IRS previews proposed automatic method change procedures for revenue

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

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.