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IRS Prepares For 'Revenue From Contracts With Customers' Standard

by Mike Godfrey, Tax-News.com, Washington

29 March 2017


The Internal Revenue Service has published a proposed revenue procedure in Notice 2017-17 for taxpayers seeking to change a method of accounting for recognizing income after the adoption of the new financial accounting standards for recognizing revenue (IFRS 15).

On May 28, 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB) jointly announced new financial accounting standards for recognizing revenue, titled "Revenue from Contracts with Customers," set out in FASB Update No. 2014-09.

The new standards are effective for publicly traded entities, certain not-for-profit entities, and certain employee benefit plans for annual reporting periods beginning after December 15, 2017. For all other entities, the new standards are effective for annual reporting periods beginning after December 15, 2018, though early adoption is allowed for reporting periods beginning after December 15, 2016.

On June 15, 2015, the Department of Treasury and the IRS published Notice 2015-40, 2015-24 I.R.B. 1057, which requested comments on federal tax accounting issues related to the adoption of the new standards, including: whether the new standards are permissible methods of accounting for federal income tax purposes; the types of accounting method change requests that might result from adopting the new standards; and whether the current procedures for obtaining IRS consent to change a method of accounting are adequate to accommodate those requests.

Some commenters reported that, as a result of adopting the new standards, taxpayers might request multiple changes in accounting method.

Section 446(e) of the Code and Section 1.446-1(e)(2)(i) of the Regulations provide that, except as otherwise provided, a taxpayer must secure the consent of the Commissioner before changing a method of accounting for any item for federal income tax purposes. The IRS anticipates that many taxpayers will request consent to change a method of accounting for one or more items of income as a result of, or directly related, to the adoption of the new revenue standards for the same taxable year that the new standards are adopted for financial accounting purposes.

The proposed revenue procedure newly released by the IRS addresses only the procedures for obtaining IRS consent to a qualifying same-year method change. It says, for qualifying same-year method changes for which existing guidance does not provide automatic change procedures but which comply with Section 451 of the Code or other guidance regarding the taxable year of inclusion of income, the taxpayer must make the change under the proposed revenue procedure.

TAGS: tax | small business | business | accounting | Internal Revenue Service (IRS) | United States | Financial Accounting Standards Board (FASB) | standards | trade | Tax

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