| Technical Update |
Revenue Procedure 2009-39
IRS Revises Procedures to Obtain Automatic Consent for Changes in Method of Accounting
Overview
The number of taxpayers using Changes in Method of Accounting continues to increase as the IRS makes it easier to obtain automatic consent. Revenue Procedure 2009-39 revises procedures taxpayers must follow to obtain automatic consent for accounting method changes. Additional acceptable changes in method of accounting were added to the list thereby permitting automatic consent. Based on previous revenue procedures, taxpayers that are "under examination" and want to pursue a change in method of accounting must follow additional guidelines. The definition of "under examination" was expanded as part of Rev. Proc. 2009-39.
The recent revenue procedures reinforce the procedures for retroactive cost segregation studies.
Revenue Procedure 2009-39
The IRS previously issued Rev. Proc. 2008-52 in August 2008 which provided detailed procedures taxpayers must follow to obtain automatic consent for accounting method changes, along with more than 100 accounting method changes. Prior to that, there were several revenue procedures throughout the years that have addressed accounting method changes such as Rev. Procs. 2002-9, 2002-19 and 2002-54 and Announcement 2002-17.
This latest revenue procedure provides additional changes in method of accounting for which a taxpayer may obtain automatic consent including:
- Repair and maintenance costs,
- Tenant construction allowances,
- Dispositions of structural components of a building, and
- Dispositions of tangible depreciable assets (other than a building or its structural components).
A taxpayer complying with all the applicable provisions of these revenue procedures obtains the consent of the Commissioner to change its method of accounting under §446(e) of the Internal Revenue Code and the Income Tax Regulations thereunder. In most situations, a completed and filed current Form 3115 will serve as the application for consent to change accounting methods.
Under Examination
Taxpayers that are "under examination" and want to pursue a change in method of accounting must follow additional guidelines as provided in Rev. Proc. 2008-52. The new revenue procedure expands the definition of "under examination" to include the following:
- Foreign corporations that have one of its controlling domestic shareholders under examination,
- Taxpayer participating in the Compliance Assurance Process (CAP), or
- Taxpayer before the Joint Committee on Taxation.
The examination of the taxpayer was also expanded to include the date the taxpayer is contacted in any manner by a representative of the IRS for purpose of scheduling any type of examination of the return.
Effective Dates
This revenue procedure is effective for applications filed under Rev. Proc. 2008-52 on or after August 27, 2009, for a year of change ending on or after December 31, 2008.
How does this affect cost segregation?
The recent revenue procedures reinforce the procedures for retroactive cost segregation studies. The vast majority of retroactive cost segregation studies focus on MACRS property which was previously addressed in Chief Counsel Notice 2004-007. The recent revenue procedures state the IRS will not assert that a change in computing depreciation under §168 (MACRS property) is a change in accounting method under §446(e). This was a result of several taxpayers successfully challenging the IRS's position that an adjustment in the useful life of a depreciable asset does not constitute a change in accounting method.
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