On January 16, 2015, the Internal Revenue Service (IRS) issued two new revenue procedures that outline the rules by which taxpayers may obtain non-automatic consent and automatic consent to change certain methods of accounting for federal income tax purposes. Revenue Procedure 2015-13 provides the procedures for non-automatic consent and supersedes Rev. Proc. 97-27. Revenue Procedure 2015-14 provides procedures for an automatic consent to change a method of accounting, listing many automatic changes to which the automatic change procedures in Revenue Procedure 2015-14 will apply.
Under Revenue Procedures 2015-14, taxpayers will be given automatic approval from the IRS to change their method of accounting under Internal Revenue Code Section 446(e) for changes listed in the Revenue Procedure 2015-14. Instead of amending a tax return, the taxpayer simply attaches Form 3115 (Application for Change in Accounting Method) to the timely filed federal tax return for the year in which the change is applicable, as well as a copy with the IRS national office. The cumulative negative effect (taxpayer favorable) of the change in the taxpayer’s method of accounting is reported as a Section 481(a) adjustment, which can be deducted immediately in the taxable year of accounting method change, while a positive adjustment (taxpayer unfavorable) can be amortized over four consecutive years (beginning with the first year in which the change was applicable). Special attention should be paid for the timing to file the Form 3115 for taxpayers under IRS exam. If the method change is not listed in Revenue Procedure 2015-14, the guidance in Revenue Procedure 2015-13 should be followed, which provides procedures to request permission to make a method change.
Included within these automatic method changes in Revenue Procedure 2015-14 is a change from an impermissible method of depreciation under which the taxpayer did not claim the depreciation allowable, to a permissible method of accounting for depreciation under which the taxpayer will claim the depreciation allowable (i.e., the retroactive cost segregation study) and expensing versus capitalization (i.e., repairs study). Accordingly, the modifications to Revenue Procedures 2015-13 and 2015-14 will supersede the Revenue Procedure 2011-14 for the most part, and the new rules apply to Forms 3115 filed on or after January 16, 2015 for a year of change ending on or after May 31, 2014.
TECHNICAL INFORMATION CONTACTS:
John M. Belpedio
Director
Ryan
914.220.4013
john.belpedio@ryan.com
Daniel Hurtado
Director
Ryan
972.934.0022
daniel.hurtado@ryan.com