IRS revises procedures for automatic consent to change of accounting method

The IRS has just made it easier to fine tune your tax accounting regime and, with it, has increased the likelihood that you can coax a little more immediate cash flow out of the tax side of your business. The reason: a few weeks ago, the IRS issued significant revisions to its required procedures for taxpayers to obtain automatic IRS consent to a change in accounting method. The new revenue procedure adds to the number of methods for which taxpayers may obtain automatic consent and simplifies the rules that must be followed for obtaining automatic consent to an accounting method change.

Note. Many businesses - across a broad spectrum of industries and sizes - are increasing the number of accounting method changes they have filed, looking at accounting methods as part of their cash tax planning to enhance cash flow. Cash flow improves when tax payments can be deferred. Changing an accounting method used on a particular expense or activity can accelerate a tax benefit or defer a larger portion of taxable income.

Over 140 automatic change opportunities

Taxpayers must obtain IRS consent to change a method of accounting. The IRS has now streamlined this process by permitting businesses to obtain automatic consent for over 140 enumerated changes. For example, this master list now includes automatic consent to:

• Treat the cost of materials and supplies on hand as a deferred expense;
• Deduct specific repair and maintenance costs rather than capitalizing them;
• Dispositions of structural components of a building;
• Dispositions of tangible depreciable assets (with the unit of property caveat);
• Debt issuance costs;
• Accrual of real property taxes; and
• Changing from the LIFO (last-in, first-out) method for goods removed from an inventory pool.

Taxpayers still must submit an application (Form 3115) and follow detailed procedures for obtaining automatic consent. But the bottom line is that automatic consent results in a cost-effective way to make an accounting method switch. The need to change an accounting method on particular items can be the result of changes in your business over the years or changes in the IRS rules as they relate to a particular expense or income item.

Please call this office if your business has been operating for a few years and you would like to explore how an accounting method "tune-up" might benefit your particular cash flow situation.

(Rev. Proc. 2009-39)