Guidance Issued on Accounting Method Changes

| 5/4/2017

On April 19, the IRS released Revenue Procedure 2017-30, which updates the list of automatic consent accounting method changes.

The IRS requires taxpayers to receive consent to make a change in accounting method for federal tax purposes. Although method changes generally require advance consent from the IRS, those listed in Revenue Procedure 2017-30 receive automatic consent.

Revenue Procedure 2017-30 generally will be effective for any Form 3115, “Application for Change in Accounting Method,” filed on or after April 19, 2017, for a tax year ending on or after Aug. 31, 2016. This guidance amplifies, modifies, and supersedes the automatic method change rules previously published under Revenue Procedure 2016-29.

The new guidance:

  • Allows an automatic change to recharacterize an organization expense, to determine the year in which a business begins in relation to that organization expense, or to amortize organization expenses over a period of 180 months. The new method changes apply to organization expenses incurred under Internal Revenue Code (IRC) Sections 248 and 709.
  • Allows an automatic change to amortize IRC Section 195 expenses over 180 months. The prior guidance already provided for an automatic change related to the characterization of startup expense and the determination of the year in which a business begins in relation to that startup expense.
  • Allows an automatic change from currently deducting inventory to a permissible inventory method and clarifies that a change from an impermissible to a permissible method of identifying and valuing inventory does not include a change in allocating specific costs to inventory.  
  • Makes several modifications to the automatic accounting method change requests related to the taxation of inventories, including giving taxpayers the ability to make an automatic change in accounting method for capitalized interest on the production of real estate and other property with a long depreciable life or for tangible personal property with a long production period.

Many of the other revisions to the revenue procedure were minor and were necessitated by the obsolescence of prior guidance.

Taxpayers who are in the process of filing method changes should review the new revenue procedure to determine the impact, if any, on their filings.

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David Strong
David Strong
Partner, Washington National Tax
Joel Ypma