This week’s edition of the Internal Revenue Bulletin contains the published, final version of Rev. Proc. 2015-13 that sets forth the procedures that a taxpayer must follow to obtain either the automatic or non-automatic consent of the Commissioner to change an accounting method.
The IRS released the original version of Rev. Proc. 2015-13 on January 16, 2015, and made the new procedures effective immediately, providing limited transition relief for non-automatic accounting method changes only.
In the final version of Rev. Proc. 2015-13—published in IRB 2015-5 [PDF 1.38 MB]—the IRS has revised and expanded the transition rules to provide additional time for a taxpayer to change an accounting method under the terms and conditions of the superseded procedures (Rev. Proc. 2011-14 for automatic accounting method changes and Rev. Proc. 97-27 for non-automatic accounting method changes).
The expanded transition rules permit a taxpayer to file an automatic accounting method change under the superseded procedures in Rev. Proc. 2011-14 for a tax year ended on or after May 31, 2014, and on or before January 31, 2015.
The Form 3115 must be filed by the due date of the taxpayer’s timely filed (including any extension) original federal income tax return for the requested year of change.
For a taxpayer under examination, the taxpayer may also file under the 90-day window period in Rev. Proc. 2011-14—i.e., the taxpayer is in the first 90-days of its tax year, has been under examination for at least 12 consecutive months, and the item for which it wishes to make an accounting method change is not an issue under consideration in the examination—if the taxpayer was under examination and within a 90-day window period on January 16, 2015.
Filing under the old procedures in this situation may be beneficial for a taxpayer that is now in the 90-day window, but that may not qualify for the new three-month window when it files its tax return for 2014 (for example, there may be a break in exam cycles before the new window starts). In such instances, the taxpayer would not qualify for a four-year spread of any positive (taxpayer unfavorable) section 481(a) adjustment and audit protection, unless another exception in Rev. Proc. 2015-13 applies.
A taxpayer may also use the 90-day window period of Rev. Proc. 2011-14 to make changes effective for a tax year ending on or after January 31, 2015, but those changes are subject to the terms and conditions in Rev. Proc. 2015-13.
The ability to file an automatic change under Rev. Proc. 2011-14 may be critical for taxpayers preparing to file a change to comply with the tangible property regulations or the dispositions regulations. Many taxpayers in this situation will want to file these changes for the tax year that starts on or after January 1, 2014, under Rev. Proc. 2011-14 (the last year for which the scope limitations are waived).
For example, a calendar year taxpayer that is under examination will want to file the change using the transition rule for 2014 to obtain a four-year spread of any positive (taxpayer unfavorable) section 481(a) adjustment and audit protection. For any Form 3115 filed after the extended due date of the 2014 return, the taxpayer will have to meet one of the new examination exceptions to obtain those same terms and conditions under Rev. Proc. 2015-13.
For non-automatic changes, the transition rules permit a taxpayer to file a Form 3115 under the procedures of Rev. Proc. 97-27, and subject to those terms and conditions, if the taxpayer files the Form 3115 for its tax year ended on or after November 30, 2014, and on or before January 31, 2015—note that this date has been extended from the original release, which applied to years ended on or before January 16, 2015—by March 2, 2015.
Note also that this extends the ordinary time for filing the Form 3115 under Rev. Proc. 97-27.
As with automatic changes, an additional transition rule is provided for taxpayers that are within the 90-day window of Rev. Proc. 97-27 on January 16, 2015. A taxpayer in this situation is eligible for the terms and conditions of Rev. Proc. 97-27 if it files the Form 3115 by March 2, 2015, and makes the change effective for its tax year ended on or after November 30, 2014, and on or before January 31, 2015.
If the taxpayer uses this transition rule and files the Form 3115 after March 2, it must make the change effective for its tax year ending after January 31, 2015, and the terms and conditions in Rev. Proc. 2015-13 will apply—no audit protection and a two year spread on a positive section 481(a) adjustment, unless an exception in Rev. Proc. 2015-13 applies.
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