The IRS provided an automatic consent procedure for taxpayers changing to a new accounting method under standards issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). Recently, the FASB and IASB issued new standards for recognizing revenue from customer contracts.
Revenue Recognition Accounting Method Change
On May 28, 2014, FASB and the IASB announced new financial accounting standards for revenue recognition (Revenue from Contracts with Customers (Topic 606)). Generally, a taxpayer recognizes revenue for financial accounting purposes when the taxpayer satisfies a performance obligation by transferring a promised good or service to a customer.
Publicly-traded entities, certain not-for-profit entities, and certain employee benefit plans must adopt the new standards for annual reporting periods beginning after December 15, 2017. Moreover, all other entities must adopt the new standards for annual reporting periods beginning after December 15, 2018.
Changing Accounting Method
This procedure applies to a taxpayer that wants to change the way it recognizes income for federal income tax purposes to a new method under the FASB/IASB standards for:
- identifying performance obligations;
- allocating transaction price to performance obligations; and
- considering performance obligations satisfied.
Further, a taxpayer may use the automatic change method only if its new accounting method is permissible for federal income tax purposes.
- the change must be made for the tax year in which the taxpayer adopts the new standards for financial accounting purposes, and
- a taxpayer may automatically make the change only in the taxpayer’s first, second, or third tax year ending on or after May 10, 2018.
The taxpayer may make the change on a cut-off basis or with a Code Sec. 481(a) adjustment.
Refiling Pending Method Change Requests
Further, a taxpayer that filed a regular accounting method change request before May 10, 2018:
- may refile using the automatic change procedure if the application is still pending on May 10, 2018.
- must notify the national office it intends to refile under the automatic change procedures before June 11, 2018, or the issuance of a change determination letter.
The IRS provides additional details in the guidance.
Finally, the IRS requests comments on
- future guidance that may be necessary as taxpayers begin to comply with the new standards
- the automatic change procedures and
- future guidance that may be necessary to help taxpayers comply with Code Sec. 451, as amended by the Tax Cuts and Jobs Act (P.L. 115-97).
Rev. Proc. 2018-29