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IRS previews proposed automatic method change procedures for revenue

RFP
IRS previews proposed automatic method change procedures for revenueThe IRS is requesting comments on a proposed revenue procedure, which, if finalized, would provide automatic consent to certain tax accounting method changes for revenue made as a result of, or directly related to, the adoption of the new financial accounting method standard ASU Topic 606, “Revenue from Contracts with Customers.”

Under the proposed procedures outlined in Notice 2017-17, taxpayers would request method changes in the same year they adopt the new financial accounting standards using the automatic method change procedures (a qualifying same-year method change).

The proposed procedures provide two alternatives: (1) If the method change is already in the list of automatic changes in Rev. Proc. 2016-29 (or its successor) and the taxpayer otherwise meets certain eligibility requirements in Rev. Proc. 2015-13, the taxpayer would use the existing procedures in the list of automatic changes; or (2) if the method change does not meet (1), but does satisfy certain eligibility requirements in Rev. Proc. 2015-13, and the proposed method complies with Section 451 or other guidance, the taxpayer must apply the automatic change procedures in Section 6 of Rev. Proc. 2015-13 (or successor).

The proposed procedure would waive the requirement that the taxpayer could not have changed the same item during the past five taxable years and would allow multiple qualifying changes to be made in one request. However, it does not appear that changes made under (2) would receive audit protection. The proposed revenue procedure also requires small businesses to make the changes on a cut-off basis. Small businesses are defined as each separate and distinct trade or business of the taxpayer having assets or average annual gross receipts below $10 million.

The notice containing the proposed revenue procedure also contains questions for comment concerning both conformity between the new financial accounting standard and U.S. federal income tax as well as numerous questions regarding the method change procedures. Comments are due by July 24, 2017.

Contact
Sharon Kay
Partner, Washington National Tax Office
+1 202 861 4140

Ellen Martin
Partner, Washington National Tax Office
+1 202 521 1558

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