IRS releases new guidance on accounting method changes

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

IRS releases new guidance on accounting method changes

On January 16, the Internal Revenue Service (IRS) released revenue procedures which provide updated guidance for filing for tax accounting method changes.

Revenue Procedure 2015-13 combines the procedural guidance for automatic and advance consent method change requests into one document. Revenue Procedure 2015-14 contains a comprehensive list of method changes for which the IRS will grant consent automatically.

The new guidance generally is effective for Forms 3115, “Application for Change in Accounting Method,” filed on or after January 16 2015, for tax years ending on or after May 31 2014. Form 3115 submissions that follow the advance consent procedures in effect before the release of Revenue Procedure 2015-14 are not required to be updated if they are submitted by March 2 2015.

These are highlights of the most significant changes in the new guidance:

Recognition period for taxable income adjustment 

Taxpayers are required to adjust taxable income to account for the cumulative impact of an accounting method change. If the change in accounting method decreases taxable income, the decrease is taken into account in the year of change. If the change in accounting method increases taxable income, it is taken into account over a four-year period beginning with the year of change. Taxpayers also can elect to recognise the entire amount of the accounting method change in the current year if the amount is less than $50,000.

The new guidance also allows taxpayers to elect to include an increase in income during the year of change if an eligible acquisition occurs. For a controlled foreign corporation or a corporation other than an S corporation, an eligible acquisition generally requires a change in control or the acquisition of the taxpayer’s assets in a tax-free transaction. For partnerships and S corporations, an eligible acquisition occurs when another party acquires an ownership interest that does not cause the taxpayer to cease to exist.  

Eligibility requirements

Under prior guidance, certain taxpayers were not permitted to file an accounting method change. This was a particular concern for taxpayers under IRS examination, who often were required to obtain IRS consent before filing an accounting method change. The new guidance significantly relaxes the eligibility requirements as follows:Taxpayers under IRS examination no longer are required to obtain IRS consent to file Form 3115. Taxpayers under examination must take increases to taxable income over two years instead of the general four-year period. Changes decreasing taxable income are treated identically regardless of whether the taxpayer is under examination. The new guidance significantly relaxes the eligibility requirements as follows:

  • Taxpayers filing an accounting method change while under examination generally will not receive audit protection.

  • Taxpayers under IRS examination for at least 12 months will receive audit protection if they file Form 3115 during the three-month window beginning on the 15th day of the seventh month of their tax year through the 15th day of the 10th month of their tax year. Taxpayers also are granted audit protection for accounting method changes filed within the 120-day window after the end of an IRS examination, regardless of whether a new IRS examination has begun

  • Taxpayers are not permitted to request an accounting method change for any item currently under consideration by the IRS. 

Other changes 

The new guidance makes several other clarifications and changes, including changes to guidance related to foreign taxpayers, controlled foreign corporations and foreign partnerships. The revenue procedure also clarifies that a technical termination of a partnership constitutes a cessation of its trade or business. As a result, the partnership will be required to include any unrecognised income from an accounting method change in the year of the technical termination. The new guidance also requires taxpayers to send a copy of all Forms 3115 to the IRS in Ogden, Utah.

The list of changes for which the IRS grants consent automatically was also updated to include all method changes authorised since the issuance of Revenue Procedure 2011-14. Some previously permitted changes were removed, but they were changed to generally conform to guidance issued after Revenue Procedure 2011-14.

Taxpayers who are in the process of filing method changes, including those filing Form 3115 for the adoption of the tangible property regulations, should review the new revenue procedures to determine the impact, if any, on their filings.

David Strong and AJ Schiavone of Crowe Horwath.

Originally published on January 29 by Crowe Horwath. 


more across site & shared bottom lb ros

More from across our site

AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
A ‘joint understanding’ among G7 countries that ‘defends American interests’ is set to be announced, Scott Bessent claimed
The ‘big four’ firm’s inaugural annual report unveiled a sharp drop in profits for 2024; in other news, Baker McKenzie and Perkins Coie expanded their US tax benches
Representatives from the two countries focused on TP as they met this week to evaluate progress under a previously signed agreement – it is understood
The UK accountancy firm’s transfer pricing lead tells ITR about his expat lifestyle, taking risks, and what makes tax cool
Dolphin Drilling intends to discuss the final liability amount and manner of settlement with HM Revenue and Customs
Gift this article