12 July 2024 IRS issues guidance on obtaining automatic consent to change to the allowance charge-off method
In Revenue Procedure 2024-30, the IRS has issued procedures under IRC Section 446 and Treas. Reg. Section 1.446-1(e) for obtaining the Commissioner's automatic consent to change to the allowance charge-off method in the proposed regulations under IRC Section 166 (REG-121010-17), which were published on December 28, 2023. The proposed regulations would establish a method for determining when a debt instrument held by a regulated financial company or a regulated financial group member is presumed worthless for purposes of the IRC Section 166 bad debt rules. The proposed allowance charge-off method would establish that a debt instrument is presumed worthless, in whole or in part, to the extent that any charge-off under Prop. Reg. Section 1.166-2(d)(1)(i) or (ii) is claimed as a deduction under IRC Section 166 on the federal income tax return for the tax year in which the charge-off takes place. Prop. Reg. Section 1.166-2 would apply to charge-offs made by a regulated financial company or a regulated financial group member in tax years ending on or after the date the final regulations are published in the Federal Register. Taxpayers, however, may rely on the proposed regulations for charge-offs that are made on an applicable financial statement and occur in tax years ending on or after December 28, 2023, and before the final regulations are published in the Federal Register. In response to comments to issue guidance on how taxpayers may change to the allowance charge-off method for tax years ending on or after December 28, 2023, the IRS issued Revenue Procedure 2024-30. Revenue Procedure 2024-30 modifies automatic Revenue Procedure 2024-23 to add new Section 4.03, which allows regulated financial companies or regulated financial group members to use the automatic method change procedures in conjunction with Revenue Procedure 2015-13 to change their accounting method to the allowance charge-off method. For charge-offs on or after the beginning of the year of change, a change to the allowance charge-off method is made on a cut-off basis and only applies to charge-offs made by a regulated financial company or a regulated financial group member on its applicable financial statement. Revenue Procedure 2024-30 would not allow an IRC Section 481(a) adjustment. For charge-offs before the year of change, Revenue Procedure 2024-30 requires a taxpayer to account for those charge-offs under its former accounting method. The eligibility rule in Section 5.01(1)(f) of Revenue Procedure 2015-13 (under which the taxpayer may not have made or requested a change for the same item during any of the five tax years ending with the year of change) does not apply to a change under Section 4.03(1)(a) of Revenue Procedure 2024-30 for the taxpayer's first or second tax year ending on or after December 28, 2023. Additionally, Revenue Procedure 2024-30 treats a regulated financial company or regulated financial group member that previously made a conformity election under Treas. Reg. Section 1.166-2(d)(3) as revoking that election when it changes its accounting method. The new procedure does not apply to a bank (as defined in IRC Section 581) that wants to change its method of accounting for bad debts from the IRC Section 585 reserve method to the allowance charge-off method described in Prop. Reg. Section 1.166-2(d)(1). Any change to the allowance charge-off method requested by the bank must be made under the non-automatic change procedures in Revenue Procedure 2015-13. Revenue Procedure 2024-30 is effective for charge-offs that occur in tax years ending on or after December 28, 2023.
Document ID: 2024-1360 | ||||||