IRS updates procedures for ASC 606 revenue recognition for early adopters

Tax Hot Topics newsletterThe IRS issued Rev. Proc. 2018-49 to clarify that automatic procedures for federal income tax method changes related to implementing the new financial accounting standard for revenue recognition, ASC 606, apply to early adopters.

This guidance modifies Rev. Proc. 2018-29, which provided an automatic method change for taxpayers to implement certain changes related to ASC 606 (see Tax Flash 2018-09 for more details). It does not provide guidance for changes that may be required as a result of amendments to Section 451 made by the Tax Cuts and Jobs Act (TCJA).

Rev. Proc. 2018-29 provided a new automatic change in method of accounting to allow certain changes related to a taxpayer’s implementation of ASC 606 if the method change is requested in the same year in which the taxpayer implements the new standard. As modified, the procedure now applies to a taxpayer’s taxable year ending on or before May 10, 2021. Previously, the procedure could only be relied upon for a taxpayer’s first, second or third taxable year ending on or after May 10, 2018, which excluded taxpayers that early adopted ASC 606 in a taxable year ending before that date, e.g., Dec. 31, 2017, from filing under the automatic procedure.

While this guidance accelerates the effective date to include early adopters, the procedures are still restricted to only include changes in method of accounting for certain items related to the adoption of ASC 606. For such items that were carved out and for changes required in 2018 because of the TCJA amendments to Section 451, taxpayers must await further guidance and procedures from the IRS related to such method changes. If no guidance is forthcoming, taxpayers will be required to request method changes under the nonautomatic procedures.

Sharon Kay
Partner, Accounting Methods
Washington National Tax Office
T +1 202 861 4140

Caleb Cordonnier
Washington National Tax Office
T +1 202 521 1555

John Suttora
Managing Director
Washington National Tax Office
T +1 202 521 1523

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