New Revenue Procedure Updates List of Automatic Accounting Method Changes

On Thursday, the IRS updated the list of automatic changes in accounting procedure to which the automatic change procedures in Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as modified by Rev. Proc. 2016-1, apply (Rev. Proc. 2016-29).

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. 2016-29 modifies and amplifies Rev. Proc. 2015-14, as modified by Rev. Proc. 2015-20, and supersedes Rev. Proc. 2015-14 in part. It also modifies certain other revenue procedures. The new procedure applies to Forms 3115 filed on or after May 5, 2016, for a year of change ending on or after Sept. 30, 2015, 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. 2016-1.

The rules cover a diverse array of method changes, including upfront payments utilities receive for network upgrades, the cost of accounting for smallwares purchased by a restaurant or tavern, and changes in the method of accounting for bad debts from a reserve or other improper method to a specific charge-off method.

The changes also cover changes from incorrect to correct depreciation methods, startup expenditures, capital expenditures, including changes related to the tangible property regulations, 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.)

—Sally P. Schreiber (sschreiber@aicpa.org) is a Tax Adviser senior editor.