IRS Issues New Guidelines for Accounting Method Changes
In May 2016, the IRS released Rev. Proc. 2016-29, which updates the automatic change procedures for taxpayers wishing to change their method of accounting.
When requesting a change of accounting method, a taxpayer files Form 3115 and indicates the type of change being requested. If the requested change falls under the automatic change guidelines, the IRS automatically grants the change in accounting method, which is permitted unless the taxpayer is subsequently notified that their request is denied. For non-automatic changes, the taxpayer will receive a letter ruling approving or denying their requested change after they file Form 3115.
Rev. Proc. 2016-29 updates the list of accounting method changes that qualify for an automatic change. Some of the significant updates include:
Modification of Existing Automatic Changes
- Automatic changes from impermissible to permissible methods of depreciation or amortization are not permitted for a property on which the taxpayer has claimed a federal income tax credit
- No more automatic changes allowed for changes to percentage-of-completion method for long-term contracts
- Scope is expanded for allowed automatic changes from impermissible methods of inventory accounting
- Automatic changes are not permitted for repair and maintenance costs that the taxpayer is changing from capitalizing to deducting, and for which the taxpayer had claimed a federal tax credit or elected an acceleration of AMT and research credits in lieu of bonus depreciation
Additional Automatic Changes Allowed
- Changes for start-up expenditures
- Changes for interest capitalization
- Certain changes within the retail inventory method
This is just a brief overview of the updates to the automatic change procedures. For more detailed information on the recent changes, or if you have any other questions how this may impact you or your company, reach out to us by clicking here, or call 513-241-8313 to speak with a member of the Barnes Dennig tax team.