IRS releases favorable sec. 263A accounting method change guidance.
Author | Mace, Joyce |
The Sec. 263A final regulations issued in August 1993 withdrew Notice 88-78, which had provided taxpayers with guidance on accounting method changes relating to failure to properly implement Sec. 263A. Substitute guidance was not issued in the regulations; further, the intended effective date for revocation of Notice 88-78 was not made clear. As a result, taxpayers have faced uncertainties as to what terms and conditions would apply with respect to Sec. 263A accounting method change requests either pending at the IRS National office at that time or filed subsequently.
Notice 88-78 had provided in part that a net positive Sec. 481 (a) adjustment resulting from a Sec. 263A method change request must be included in taxable income in the year of change. In addition, the positive adjustment was not permitted to offset net operating loss (NOL) or credit carryovers. Negative adjustments were to be taken into account over a period not exceeding six years.
The terms and conditions of Notice 88-78 were a precursor to the Designated A methods later provided under Rev. Proc. 92-20. In comparison to regular Category A methods, Designated A method change requests are subject to harsher terms and conditions. Once a method has been announced as Designated A, it remains subject to these stricter conditions for a period of six years; in year 7, the Designated A method reverts back to a Category A method.
Recently issued Notice 94-24 revokes the provisions of Notice 88-78 in two separate phases:
* For tax years beginning after Dec. 31, 1992, method change requests filed for failure to properly implement Sec. 263A by taxpayers not under exam are to be treated as Category A method change requests. Retroactive revocation is premised on the expiration of the six-year Designated A period Sec. 263A was enacted as part of the Tax Reform Act of 1986), even though the method was never announced as such.
* Notice 88-78 is revoked in its entirety for tax years beginning after Dec. 31, 1993 for all taxpayers. Therefore, taxpayers under exam will remain subject to the more restrictive terms for tax years...
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