IRS updates its automatic accounting method change procedures

On Nov. 8, the IRS updated the list of changes in accounting method to which the automatic change procedures in Rev. Proc. 2015-13, as clarified and modified, apply (Rev. Proc. 2019-43).

Any method of accounting a taxpayer adopts must clearly reflect income. Under Sec. 446(e) and Regs. Sec. 1.446-1(e)(2)(i), unless otherwise provided, a taxpayer must secure the IRS’s consent before changing its accounting method. To obtain the IRS’s consent, taxpayers file Form 3115, Application for Change in Accounting Method. Even when the IRS’s consent is not required, taxpayers must file Form 3115.

Rev. Proc. 2019-43 amplifies, modifies, and mostly supersedes last year’s list of automatic accounting method changes found in Rev. Proc. 2018-31.

Rev. Proc. 2019-43 is effective for a Form 3115 filed on or after Nov. 8, 2019, for a year of change ending on or after March 31, 2019, that is filed under the automatic change procedures of Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as modified by Rev. Proc. 2017-59, and by Section 17.02 of Rev. Proc. 2016-1. Transition rules allow taxpayers that had a nonautomatic change in accounting method pending on Nov. 8, 2019, to notify the IRS that they want to have the automatic change procedures apply to their request, if they are eligible to under Rev. Procs. 2019-43 and 2015-13.

The rules cover a diverse array of method changes, including advances made by a lawyer on behalf of a client, repair and maintenance costs, tenant construction allowances, and computer software expenditures.

The rules also cover changes from incorrect to correct depreciation methods, startup expenditures and organizational fees, capital expenditures, and a number of method changes under the uniform capitalization rules. (This list is not comprehensive and is meant only to illustrate the breadth of the many automatic changes included.)