Guidance on accounting method changes for intangibles.

• Author: Borrack, Mathew

Rev. Proc. 2004-23 explains the procedures for obtaining automatic consent to change an accounting method provided in the recently published Sec. 263(a) regulations, relating to the treatment of amounts paid to acquire or create intangible assets.

Background

The IRS and Treasury issued final regulations under Sec. 263(a) (TD 9107) relating to the determination of whether to capitalize expenditures incurred for an acquisition or creation of intangible assets, effective for amounts paid or incurred on or after Dec. 31, 2003. (For a discussion, see Braverman and Geracimos, Tax Clinic, "Final Regs. on Capitalizing Transaction Costs," p. 339, this issue, and Jagdman, Tax Clinic, "Final Regs. on Capitalization of Intangibles," TTA, April 2004, p. 203.)

Accordingly, a taxpayer may change its accounting method automatically to comply with the regulations for its first tax year ending on or after Dec. 31, 2003, by following Rev. Proc. 2002-9's automatic-method-change procedures. The final regulations also waive the Rev. Proc. 2002-9 scope limits. To implement a method change, taxpayers must calculate the Sec. 481(a) adjustment, taking into account only those costs incurred in tax years ending after Jan. 23, 2002.

The preamble notes that the IRS received numerous Forms 3115, Application for Change in Accounting Method, from taxpayers requesting consent to change an accounting method for items addressed in the advance notice of proposed rulemaking issued on Jan. 24, 2002 (REG-125638-01) or the proposed regulations issued on Dec. 19, 2002. The IRS suspended the processing of these requests pending publication of the final regulations. According to the preamble, the IRS now intends to process these requests in a manner consistent with the final regulations, but will return all changes concerning an accounting method that it did not recognize as permissible prior to the regulations' effective date, and will advise the taxpayer to re-submit the change under the automatic consent procedures.

Rev. Proc. 2004-23

Taxpayers may obtain automatic consent for their first tax year ending on or after Dec. 31, 2003, to change to an accounting method provided in Regs. Secs. 1.263(a)-4 and -5 and 1.167(a)-3(b). The IRS intends to issue future guidance for accounting-method changes made for subsequent tax years, including automatic consent procedures for some or all accounting methods provided in the final regulations.

Pending changes: For method changes pending when...