The IRS has provided an automatic consent procedure for taxpayers to change to an accounting method that uses new standards issued by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) for recognizing revenue from customer contracts.
Revenue Recognition Accounting Method Change
On May 28, 2014, FASB and the IASB jointly announced new financial accounting standards for revenue recognition entitled “Revenue from Contracts with Customers (Topic 606)”. Under these new standards, a taxpayer generally recognizes revenue for financial accounting purposes when the taxpayer satisfies a performance obligation by transferring a promised good or service to a customer.
Publicly-traded entities, certain not-for-profit entities, and certain employee benefit plans are required to adopt the new standards for annual reporting periods beginning after December 15, 2017. All other entities must adopt the new standards for annual reporting periods beginning after December 15, 2018.
Who May Make the Change
This change applies to a taxpayer that wants to change the way it recognizes income for federal income tax purposes to a new method under the FASB, IASB standards for:
- identifying performance obligations;
- allocating transaction price to performance obligations; and
- considering performance obligations satisfied.
A taxpayer may use the automatic change method only if its new method of accounting is otherwise permissible for federal income tax purposes. Also, the change must be made for the tax year in which the taxpayer adopts the new standards for financial accounting purposes.
The taxpayer may make the change on a cut-off basis or with a Code Sec. 481(a) adjustment.
Time for Making Change
A change under the automatic procedure may only be made in the taxpayer’s first, second, or third tax year ending on or after May 10, 2018.
How to Refile Pending Method Change Requests
A taxpayer who filed a nonautomatic accounting method change request before May 10, 2018, may refile using this automatic change procedure if the application is still pending with the National Office on May 10, 2018. The taxpayer must notify the national office of its intent to make the change under the automatic change procedures before the later of June 11, 2018, or the issuance of a change determination letter. Additional details are provided in the IRS guidance.
This IRS requests comments on future guidance that may be necessary as taxpayers begin to comply with the new standards, and comments on the automatic change procedures provided in its guidance. In addition, comments are requested on future guidance that may be necessary to help taxpayers comply with Code Sec. 451, as amended by the Tax Cuts and Jobs Act (P.L. 115-97).