Method of accounting changes; revisions to clarify existing procedures

Method of accounting changes

The IRS today released an advance version of Rev. Proc. 2015-33 that modifies the procedures provided previously in Rev. Proc. 2015-13 for obtaining the consent of the IRS Commissioner to change a method of accounting for federal income tax purposes under section 446(e) and Reg. section 1.446-1(e) by:

Related content

Modifying the transition rules under section 15.02(1)(a)(ii) of Rev. Proc. 2015-13 to provide additional time to file Forms 3115 under Rev. Proc. 2011-14 (as clarified and modified by Rev. Proc. 2012-39)

Clarifying when the automatic change procedures do not apply if the taxpayer engages, within the requested year of change, in a transaction to which section 381(a) applies

Clarifying the meaning of "three-month window" under section 8.02(1)(a)(ii) of Rev. Proc. 2015-13 for a taxpayer with a 52-53 week tax yearDiscussing a clarification to the applicable Ogden, Utah, address provided in section 9.05 of Rev. Proc. 2015-1

Read the text of Rev. Proc. 2015-33 [PDF 83 KB]

Background

Rev. Proc. 2015-13 currently provides the general procedures to obtain the consent of the Commissioner (both non-automatic and automatic consent) to change a method of accounting for federal income tax purposes. The automatic consent method changes are listed in Rev. Proc. 2015-14.

Additional time to file Forms 3115 under Rev. Proc. 2011-14

Section 15.02(1)(a)(ii) of Rev. Proc. 2015-13 provides that a taxpayer may file a Form 3115 to request the Commissioner's consent to change a method of accounting for a tax year ending on or after May 31, 2014, and on or before January 31, 2015, until the due date of the taxpayer's timely filed (including any extension) original federal income tax return for the requested year of change for an automatic change under the procedures of Rev. Proc. 2011-14 or Rev. Proc. 2015-13.

Two sets of final regulations (issued in September 2013 and August 2014) referred to as the “final tangible property regulations” generally apply to a taxpayer’s first tax year beginning on or after January 1, 2014.

The current transition procedures do not allow a taxpayer with a tax year ending after January 31, 2015, to request an automatic change under the procedures of Rev. Proc. 2011-14; therefore, a taxpayer with a tax year beginning in March through December 2014 is not able to use the more taxpayer-favorable provisions of Rev. Proc. 2011 -14 to file a method change to comply with the final tangible property regulations.

Generally for a taxpayer under examination, the ability to make the accounting method change to comply with the final tangible property regulations, and more beneficial terms and conditions for making the method change, are available under Rev. Proc. 2011-14. 

Today’s revenue procedure extends the transition procedures of section 15.02(1)(a)(ii) of Rev. Proc. 2015-13 to all taxpayers for their first tax year in which the final tangible property regulations apply. A taxpayer may make changes under Rev. Proc. 2011-14 for tax years ending on or after May 31, 2014, and beginning before January 1, 2015.

KPMG Observation

Although the purpose of the revised transition rule is to provide relief for method changes under the final tangible property regulations, the revised transition relief applies to all types of automatic accounting method changes.

Additionally, the transition relief states that the copy of a Form 3115 filed under Rev. Proc. 2011-14 must be filed with the IRS in Ogden, UT, despite the requirement of Rev. Proc. 2011-14 that certain copies be filed with the IRS national office.

Three-month window

Section 8.02(1)(a)(ii) of Rev. Proc. 2015-13 provides that a “three-month window” is the period beginning on the 15th day of the seventh month of the taxpayer’s tax year and ending on the 15th day of the 10th month of the taxpayer’s tax year.

Because it was unclear how this provision applies to a taxpayer using a 52-53 week tax year (because the rule is not expressed in terms of a tax year beginning, including, or ending with reference to the first or last day of a specified calendar month), today’s revenue procedure modifies section 8.02(1)(a)(ii) of Rev. Proc. 2015-13 to provide that for determining the “three-month window,” the tax year begins on the first day of the calendar month nearest to the first day of the 52-53 week tax year. This will allow for the three-month window period to line up with the extended due date for the taxpayer’s federal income tax return as intended.

Transactions to which section 381(a) applies

Rev. Proc. 2015-33 also modifies sections 5.01(1)(c) and 5.02 of Rev. Proc. 2015-13 to correct an oversight of the earlier guidance that “inadvertently” excluded from the automatic change procedures, certain changes other than a change to a principal method prescribed by Reg. section 1.381(c)(4)-1(d)(1) or Reg. section 1.381(c)(5)-1(d) (1).

The modifications of today’s release make it clear that only changes to a principal method of accounting under the regulations are excluded from the automatic change procedures.

Updated address for Ogden, UT

Finally, several provisions of Rev. Proc. 2015-13 provide that a signed copy of the original Form 3115 must be filed with the IRS in Ogden, UT (Ogden copy), at the applicable address provided in Rev. Proc. 2015-1 (or successor guidance).

Today’s guidance notes that the U.S. Post Office no longer accepts the Ogden, UT, zip code as provided in Rev. Proc. 2015-1 for certified mail.

While mail sent to the Ogden, UT, address provided in Rev. Proc. 2015-1 will be received by the IRS processing facility in Ogden, UT, to send certified mail through the U.S. Post Office to this location, taxpayers are given a new mailing address:

 

Internal Revenue Service1973 Rulon White Blvd.Mail Stop 4917Ogden, UT 84201-1000

 

For more information, contact a tax professional with KPMG’s Washington National Tax:

Karen Messner | +1 (202) 533-3041| kmessner@kpmg.com

Carol Conjura | +1 (202) 533- 3040 | cconjura@kpmg.com

 

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