New accounting method change procedures give more time to file Form 3115

Taxpayers affected by the tangible property regulations will have more time to file Form 3115, Application for Change in Accounting Method, under Rev. Proc. 2011-14 according to revised procedures issued by the IRS on Monday (Rev. Proc. 2015-33). The new guidance also specifies certain circumstances when the automatic accounting method change procedures do not apply and clarifies the meaning of “three-month window” for taxpayers using 52–53-week tax years.

Monday’s revenue procedure modifies the procedures issued by the IRS in January in Rev. Proc. 2015-13 for obtaining the IRS’s consent to change a method of accounting for federal income tax purposes. Rev. Proc. 2015-13 provided that for tax years ending on or after May 31, 2014, and on or before Jan. 31, 2015, taxpayers had until the due date of their timely filed (including extensions) federal income tax return for the requested year of the change to file a Form 3115 under the procedures of Rev. Proc. 2011-14. The revised procedures allow a taxpayer to request an automatic change under Rev. Proc. 2011-14 for tax years ending on or after May 31, 2014, and beginning on or before Jan. 1, 2015. Thus, the new revenue procedure extends this transition procedure to all taxpayers in the first tax to which the tangible property (or “repair”) regulations apply.

Rev. Proc. 2015-13 also limited the use of the automatic consent procedures when a taxpayer engaged in a liquidation or reorganization under Sec. 381 during the year of the change. This rule was broader than the IRS intended, and in Rev. Proc. 2015-33 it amends the rule to exclude only changes under Regs. Secs. 1.381(c)(4)-1(d)(1) or 1.381(c)(5)-1(d)(1) (which apply to changes made for a trade or business that is not operated as a separate or distinct trade or business).

Finally, Rev. Proc. 2015-13 gives audit protection to taxpayers who make an accounting method change request during a “three-month window” if the taxpayer has been under examination for at least 12 consecutive months as of the first day of the three-month window and the accounting method for the same item the taxpayer is requesting the change for is not an issue under consideration. Rev. Proc. 2015-13 defines “three-month window” to mean the period beginning with the 15th day of the seventh month of the taxpayer’s tax year and ending with the 15th day of the 10th month of the taxpayer’s tax year. However, it was unclear how this was to be interpreted by taxpayers using a 52–53-week year. The new revenue procedure specifies that for those taxpayers, when determining the “three-month window,” the tax year is considered to begin on the first day of the calendar month nearest to the first day of the 52–53-week tax year.

—Alistair M. Nevius (anevius@aicpa.org ) is the JofA’s editor-in-chief, tax.