Request for comments on new financial accounting revenue recognition standards

Request for comments on methods of accounting

The IRS today released an advance version of Notice 2015-40 to request comments regarding the effect on taxpayers’ methods of accounting of new financial accounting revenue recognition standards—Revenue from Contracts with Customers—announced by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

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Read text of Notice 2015-40 [PDF 38 KB]

Background

In a May 2014 joint announcement, the FASB and the IASB announced new financial accounting standards for recognizing revenue.

The new standards for the timing of income for financial accounting purposes may affect the timing of income for tax accounting purposes for many taxpayers, such as taxpayers:

  • Currently using the percentage of completion method
  • Deriving income from the provision of services
  • Engaging in bill and hold transactions for the sale of goods
  • Accounting for sales and returns of goods
  • Earning income from warranties

The new standards may affect some industries more than others. For example, it has been noted that the new standards may affect the software, entertainment, manufacturing, and construction industries because the new standards may change the timing of income recognition for financial accounting purposes significantly for these industries.

Issues presented

As the IRS noted, accounting method changes for federal income tax purposes require the permission of the IRS.

Notice 2015-40 states that the new standards raise a number of substantive and procedural issues for the IRS, including whether the new standards are permissible methods of accounting for federal income tax purposes, the types of accounting method change requests that will result from adopting the new standards, and whether the current procedures for obtaining IRS consent to change a method of accounting are adequate to accommodate those requests.

Comments requested

Because adoption of the new standards may create or increase differences between financial accounting and tax accounting rules, the IRS and Treasury Department are considering whether to issue guidance on the new standards and request public comments on the scope, substance, and form of guidance needed.

Specifically, comments are requested on issues of conformity between the new standards and the Code, including the following issues:

  • To what extent do the new standards deviate from the requirements of section 451? How may they affect deferral of income?
  • What industry and/or transaction-specific issues may arise as a result of the new standards that might be addressed in future guidance?
  • What types of changes in methods of accounting do taxpayers anticipate requesting?
  • Do taxpayers anticipate requesting changes in methods of accounting prior to the effective dates of the new standards?
  • Would taxpayers be required to use the automatic consent accounting method change procedures or the advance consent procedures to request permission to change a method of accounting under the new standards, and why?
  • Which accounting method changes under the new standards, if any, would be allowed using a cut-off method instead of a section 481(a) adjustment, and why?
  • Will advance or automatic consent procedures or other procedural guidance (such as Rev. Proc. 2004-34) need to be modified and if so, how?
  • What transition procedures may be helpful?
  • What related accounting method changes do taxpayers anticipate requesting that may appropriately be made on a single Form 3115, Application for Change in Accounting Method?

Comments are due on or before September 16, 2015.

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