after Oct. 31, 2024.

Rev. Proc. 2025-23 incorporates updates from procedures released after Rev. Proc. 2024-23, eliminates an obsolete method change, and revises others by adding clarifying language and removing obsolete language. The new procedures list 18 significant changes, including:

• Section 4.03: Change to the allowance charge-off method for bad debts of regulated financial companies. The guidance incorporates the automatic procedures originally provided in Rev. Proc. 2024-30 (see our prior story) for regulated financial companies that want to change to the allowance charge-off method.
• Section 7.01: Change in method of accounting for specified research and experimental (SRE) expenditures. The procedures remove outdated references to the first taxable year beginning after Dec. 31, 2021. Additionally, the guidance incorporates the limited audit protection and taxpayer-favorable temporary eligibility waiver guidance in Rev. Proc. 2025-8 (see our prior story) and Rev. Proc. 2024-34 (see our prior story), allowing certain taxpayers to make a successive change under this section for taxable years beginning in 2022, 2023 or 2024.
• Section 12.14: Interest capitalization under §263A. The guidance clarifies that this section does not include changes involving improvements to associated property under current Treasury Regulation Sections 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) (see our prior story).
• Section 20.07: Rebates and allowances. The procedures clarify that this Section does not include a change to apply the recurring item exception to liabilities arising from reward programs. In addition, Rev. Proc. 2025-23 removes obsolete temporary five-year eligibility waiver provisions that are no longer applicable for timely filed tax returns filed on or after June 9, 2025, and clarifies terms and conditions for various network asset changes and certain depreciation-related changes. The procedures also eliminate certain inapplicability provisions citing obsolete proposed regulations for various inventory-related changes.

Taxpayers that have not yet timely filed a tax return and also have not yet filed a duplicate copy of their method change with the IRS in Ogden, UT (or with the IRS National Office, as appropriate) must follow the new procedures. The new procedures provide transition rules for certain scenarios, including changes that continue to qualify under the automatic procedures, changes that no longer qualify under the automatic procedures, and changes that were previously non-automatic and now qualify under the automatic procedures.

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