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Washington Tax Alert May 15, 2009 - Accounting Method Change

Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com

May 15, 2009

The tax accounting committee of the American Bar Association Tax Section had a panel discussion last Friday, at the annual Spring meeting in Washington, on the increasing scrutiny that examining agents are giving to accounting method changes. Senior personnel from the IRS and Appeals participated in the panel discussion.

The Service has expanded the number of accounting method changes that can be made automatically. See Rev. Proc. 2008-52. However, some taxpayers are making accounting method changes automatically that do not qualify for automatic consent, and other taxpayers are filing Forms 3115 automatically that are vague or not drafted well.

By expanding eligibility for automatic accounting method changes, the IRS has shifted responsibility for reviewing the Forms 3115 from the National Office to Examination. Consequently, Forms 3115 filed automatically can be challenged on examination if the accounting method change is not in compliance with the revenue procedure, the change is inadequately described on the Form 3115, or the change is not implemented by the taxpayer as described.