Automatic accounting method change procedures updated

Editor: Paul Bonner

The IRS updated the list of accounting method changes to which automatic change procedures apply (Rev. Proc. 2021-34).

Generally, 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.

In Rev. Proc. 2021-34, the IRS modifies Rev. Proc. 2019-43 to provide procedures under Sec. 446 and Regs. Sec. 1.446-1(e) to obtain automatic consent from the IRS to change methods of accounting to comply with final regulations under recently issued Regs. Secs. 1.451-3, 1.451-8, and 1.1275-2(l) and to change methods of accounting for certain inventory costs to comply with Secs. 263A, 461, and 471 if such changes are made in connection with a change to comply with Regs. Sec. 1.451-3 and/or Regs. Sec. 1.451-8, as applicable.

These changes cover a variety of matters, including certain uniform capitalization (UNICAP) methods, changes in overall method of accounting from the cash method to an accrual method, the timing of income recognition, and the timing of incurring inventory costs, among many other areas.

The revenue procedure also modifies Rev. Proc. 2015-13 to provide procedures for a taxpayer to obtain consent from the IRS to change its method of accounting to comply with Regs. Sec. 1.451-3 and/or Regs. Sec. 1.451-8, as applicable, by providing rules related to cost offset method changes.

With certain exceptions, the revenue procedure is effective for a Form 3115 filed on or after Aug. 12, 2021.

Accounting treatment of certain credit card fees

Separately, the Service issued a revenue procedure that concerns the accounting treatment of certain credit card fees (Rev. Proc. 2021-35). An earlier revenue procedure, Rev. Proc. 2013-26, allows a taxpayer to use a safe-harbor method of accounting for original-issue discount on a pool of credit card receivables for purposes of Sec. 1272(a)(6) — the “proportional method.” Rev. Proc. 2021-35 modifies this earlier revenue procedure to reflect changes made to the treatment of certain credit card fees by Sec. 451(b), as amended by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and recently issued Regs. Secs. 1.451-3 and 1.1275-2(l).