New rules for requesting accounting method changes.

• Author: Granberg, Michael W.

The IRS recently released proposed and temporary regulations extending the deadline far filing applications for accounting method changes. Regs. Secs. 1.446-(e)(3)(1) and 601.204(b) previously required a taxpayer to file Form 3115, Application for Change in Accounting Method, with the Service in the first 180 days of the tax year in which the change was to take effect. The amended regulations provide that a taxpayer is required to file Form 3115 by the last day of the tax year in which the change is to take effect.

The IRS also has released Rev. Proc. 97-27, revising the procedures for requesting permission for accounting method changes; this revenue procedure modifies and supersedes Rev. Proc. 9220. Rev. Proc. 97-27 includes significant changes, including categories of changes, the 90 day window, the 30-day window, the consent requirement for taxpayers before an appeals office and the Sec. 4X1(a) adjustment periods.

Categories of Changes

Rev. Proc. 92-20 described four categories of accounting methods from which a taxpayer might request a change: Category A, Category B, Designated A and Designated B. The category of method from which a taxpayer was changing determined (among other things) the applicable period for taking into account the net Sec. 481 (a) adjustment and the ability to request permission for an accounting method change by a taxpayer already under examination.

Rev. Proc. 97-27 eliminates the classifications of accounting methods provided by Rev. Proc. 92-20. Under Rev. Proc. 97-27, all changes in accounting methods will be treated similarly, regardless of whether the change is from an accepted method of accounting or a prohibited method.

Taxpayers Under Examination

Under Rev. Proc. 92-20, a taxpayer generally could not request a change from an impermissible method of accounting while under examination,if the impermissible method from which the taxpayer wished to change was adopted during a year under examination and the method was impermissible when adopted. However, a taxpayer could request a change while under examination with the consent of the district director. The district director could provide consent if the method of accounting to be changed would not be included as an adjustment item in the years for which the taxpayer was under examination. In all other circumstances, a taxpayer could request a change only during the 30-day, 90-day or 120-day window periods.

The rules for requesting a change of accounting method while under examination under Rev. Proc. 97-27 are similar to the rules provided by Rev. Proc. 92-20, with certain changes. Among the changes are the elimination of the 90-day window and an extension of the 30-day window to 90 days.

Before an Appeals Office

Under Rev. Proc. 92-20, a taxpayer could not request a change in accounting method while any of its returns were under consideration by an appeals office, unless the taxpayer obtained a written agreement from the appeals officer indicating that the appeals office did not object to the change. Under Rev. Proc. 97-27, a taxpayer must merely attach a statement to Form 3115, indicating that the change in accounting method requested is not an issue under consideration by the appeals office; the appeals officer's consent is not required.

Taxpayer Before a Federal Court

If any of a taxpayer's returns were before a Federal court...