The IRS or the taxpayer can initiate a change in accounting method
. Taxpayers that file a request for change before being contacted for an IRS examination generally receive more favorable terms and conditions (e.g., a later year of change and a longer Sec.
However, regulations section 1.446-1(e)(2)(ii)(b) says an adjustment in the useful life of a depreciable asset is not a change in accounting method
* Filing Form 3115, Application for Change in Accounting Method
, with the next succeeding year's return.
97-27, TEI objected to the IRS's use of a revenue procedure to assert that a change in character of an item may be a change in accounting method
. We explained that, by systematically citing Rev.
Also, a change in accounting method
does not include an adjustment of any item of income or deduction that does not involve the proper timing for the inclusion of income or the, taking of the deduction.
However, to the extent that the taxpayer maintains separate books and records for the plumbing repair activity, that activity is eligible for a change in accounting method
Moreover, the new procedure adopts a novel and, to our mind's eye, unwarranted expansion of the definition of what constitutes a change in accounting method
If the taxpayer voluntarily makes this change by filing Form 3115, Application for Change in Accounting Method
, the change generally would qualify as an automatic change under Section 10.01 of the Appendix to Rev.
If a taxpayer wants to use another method, such as the cash method, it must demonstrate that (1) the cash method would produce substantially the same results as the accrual method and (2) the IRS's determination that a change in accounting method
is required is an abuse of discretion.
The new procedure is generally effective for Forms 3115, Application for Change in Accounting Method
, filed on or after May 15, 1997.(2) Transition rules are provided, however, that enable taxpayers to affirmatively choose to use most aspects of the terms and conditions of either Rev.
31, 2003, by filing Form 3115, Application for Change in Accounting Method
, by the due date (including extensions) of its 2003 return.
Hence, taxpayers complying with the procedure are generally accorded "back-year" protection against involuntary changes by the IRS in addition to prospective effect for the change in accounting method
. Where a taxpayer's requested change is not granted by the National Office, however, the automatic back year protection is forfeited.