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IRS to Allow Automatic Accounting Method Changes in Corporate Reorganizations

By Alistair M. Nevius, J.D.

Please note: This item is from our archives and was published in 2012. It is provided for historical reference. The content may be out of date and links may no longer function.

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From the IRS

The IRS on Sept. 5 announced a change in its policy on automatic accounting method changes in corporate reorganizations (Rev. Proc. 2012-39). Taxpayers that engage in a tax-free reorganization or liquidation under Sec. 381(a) after Aug. 31, 2011, will be allowed to make automatic accounting method changes in the tax year they engage in the transaction.

The policy change follows the issuance last year of final regulations that simplified accounting method rules in corporate reorganizations. For prior coverage, see News Notes, “Accounting Rules in Corporate Reorgs. Simplified,” 42 The Tax Adviser 653 (October 2011).

Under previous guidance (Rev. Proc. 2011-14), the IRS would not allow a taxpayer to use the automatic change of accounting method procedures for a tax year in which it engaged in a Sec. 381(a) transaction. (However, such a taxpayer could request permission to change accounting method under Rev. Proc. 97-27.) The IRS has now modified Section 4.02(4) of Rev. Proc. 2011-4 to permit taxpayers to make automatic accounting method changes in the year of the Sec. 381(a) transaction.

Rev. Proc. 2012-39 also modifies Rev. Procs. 2011-14 and 97-27 to waive the scope limitation that precludes taxpayers who are under examination from seeking consent to change to an accounting method other than the principal or carryover method.