Tax accounting: new accounting methods subject to automatic change procedures.

• Author: Benko, Beth

The IRS has issued new guidance on automatic accounting method changes. Rev. Proc. 2009-39 provides certain additions, modifications, and clarifications to Rev. Procs. 2008-52 and 97-27 (as modified, amplified, and clarified by various other revenue procedures). Rev. Proc. 2008-52 provides procedures for taxpayers to obtain automatic consent for certain changes in method of accounting; Rev. Proc. 97-27 provides general procedures for obtaining IRS consent to change a method of accounting.

In large part, Rev. Proc. 2009-39 continues the IRS's trend of expanding the number of accounting method changes that taxpayers may make automatically as long as certain procedures are followed. However, Rev. Proc. 2009-39 also makes modifications to both the automatic and nonautomatic method change procedures by including new definitions and providing amendments and changes to the accounting method changes included in the appendix to Rev. Proc. 2008-52.

Effective Date and Transition Rules

In general, for Forms 3115, Application for Change in Accounting Method, filed under Rev. Proc. 2008-52, Rev. Proc. 2009-39 is effective if the taxpayer files Form 3115 on or after August 27, 2009, for a year of change ending on or after December 31, 2008. For Forms 3115 filed under Rev. Proc. 97-27, Rev. Proc. 2009-39 is effective if the taxpayer files Form 3115 on or after August 27, 2009, for a year of change ending on or after August 27, 2009.

Rev. Proc. 2009-39 provides transition rules related to the general effective date provisions. Specifically, if a taxpayer had not filed Form 3115 by August 27, 2009, for a year of change ending on or after December 31, 2008, and on or before July 31, 2009, the taxpayer may choose not to apply many of the additions and modifications provided by Rev. Proc. 2009-39. Notably, this transition rule does not apply to a taxpayer attempting to use the automatic provisions of Rev. Proc. 2008-52 to change to a method that excludes certain payments from income as nontaxable contributions to capital under Sec. 118 (a), a change identified in the appendix to Rev. Proc. 2008-52.

If before August 27, 2009, a taxpayer timely filed Form 3115 under Rev. Proc. 97-27 for a year of change ending on or after December 31, 2008, requesting consent for a change in method of accounting described in the appendix of Rev. Proc. 2008-52, as revised by Rev. Proc. 2009-39, and the Form 3115 was pending with the National Office on August 27, 2009, the taxpayer may choose to convert the Form 3115 to make the change under Rev. Proc. 2008-52. The taxpayer must notify the IRS National Office of its intent to convert the Form 3115 prior to the later of October 26, 2009, or the issuance of a letter ruling granting or denying consent for the change filed under Rev. Proc. 97-27.

If before August 27, 2009, a taxpayer properly filed Form 3115 under Rev. Proc. 2008-52 for a year of change that is the taxpayer's first tax year ending on or after December 31, 2008, the taxpayer may choose to file an amended application for that year of change under Rev. Proc. 2008-52, as revised by Rev. Proc. 2009-39, if the taxpayer files an original or amended return using the new method of accounting under...