On June 15, the IRS released Revenue Procedure 2023-24, which provides the annual update to the list of accounting method changes for which the automatic consent procedures apply. Revenue Procedure 2023-24 generally applies for any Form 3115, “Application for Change in Accounting Method,” filed on or after June 15, 2023, for a year of change ending on or after Oct. 31, 2022. While the updates are largely administrative in nature, aggregating previous guidance and removing obsolete language, there are helpful changes related to the Tax Cuts and Jobs Act of 2017 (TCJA) amendments to Section 174 and Section 451.
Nonautomatic (advance consent) method changes must be filed before the last day of the tax year, require IRS review and approval, and have a user fee for filing. However, automatic method changes generally can be filed by the due date of the income tax return of the year of change (including extensions) and are filed without a user fee, and, therefore, are less burdensome for taxpayers and the IRS.
The revenue procedure makes the following notable changes that provide welcome guidance for taxpayers related to the TCJA:
This favorable clarification provides broader applicability for the automatic change and allows taxpayers to avoid duplicating the capitalization of or the further deferral of Section 174 costs.
This update provides taxpayers that have filed prior method changes related to revenue recognition an additional year to file an automatic method change for the 2022 tax year if they haven’t properly implemented the prior change or need to modify their method of revenue recognition.
Now an advance consent method is required only if the method change impacts the credit computation.
The updates to the annual automatic method change procedure provide opportunities to properly adopt the Section 174 rules implemented under the TCJA and give taxpayers an additional year to perfect changes made under Section 451. Taxpayers should consult their tax adviser to determine if they are affected by the changes within the revenue procedure, particularly if they are considering accounting method changes or have any in process.
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