New procedures for obtaining IRS consent for voluntary accounting method changes.

• Author: Conjura, Carol

On Jan. 16, 2015, the IRS released updated and revised guidance for obtaining advance consent for nonautomatic accounting method changes and obtaining automatic consent for specified automatic accounting method changes. The automatic procedures were last updated in 2011 (Rev. Proc. 2011-14), and the nonautomatic procedures had not been completely updated since 1997 (Rev. Proc. 97-27). Both procedures, however, had been modified by subsequent guidance. With the issuance of the new guidance, the procedures for filing a Form 3115, Application for Change in Accounting Method, for both automatic and nonautomatic method changes have been combined into one procedure (Rev. Proc. 2015-13), and the list of automatic method changes has been separated into its own procedure (Rev. Proc. 2015-14) for the first time.

Scope Eligibility

Except for the provisions that now apply when a taxpayer is under examination as discussed below, most of the other eligibility rules are the same as in prior guidance. Like Rev. Proc. 97-27, Rev. Proc. 2015-13 prohibits a change that qualifies for automatic consent from being filed under the nonautomatic change procedures. Additionally, the new procedures memorialize the IRS's previously unwritten policy of generally prohibiting nonautomatic changes in the final year of a taxpayer's trade or business. However, a taxpayer may potentially overcome this restriction and make a nonautomatic method change in the final year of its trade or business if it can demonstrate compelling circumstances or that the change is in the interest of "sound tax administration." A taxpayer may still request a nonautomatic change for the same item within five years of a prior change--whether or not the prior change was implemented--but the taxpayer must explain why another change should be granted and, if applicable, why the prior change was not implemented.

Again, the majority of eligibility rules for automatic method changes have not been changed by the new guidance. As in Rev. Proc. 2011-14, a taxpayer in most cases involving a tax-free liquidation or reorganization transaction to which Sec. 381(a) applies in the year of change may request a voluntary change in method either:

* When no method change is required by the regulations by reason of the combination; or

* When a change is required but the parties want to opt out of the regulatory procedures either to change to a nonprincipal method or to obtain the audit protection provided by the voluntary change procedures.

The requested year of change cannot be the final year of the trade or business, with exceptions; and the taxpayer cannot have made or requested a change in overall method or a change for the same item during any of the five tax years ending with the year of change. As in Rev. Proc. 2011-14, these requirements can be waived under the terms of a specific automatic change.

Terms and Conditions

For a taxpayer under examination, the most significant change in the procedures is the IRS's substitution of the prior eligibility restrictions with modified terms and conditions for situations in which a taxpayer previously would have been ineligible for a voluntary change. Certain terms and conditions for making a method change under Rev. Proc. 2015-13 now vary depending on whether a taxpayer is under...