The Internal Revenue Service has issued new rules for obtaining its consent for a change in the method of accounting.
Revenue Procedure 2011-14 provides the current procedures for obtaining automatic consent for a change in method of accounting and modifies the procedures in Rev. Proc. 97-27 for requesting and obtaining non-automatic advance consent for a change in method of accounting.
A taxpayer needs to obtain the consent of the Internal Revenue Commissioner to change its method of accounting under Section 446(e) of the Tax Code. Unless specifically authorized by the Commissioner, a taxpayer may not request, or otherwise make, a retroactive change in method of accounting, regardless of whether the change is from a permissible or an impermissible method.
Section 1.446-1(e)(2)(ii)(a) of the Tax Code provides that a change in the method of accounting includes a change in the overall plan of accounting for gross income or deductions, or a change in the treatment of any material item. A change in the method of accounting does not include a correction of mathematical or posting errors, or errors in the computation of tax liability (such as errors in computation of the foreign tax credit, net operating loss, percentage depletion, or investment credit).
When a change in the method of accounting is made on a cut-off basis, in general, only the items arising on or after the beginning of the year of change (or other operative date) are accounted for under the new method of accounting. Any items arising before the year of change (or other operative date) continue to be (accounted for under the taxpayer’s former method of accounting.
Sections 1.446-1(d)(1) and (2) provide that when a taxpayer has two or more separate and distinct trades or businesses, the taxpayer may use a different method of accounting for each trade or business, provided the method of accounting used for each trade or business clearly reflects the overall income of the taxpayer as well as that of each particular trade or business. No trade or business is separate and accounted for under the taxpayer’s former method of accounting distinct unless the taxpayer keeps a complete and separable set of books and records for that trade or business.
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