May 21, 2018
2018-1066 IRS updates list of automatic accounting method changes The IRS has issued a new updated list of automatic method changes. Revenue Procedure 2018-31 modifies and amplifies Revenue Procedure 2017-30 (see Tax Alert 2017-0672) and is now the primary list of automatic accounting method changes for taxpayers, in combination with the general filing procedures in Revenue Procedure 2015-13, as modified by Revenue Procedures 2015-33 and 2016-1 (see Tax Alert 2015-0204). Revenue Procedure 2018-31 removes an obsolete automatic method change and makes numerous other changes to existing automatic change guidance. Obsolete automatic method changes removed Revenue Procedure 2018-31 removes the following section from the list of automatic accounting method changes provided in Revenue Procedure 2017-30: — Section 6.18, revocation of the partial disposition election under the remodel-refresh safe harbor described in Revenue Procedure 2015-56 Significant changes to prior automatic accounting method procedures in Revenue Procedure 2017-30 Revenue Procedure 2018-31 | Summary of changes from prior guidance | Section 12.01 — Certain uniform capitalization methods used by resellers and reseller-producers | Prohibits a small reseller, as defined in Section 12.01(3)(b) of Revenue Procedure 2018-31, from making a change in accounting method described in Section 12.01(1)(a)(i) of Revenue Procedure 2018-31 for any tax year beginning after December 31, 2017. | Section 15.03 — Taxpayers changing to overall cash receipts and disbursements (cash) method | Provides that the section does not apply to any tax years beginning after December 31, 2017. | Section 15.14 — Nonshareholder contributions to capital | Modifies the change in Section 15.14(1)(a)(ii) so that it no longer applies to contributions made after December 22, 2017, the enactment date of the Tax Cuts and Jobs Act. | Section 16.07 — Changes for advance payments | Provides that the eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 does not apply to a taxpayer that changes to an accounting method provided under Section 16.07(1)(a)(i) of Revenue Procedure 2018-31 for the taxpayer's first or second tax year ending on or after May 9, 2018. Prohibits a taxpayer from making an accounting method change described in Section 16.07(1)(a)(ii) of Revenue Procedure 2018-31 for any tax year beginning after December 31, 2017. | Section 21.03 — Small taxpayer exception from requirement to account for inventories under Section 471 | Changes section number to 22.03 from 21.03. Provides that the section does not apply to any tax years beginning after December 31, 2017. | Section 23.01 — Commodities dealers, securities traders and commodities traders electing to use the mark-to-market method of accounting under Section 475(e) or (f) | Changes section number to 24.01 from 23.01 Provides that the eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 does not apply to this change. Note the waiver of the eligibility rule in Section 5.01(1)(d) of Revenue Procedure 2015-13 continues to apply to this change. | Section 23.02 — Taxpayers requesting to change their method of accounting from the mark-to-market method of accounting described in Section 475 to a realization method | Changes section number to 24.02 from 23.02 Provides that the eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 does not apply to this change. Note the waiver of the eligibility rule in Section 5.01(1)(d) of Revenue Procedure 2015-13 continues to apply to this change. |
Removal of certain eligibility rules The following list of automatic changes in Revenue Procedure 2018-31 remove paragraph (2), which temporarily suspended certain eligibility rule(s) in Revenue Procedure 2017-30: — Section 6.11 — Change in the depreciation of leasehold improvements
— Section 11.10 — Change to the remodel-refresh safe harbor described in Revenue Procedure 2015-56
— Section 21.15 (now 22.15 in Revenue Procedure 2018-31) — Sales-based vendor chargebacks Changes to other existing automatic change guidance In addition to amplifying and modifying Revenue Procedure 2017-30, Revenue Procedure 2018-31 also modifies several other automatic method change revenue procedures and rulings (previously issued as stand-alone guidance), including: — Revenue Procedure 2011-46, Nonaccrual-experience method — safe harbor
— Revenue Procedure 2007-48, Inventories — products "sold" to customers — rotable spare parts
— Revenue Ruling 2004-62, Business expenses — post-establishment fertilization of timber stand
— Revenue Ruling 2000-7, Depreciation — capital expenditures — costs incurred in removing retired assets
— Revenue Ruling 2000-4, Business expenses — ISO 9000 certification Implications The changes and additions implemented by Revenue Procedure 2018-31 are consistent with the Service's goal to provide taxpayers with a comprehensive and current list of procedures necessary to change to permissible methods of accounting. Revenue Procedure 2018-31 makes numerous changes to reflect the enactment of the Tax Cuts and Jobs Act, as well as to modify various provisions that otherwise required updating as previously noted. Properly filed automatic method changes provide substantial benefits to taxpayers that include, for example, ensuring maximum benefits from tax favorable method changes for 2017 tax years, mitigation of audit risk from impermissible methods as applicable, and proper computation of earnings and profits for transition tax and other federal tax purposes. ——————————————— Contact Information
For additional information concerning this Alert, please contact:
| National Tax Quantitative Services | | • Scott Mackay | (202) 327-6069 | | • Susan Grais | (202) 327-8782 | | • Kristine Mora | (202) 327-6092 | | • Lee Watkins | (404) 817-5897 | | • Any member of the group, at (202) 327-6000. |
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