In Revenue Procedure 2025-08, the IRS has amended Section 7 of Revenue Procedure 2024-23 to modify the procedures under IRC Section 446 for obtaining the Commissioner's automatic consent to change to an accounting method for IRC Section 174 expenditures paid or incurred in tax years beginning after December 31, 2021.

Specifically, Revenue Procedure 2025-08 modifies the eligibility rules in Section 7.01(5)(a) of Revenue Procedure 2024-23, so that the restrictions on automatic change eligibility in Section 5.01(1)(d) and (f) of Revenue Procedure 2015-13 do not apply to a change that is made under Section 7.01(1)(a) of Revenue Procedure 2024-23 for a tax year beginning in 2022, 2023 or 2024. The restrictions on automatic change eligibility in Section 5.01(1)(f) of Revenue Procedure 2015-13 generally prevent a taxpayer from making a change for the same item during the five tax years ending with the year of change. The restrictions on automatic change eligibility in Section 5.01(1)(d) generally prevent a taxpayer from making a change if the requested year of change is the final year of the taxpayer's trade or business.

Previously, Revenue Procedure 2024-34 waived the same eligibility restrictions for tax years beginning in 2022 or 2023. See Tax Alert 2024-1643.

The availability of automatic consent to change an accounting method for IRC Section 174 expenditures for a tax year beginning in 2024 allows taxpayers contemplating a change to wait to file a Form 3115 until the due date (with extensions) of the tax return for a tax year beginning in 2024. Additionally, there is no filing fee for changes made under the automatic change procedures.

Revenue Procedure 2025-08 also modifies the rules in Section 7.01(5)(b) of Revenue Procedure 2024-23, which allow taxpayers to make successive tax year changes. A taxpayer may now make a change under Section 7.01(1)(a) of Revenue Procedure 2024-23 for a tax year beginning in 2022, 2023 or 2024, regardless of whether the taxpayer made a change for the same item in a previous tax year beginning in 2022, 2023 or 2024.

Revenue Procedure 2025-08 provides transition guidance for taxpayers for which approval of an IRC Section 174 method change filed before December 17, 2024, under the non-automatic change procedures is pending for a tax year beginning in 2024, and for which the automatic change procedure is now available. The transition guidance enables a taxpayer to notify the IRS of the taxpayer's intent to make the method change under the automatic change procedures. The request must be made before the later of January 17, 2025, or the issuance of a letter ruling granting consent to the non-automatic change. The taxpayer's user fee for the original filing under the non-automatic change procedures will be refunded, and the IRS will send an acknowledgement of the taxpayer's request. Taxpayers must re-file the Form 3115 under the automatic change procedures, with a copy of the IRS's acknowledgment, by the earlier of the 30th calendar day after the IRS's acknowledgement letter or the date the taxpayer must file the duplicate copy of the Form 3115 under Section 6.03(1)(a)(i)(B) of Revenue Procedure 2015-13.

Implications

The modification to Section 7.01(5)(a) of Revenue Procedure 2024-23 provides widespread relief to taxpayers that made a change to their treatment of specified research or experimental expenditures in a previous tax year and want to make a change to refine their method in a tax year beginning in 2024. Without the modification, those taxpayers would have to file a method change under the non-automatic change procedures for tax years beginning in 2024, as the waiver of the prior five-year item eligibility rule for using the automatic change procedure would not have applied. The modification to Section 7.01(5)(a) of Revenue Procedure 2024-23 also makes it possible for corporate taxpayers in their final year of trade or business in 2024 to make a change to apply the rules in Section 7 of Notice 2023-63, which addresses the treatment of unamortized IRC Section 174 expenses in a corporate termination, to the year in which the corporate termination occurs. Without this modification, taxpayers may not have been eligible to make a change to apply the rules of Section 7 of Notice 2023-63 to the termination year without requests for relief from both the filing deadline for non-automatic method changes and the restriction on requesting the year of change to be the final year of the trade or business under Section 5.01(2)(b) of Revenue Procedure 2015-13.

Revenue Procedure 2025-08 does not modify the audit protection provisions in Section 7.01(6) of Revenue Procedure 2024-23, as modified by Section 3.01 of Revenue Procedure 2024-34. Therefore, taxpayers that are now eligible to change their treatment of specified research or experimental expenditures under Section 7.01(1)(a) of Revenue Procedure 2024-23 for a tax year beginning in 2024 will receive audit protection for their treatment of the same item in tax years beginning after December 31, 2021, regardless of whether the taxpayer previously changed its method in an effort to comply with IRC Section 174 in a tax year beginning after December 31, 2021.