Just prior to the deluge of accounting method change requests triggered by the capitalization/repair regulations made final in 2014 the IRS has issued a newly consolidated and revised pair of Revenue Procedures dealing with changes in accounting methods.

The old “default” automatic change Revenue Procedure (Revenue Procedure 2011-14) had the list of automatic changes as an appendix to the procedure and later Revenue Procedures would amend the main procedure.

The IRS has decided this time to separate the general procedures from the list of changes. Revenue Procedure 2015-13 contains the general rules for applying for a method change while Revenue Procedure 2015-14 has the list of automatic changes, their specific procedures and the change number.

Revenue Procedure 2015-13 amplifies, modifies and clarifies Revenue Procedure 2011-14. Revenue Procedure 2011-14 is also mainly superseded, with only the second sentences of Sections 14.01 and 14.02, as well the full text of Sections 14.04, 14.05, 14.06 and 14.07 remaining in effect. Revenue Procedure 97-27 is clarified, modified and superseded.

Revenue Procedure 2011-14 notes the following significant changes that affect both Revenue Procedures 2011-14 and 97-27:

A sale or exchange of 50 percent or more of the total interest in partnership capital and profits under § 708(b)(1)(B) is a transaction that constitutes the cessation of a partnership's trade or business for purposes of this revenue procedure. [Section 3.04(2)(f))]
Clarifies and modifies the rules for when a method of accounting for an item is under consideration to provide that an issue is under consideration as of the date of the operative written notification to the taxpayer. [Section 3.08]
Clarifies that an item ceases to be an issue under consideration after an examination ends unless the examining agent provides the taxpayer with written notification that the item is an issue placed in suspense. [Section 3.08(1)]
Clarifies that a corporation that is or was formerly a member of a consolidated group has an issue under consideration before examination if the same item is an issue under consideration before examination for any member of that consolidated group for the taxable year(s) that the corporation was a member of the consolidated group. [Section 3.08(1)]
Clarifies that an entity (including a limited liability company) treated as a partnership or an s corporation for federal income tax purposes also has an issue under consideration before examination if the same item is an issue under consideration in an examination of a partner, member, or shareholder's federal income tax return. [Section 3.08(1)]
Clarify that, for an entity treated as a partnership or s corporation, a method of accounting is an issue under consideration before an appeals office or a federal court if it is an issue under consideration by an appeals office or a federal court for a partner, member, or shareholder’s federal income tax return. [Sections 3.08(2) and 3.08(3)]
Clarifies that a corporation that is or was formerly a member of a consolidated group is before a federal court during the period of time the consolidated group is before a federal court for the taxable year(s) it was a member of the consolidated group. [Section 3.08(3)]
Clarifies the term “taxpayer” in the context of a member of a consolidated group. In the case of a consolidated group, except as otherwise provided in this revenue procedure, “taxpayer” refers to the individual member of the consolidated group for which the change in method of accounting is requested or the common parent of the group acting on behalf of that member. For example, to determine eligibility for a window period in section 8.02(1)(a) or 8.02(1)(b) the length of time a member of a consolidated group has been under examination is calculated at the member level, which may be different from the length of time, if any, the member’s current common parent has been under examination. [Section 3.17(2)]
Clarifies the rule that a taxpayer continues to be under examination when examination reports the taxable year(s) under examination to the Joint Committee on Taxation. [Section 3.18(5)]
Modifies the rules for when a taxpayer under examination may file a Form 3115 by replacing “issue pending” and “consent of director” in Rev. Proc. 97-27 and Rev. Proc. 2011-14 with broad eligibility rules that allow taxpayers under examination to request changes in method of accounting. However, see sections 7.03(3)(b) and 8.02(1). [Section 5.01]
Clarify the rules for how foreign corporations and foreign partnerships that are not required to file a federal income tax return file a Form 3115 and their controlling domestic shareholders and partners comply with the filing and other requirements regarding Forms 3115 and Consent Agreements. [Sections 6.03(a)(ii), 6.03(1)(a)(iii), 6.03(3)(b), and 6.03(3)(c)]
Modifies the rules for the treatment of a §481(a) adjustment regarding a §381(a) transaction within a consolidated group in which the method of accounting that gave rise to a § 481(a) adjustment is carried over and used by the acquiring corporation. In that case, the portion of the §481(a) adjustment attributable to the short taxable year of the transferor ending on the date of the §381(a) transaction is treated as an intercompany item as defined in §1.1502-13(b)(2) and taken into account under the §1.1502-13 rules. [Section 7.03(2)(c)]
Modifies the §481(a) adjustment period for taxpayers under examination with positive §481(a) adjustments. In that case, the §481(a) adjustment period is two taxable years, unless the Form 3115 is filed in a three-month or 120-day window, the present method is not before the director, or the applicant is a new member of a consolidated group in CAP. [Section 7.03(3)(b)]
Modifies the de minimis election for a one-year adjustment period for a positive §481(a) adjustment to make it available for a positive § 481(a) adjustment that is less than $50,000. [Section 7.03(3)(c)]
Provides an optional election for a one-year adjustment period for a positive §481(a) adjustment for taxpayers with an eligible acquisition transaction. Also, provides that a taxpayer is not eligible to make a late election except in unusual and compelling circumstances. [Sections 7.03(3)(d) and 6.03(4)(b)]
Provides, consistent with existing practice, a term and condition that requires a taxpayer to maintain accounting records for the year of change and subsequent taxable years to support the method of accounting for which consent is granted to the taxpayer. [Section 7.06]
Provide, consistent with existing practice, additional terms and conditions specific to (a) certain foreign corporations, (b) trades or businesses of a domestic corporation, domestic partnership, or other United States person that affect the amount of foreign source taxable income, and (c) foreign partnerships. [Sections 7.07, 7.08 and 7.09]
Modifies the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection by replacing the 90-day window that began on the first day of the taxpayer's taxable year in Rev. Proc. 97-27 and Rev. Proc. 2011-14 with a three-month window that applies to taxpayers that have been under examination for at least 12 consecutive months as of the first day of the three-month window. In general, the three-month window begins on the fifteenth day of the seventh month of the taxable year and ends on the fifteenth day of the tenth month of the taxable year, to correspond to the extended due date of a taxpayer's federal income tax return. In addition, a CFC or 10/50 corporation that has had an issue under consideration within the meaning of Section 3.08(4) for at least 24 consecutive months and all of its controlling domestic shareholders that are under examination have been under examination for at least 24 consecutive months is eligible to change its method of accounting during the three-month window if the method of accounting is not an issue under consideration within the meaning of Section 3.08(1) or an item placed in suspense. [Section 8.02(1)(a)]
Modified to make a CFC or 10/50 corporation ineligible for the 120-day window. [Section 8.02(1)(b)]
Modify the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection outside of a window period. These rules replace the previous requirement that the taxpayer acquire the director’s statement consenting to the filing of the Form 3115 prior to filing the Form 3115. [Sections 8.02(1)(c), 8.02(1)(e), and 8.02(1)(f)]
Modifies the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection by permitting the parent of a consolidated group to request a change in method of accounting on behalf of a consolidated group member that is under examination solely because it joined the consolidated group in a taxable year for which the group is participating in the CAP. However, the member’s method of accounting to be changed must not be an issue under consideration. [Section 8.02(1)(d)]
Provides a limited time frame after the member joins the consolidated group for the parent to file the Form 3115 for a year of change that is the taxable year the corporation became a member of the consolidated group, which in some cases permits the common parent of the consolidated group to file the Form 3115 up to 30 calendar days after the end of the taxable year. [Section 6.03(2)(a)(ii)]
Modifies the rules for audit protection to provide that the IRS may require a CFC or 10/50 corporation to change its method of accounting for a taxable year preceding the requested year of change if any of the controlling domestic shareholders computed an amount of foreign taxes deemed paid with respect to the CFC or 10/50 corporation that exceeds 150 percent of the average amount of foreign taxes deemed paid by the shareholder with respect to the CFC or 10/50 corporation for the three preceding taxable years. [Section 8.02(5)]
Clarifies the rules for a §481(a) adjustment to provide that if the director makes a correction to the amount of the §481(a) adjustment, ordinarily the director will take the entire amount of the correction into account for the earliest taxable year in the §481(a) adjustment period that is under examination, regardless of whether the statute of limitations on the assessment of tax under §6501 has not expired for one or more taxable years in the adjustment period. [Section 12.02(2)]

The following changes in Revenue Procedure 2015-13 impacted only Revenue Procedure 2011-14 (the prior automatic change procedure):

Clarify, consistent with the IRS's longstanding interpretation of Rev. Proc. 2011-14, that waiver of a scope limitation under Rev. Proc. 2011-14 or an eligibility requirement under this revenue procedure does not affect whether the taxpayer receives audit protection for the change in method of accounting. [Sections 5.01 and 8.02(1)]
Clarify that a taxpayer may file a Form 3115 under the automatic change procedures notwithstanding the fact that the taxpayer previously filed a Form 3115 under the non-automatic change procedures for the same change in method of accounting and for the same year of change, in limited specified circumstances. [Sections 5.04(2) and 5.05(2)]
Modifies section 6.02(1) of Rev. Proc. 2011-14 to require taxpayers to file a Form 3115 in all cases when requesting consent under the automatic change procedures. However, when permitted in the applicable section of the List of Automatic Changes, a taxpayer may file a short Form 3115. See Section 3.07(2). [Section 6.01]
Modifies section 6.02(3)(a)(ii) of Rev. Proc. 2011-14 to require taxpayers to file a copy of the Form 3115 with the IRS in Ogden, UT for all changes in method of accounting requested under the automatic change procedures. [Section 6.03(1)(a)(i)(B)]
Clarifies how taxpayers submit additional correspondence regarding a Form 3115 filed under the automatic change procedures to Ogden, UT. [Section 6.03(1)(e)]
Changes that impact only items in Revenue Procedure 97-27 (non-automatic changes) in Revenue Procedure 2015-13 include:
Provide, consistent with the IRS's longstanding practice, that ordinarily the IRS will not consent to a taxpayer changing a method of accounting in the year it ceases to engage in a trade or business to which the change would relate. [Sections 5.03 and 11.02(1)]
Modifies section 8.11 of Rev. Proc. 97-27 to generally invalidate a Consent Agreement if the taxpayer does not implement the change in method of accounting by the later of either the due date of the taxpayer’s federal income tax return for the taxable year succeeding the year of change or one year from the date of issuance of the letter ruling. [Section 11.03(2)(c)]
Modifies the rules for revising the year of change to provide that, if a taxpayer files its Form 3115 on or before the last day of the sixth month of the year of change, it may submit a written request to revise the year of change on or after, but not before, the first day of the taxable year following the original year of change. [Section 13.01(1)(b)]
Modifies the §481(a) acceleration requirement for a revised year of change to generally require that no more than seventy-five percent of a positive §481(a) adjustment be taken into account in the revised year of change. [Section 13.01(3)]

In addition to consolidating the automatic method changes found in Revenue Procedure 2011-14 and various IRS documents issued since that procedure was issued, Revenue Procedure 2015-14 makes the following changes of its own to those methods:

Section 3.01 relating to advances made by a lawyer on behalf of clients, is amplified and modified to include method changes involving cases handled on a non-contingent fee basis;
Section 6.01, relating to impermissible to permissible methods of depreciation or amortization, is clarified to provide that a taxpayer can make a change under this section if the asset is depreciable or amortizable under the taxpayer’s present or proposed method of accounting;
Section 7.01, relating to changes for research and experimental (R&E) expenditures under §174, is amplified and modified. Section 7.01 of this revenue procedure now applies to a method change from treating R&E expenditures under any provision of the Code other than §174 (including § 263A) to treating R&E expenditures under §174. Section 7.01 of this revenue procedure also now applies where a taxpayer already has a valid § 174 election in effect, but fails to treat a portion of its R&E expenditures in accordance with its valid election. Under section 7.01 of this revenue procedure, the taxpayer may change its method regarding that portion of its R&E expenditures to conform to its valid election;
Section 10.11, relating to changes for tangible property, is modified. Sections 10.11(3)(a)(vii), 10.11(3)(b)(vii) and 10.11(8)(a) are modified to remove the term “transaction” in describing costs in addition to commissions that facilitate the sale of property by a dealer in property. This term is removed to eliminate inconsistencies in the terms utilized in section 10.11 and to more accurately reflect the costs described under § 1.263(a)-1(e)(2);
Section 11.01, relating to certain UNICAP methods used by resellers and reseller producers, is clarified to provide that the change does not apply to a reseller or reseller-producer that wants to change its method of accounting for interest capitalization;
Section 11.09, relating to changes to a reasonable allocation method described in § 1.263A-1(f)(4) for self-constructed assets, is modified to provide that a reseller-producer may make this change, and that a producer or reseller-producer not capitalizing a cost subject to § 263A may make a change to capitalizing that cost under a reasonable method within the meaning of section 1.263A-1(f)(4) (other than the methods specifically described in § 1.263A-1(f)(2) or (3)) that the producer or reseller-producer is already using for self-constructed assets;
Section 14.01, relating to overall change from the cash method to an accrual method, is clarified, amplified, and modified to provide that a concurrent change to a special method is permitted to be made, if such change is also an automatic change under this revenue procedure, a section of the Code, or regulations, or in other guidance published in the Internal Revenue Bulletin;
Section 14.09, relating to changes from the cash to an accrual method for specific items, is modified to provide that the change does not apply to a change in method of accounting for interest that is not taken into account under § 1.446-2;
Section 14.15, relating to debt issuance costs, is modified to include a change for capitalized debt issuance costs from one permissible method to another permissible method under the last sentence of § 1.446-5(b)(2) if the total original issue discount determined for purposes of § 1.446-5 is de minimis;
Section 15.07, relating to advance payments, is modified to include a change for advance payments that are defined in § 1.451-5(a)(1);
Section 15.10, relating to retainages, is clarified to provide that the change does not apply to retainages for long-term contracts that must be accounted for under the percentage-of-completion method under § 460, or to long-term-contracts accounted for under exempt percentage of completion method or the completed contract method and is modified to require a new separate designated automatic accounting method change number for retainages received under long-term contracts;
Section 15.11, relating to advance payments – changes in applicable financial statements,(AFS), is modified to provide that a change under this section is made without audit protection under section 8.01 of Rev. Proc. 2015-13;
Section 16.01, relating to Series E, EE, or I U.S. savings bonds, is modified to waive the requirement under section 6.03(1)(a) of Rev. Proc. 2015-13 to file an Ogden copy (formerly the national office copy under Rev. Proc. 2011-14) of the statement required by section 16.01(2)(b) of this revenue procedure;
Section 18.01, relating to changes for long-term contracts, is amplified and modified to include a change made by a taxpayer that is required to change its method of accounting for its long-term contracts as defined in § 460(f) to the percentage of completion method (PCM) described in § 1.460-3(b)(2) if the taxpayer fails to use the PCM in the first taxable year and the succeeding taxable year(s);
Section 19.01(3), relating to changes involving timing of incurring liabilities for vacation pay, is amplified and modified to include method changes involving sick pay, and severance pay. This change was previously limited to vacation pay;
Section 21.16, relating to a change in computing ending inventory under the retail inventory method, is modified to provide that a retail LCM taxpayer may make a change to computing the cost complement to comply with § 1.471-8(b)(3), including a change from an improper method to an alternative method for computing the cost complement and a change from one method described in § 1.471-8(b)(3) to another method described in § 1.471-8(b)(3);
· Section 22.07, relating to changes within the inventory price index computation (IPIC) method, is modified and amplified to include changes from using a representative appropriate month to using an appropriate month, and is modified to provide that the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 is inapplicable in the case of a taxpayer using the 10 percent method described in § 1.472-8(e)(3)(iii)(C)(2) that makes a change under section 22.07(1)(f) of this revenue procedure;
This revenue procedure clarifies that the eligibility rule in section 5.01(1)(c) of Rev. Proc. 2015-13 (relating to § 381(a) transactions) applies to the method changes described in the List of Automatic Changes in a manner consistent with the rules provided in § 1.381(c)(4)-1(a)(4) or (5) or § 1.381(c)(5)-1(a)(4) or (5);
The following sections are added to the List of Automatic Changes in this revenue procedure to provide additional changes in method of accounting to be made under the automatic change procedures:
- Section 4.02, relating to changes for conformity election by bank after previous election automatically revoked;
- Section 5.02, relating to changes to comply with § 163(e)(3);
- Section 10.12, relating to railroad track structure expenditures, is added to the List of Automatic Changes, consistent with Rev. Proc. 2002-65, 2002-2 C.B. 700, and Rev. Proc. 2001-46, 2001-2 C.B. 263. However, the eligibility rules in section 5.01(1) of Rev. Proc. 2015-13 apply to a change under section 10.12 of this revenue procedure;
- Section 11.13, relating to changes to or within the U.S. ratio method;
- Section 11.14, relating to depletion;
- Section 23.02, relating to changes from the mark-to-market method of accounting described in § 475 to a realization method of accounting; and
- Section 25.03, relating to changes in qualification as life/nonlife insurance company under § 816(a).
The following sections are modified to provide that the eligibility rule in section 5.01(1)(d) of Rev. Proc. 2015-13 (final year of trade or business) applies to a taxpayer making a change under the automatic change procedures
- Section 2.01, relating to treating amounts received as loans;
- Section 3.02, relating to ISO 9000 costs;
- Section 3.03, relating to restaurant or tavern smallwares packages;
- Section 3.04, relating to timber grower fertilization costs;
- Section 10.03, relating to removal costs;
- Section 21.02, relating to estimating inventory “shrinkage”;
- Section 21.09, relating to rotable spare parts;
- Section 23.01, relating to commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f);
- Section 31.01, relating to de minimis original issue discount (OID); and
- Section 33.02, relating to stated interest on short-term loans of cash method banks.
The following sections are modified to provide that the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 (5-year item change) applies to a taxpayer making a change under the automatic change procedures:
- Section 3.02, relating to ISO 9000 costs;
- Section 3.03, relating to restaurant or tavern smallwares packages
- Section 3.04, relating to Timber grower fertilization costs; and
- Section 21.02, relating to Estimating inventory “shrinkage”;
The following sections are obsolete and are removed from the revenue procedure in their entirety:
- Section 6.12, relating to depreciation of qualified revitalization building in the expanded area of a renewal community;
- Section 6.13, relating to loss disallowance rule upon a disposition of an insurance contract acquired in an assumption re-insurance transaction;
- Section 6.22, relating to Kansas additional first-year depreciation;
- Section 11.03, relating to changes to no longer capitalize research and experimental expenditures under § 263A, is removed because it is now covered by new section 7.01(2)(a)(iv) of this revenue procedure, and is therefore obsolete; and
- Section 13.01, relating to a change to comply with § 404(a)(11).
Because the following sections can also be made under section 6.01 of this revenue procedure, they are removed from the revenue procedure in their entirety:
- Section 6.04, relating to depreciation of modern golf course greens;
- Section 6.05, relating to depreciation of original and replacement tire costs;
- Section 6.06, relating to depreciation of gas pump canopies;
- Section 6.07, relating to depreciation of utility assets;
- Section 6.18, relating to depreciation of MACRS property acquired in a like-kind exchange or as a result of an involuntary conversion; and
- Section 6.21, relating to a change in treatment of land from depreciable to nondepreciable property.
Certain method changes described in the appendix of Rev. Proc. 2011-14 permitted a taxpayer to file a statement in lieu of a Form 3115. Section 6.01 of Rev. Proc. 2015-13 requires taxpayers to file a Form 3115 when requesting consent under the automatic change procedures. However, the following sections permit a taxpayer to request consent for a change on a short Form 3115: 11.13, 14.10, 17.01, and 19.08. Sections 15.11 and 16.01, and certain changes under section 14.04 of this revenue procedure continue to permit a taxpayer to file a statement in lieu of a Form 3115.
The following sections are modified to include a reduced filing requirement of the Form 3115 by qualified small taxpayers:
- Section 6.01, relating to a change from an impermissible to permissible method of accounting for depreciation;
- Section 6.02, relating to a change from a permissible to permissible method of accounting for depreciation;
- Section 6.08, relating to depreciation of cable TV fiber optics;
- Section 6.09, relating to a change in general asset account treatment due to a change in the use of MACRS property;
- Section 6.10, relating to a change in method of accounting for depreciation due to a change in the use of MACRS property;
- Section 6.11, relating to depreciation of qualified non-personal use vans and light trucks;
- Section 6.17, relating to a change from impermissible to permissible method of accounting for depreciation or amortization for disposed depreciable or amortizable property;
- Section 6.23, relating to tenant construction allowances;
- Section 6.26, relating to safe harbor method of accounting for determining the depreciation of certain tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-22; and
- Section 10.07, relating to repairable and reusable spare parts.

At the end of Revenue Procedure 2015-14 is a contact list of IRS personnel, with phone numbers, for the various automatic changes contained in this ruling.

These procedures are generally effective for changes filed on or after January 16, 2015 for a change of year ending on or after May 31, 2014.