Proposed Revenue Procedure Addresses Changes Relating to New FASB Standards

(Parker Tax Publishing April 2017)

The IRS issued proposed guidance on procedures for requesting consent to change an accounting method where the change is made as a result of, or directly related to, the adoption of new financial accounting standards relating to the accounting for revenue from contracts with customers. For many entities, the new standards are effective for annual reporting periods beginning after December 15, 2018; however, for publicly-traded entities, certain not-for-profit entities, and certain employee benefit plans, the standard are effective for annual reporting periods beginning after December 15, 2017. Notice 2017-17.

On May 28, 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB) jointly announced new financial accounting standards for recognizing revenue (new standards), titled "Revenue from Contracts with Customers." The new standards are effective for publicly-traded entities, certain not-for-profit entities, and certain employee benefit plans for annual reporting periods beginning after December 15, 2017. For all other entities, the new standards are effective for annual reporting periods beginning after December 15, 2018. Early adoption is allowed for reporting periods beginning after December 15, 2016.

Since the joint announcement, FASB and IASB have revised the new standards and provided guidance on how to implement the new standards in certain situations. In 2015, the IRS issued Notice 2015-40, which requested comments on federal tax accounting issues relating to the adoption of the new standards, including, whether the new standards are permissible methods of accounting for federal income tax purposes, the types of accounting method change requests that might result from adopting the new standards, and whether the current procedures for obtaining IRS consent to change a method of accounting are adequate to accommodate those requests.

According to the IRS, very few comments were received. Some practitioners requested additional time to respond and others reported that, as a result of adopting the new standards, taxpayers might request multiple accounting method changes.

The IRS has now issued Notice 2017-17, which addresses only the procedures for obtaining IRS consent to a qualifying same-year method change. The IRS continues to seek comments on issues of conformity between the new standards and the Code and regulations, and are considering addressing these issues in separate guidance. Qualifying same-year method changes may include automatic changes for which existing guidance, including Rev. Proc. 2015-13 and Rev. Proc. 2016-29, already provides automatic change procedures. Taxpayers requesting consent for automatic changes for which existing guidance already provides automatic change procedures must use the existing automatic change procedures to make a request. For qualifying same-year method changes for which existing guidance does not provide automatic change procedures but which comply with Code Sec. 451 or other guidance regarding the tax year of inclusion of income, the taxpayer must make the change under the proposed revenue procedure described in Notice 2017-17.

The IRS noted that the adoption of the new standards may create or increase differences between financial accounting and tax accounting rules. Practitioners have been concerned about whether the new standards are permissible methods of accounting that may be used for federal income tax purposes. Accordingly, the IRS is continuing to seek comments on the specific issues identified in Notice 2015-40 regarding conformity between the new standards and the Code and the regulations. Notice 2017-17 lists the specific questions to which the IRS is seeking practitioner input.

For a discussion of criteria that must be met to make an accounting method change, see Parker Tax ¶241,590.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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