AICPA makes recommendations to IRS about automatic consent for accounting method changes
May 30, 2019
The American Institute of CPAs (AICPA) has submitted recommendations to the Internal Revenue Service (IRS) regarding Rev. Proc. 2018-31, which provides a list of accounting method changes for which automatic consent is granted.
The AICPA wrote it was commenting “on some key issues with respect to automatic accounting method changes that we believe may require clarification or modifications.” The AICPA stated that its proposed changes and modifications would “assist the IRS and Treasury in achieving their goals of encouraging prompt voluntary compliance with proper tax accounting method principles and promoting the public interest.”
The AICPA explained that a taxpayer who changes its method of accounting for the basis on which it regularly computes income to keep its books must secure the consent of the IRS Commissioner before computing taxable income under the new method. Generally, a taxpayer secures approval by filing Form 3115, Application for Change in Accounting Method. A taxpayer is considered to have obtained the consent of the IRS Commissioner for certain automatic accounting method changes prescribed in Rev. Proc. 2018-31 if it has complied with all the applicable provisions of Rev. Proc. 2015-13 and Rev. Proc. 2018-31.
The AICPA’s recommendations include, but are not limited to, the following issues:
- Provide audit protection for taxpayers under exam when new guidance is issued;
- Include audit protection for any method change afforded automatic consent;
- Add commissions to the type of compensation eligible for the automatic consent procedures for deferred compensation, including adding automatic consent for a fiscal year taxpayer changing its method to comply with Treas. Reg. § 1.83-6;
- Provide cash method taxpayers with automatic consent to change from impermissible income or expense recognition methods to permissible methods;
- Provide automatic consent for method changes to comply with section 451(c);
- Provide automatic consent for an accrual method taxpayer to change from impermissible to permissible methods of applying the all-events test and economic performance for liabilities;
- Include automatic consent for a change to properly apply the recurring item exception for eligible liabilities; and
- Permit taxpayers to change from an impermissible to permissible method of accounting for recognizing income from tenant improvement allowances.
The AICPA commented in November 2016 to the IRS and the U.S. Department of the Treasury on the accounting method change procedures under Rev. Proc. 2015-13.