The American Institute of CPAs has sent a comment letter to the Internal Revenue Service recommending changes to final regulations on methods of accounting to be used by corporations that acquire the assets of other corporations in certain corporate reorganizations.
The final regulations, which were released in 2011, aim to clarify and simplify the rules and eliminate potential controversy between a taxpayer and the IRS. The letter identified two ambiguities, however, in the application of the final regulations under Section 381 of the tax code.
First, the AICPA does not believe the final regulations “provide guidance addressing application of the regulations in cases where the taxpayer’s documentation evidences an intent to integrate trades or businesses of the transferor and transferee, but where such integration either occurs in a year subsequent to the year of the section 381(a) transaction or never occurs,” according to AICPA Tax Executive Committee chair Jeffrey Porter, who wrote the letter Tuesday to IRS associate chief counsel Andrew Keyso Jr.
Second, the Porter wrote, because the IRS did not modify the scope restriction for prior five-year changes, “taxpayers could be unfairly precluded from using the automatic consent procedures to change a method of accounting within five years of making a required change to a principal method under sections 381(c)(4) and 381(c)(5).”
The AICPA believes the “prior five-year change scope restriction is appropriate to limit a taxpayer’s ability to voluntarily change the same method of accounting within a short period of time,” but “does not believe it is appropriate to apply the same standard to a taxpayer that is required to change to a principal method of accounting as a result of a transaction to which section 381(a) applies,” Porter wrote. “Specifically, the relevant policy considerations that support limiting a taxpayer’s ability to voluntarily change a method of accounting within a short period of time do not exist with respect to changing the same method of accounting subsequent to a change to a principal method of accounting as a result of a transaction to which section 381(a) applies.”