IRS Seeks Comments About Impact Of Revenue Standards on Tax Accounting

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By Laura Davison

May 29 — The IRS is asking for comments on new financial accounting revenue recognition standards on taxpayers' methods of accounting, signaling it could consider issuing guidance about how to address book-tax differences when the new rules take effect.

The new standards, Revenue from Contracts with Customers, have been set by the Financial Accounting Standards Board and the International Accounting Standards Board in an attempt to provide a globally converged path to recognizing revenue.

Notice 2015-40, released May 29 by the Internal Revenue Service, said the standards raise several “substantive and procedural” issues, such as whether they can be used for federal income tax purposes, the types of accounting methods changes that will stem from them, and whether the current procedures to gain consent to change method of accounting are adequate.

How Many Method Changes?

“The government is getting a feel for how big this is going to be,” Sharon Kay, a partner in Grant Thornton LLP's Washington National Tax Office, told Bloomberg BNA May 29. “They want to know about how many method change requests they will receive. They have no idea.”

As the Treasury Department and the IRS consider whether to issue guidance on the standards, they are also asking for comments about what kind of tax accounting method changes taxpayers expect to request of the IRS and how the new standards may affect deferral of income.

The comments will likely focus on requests for automatic method change consent and taxpayers seeking an option between a tax code Section 481(a) adjustment and the cut-off method, Kay said. Specific groups will also write in to voice industry-specific concerns, she said.

The changes in financial accounting revenue recognition give businesses the opportunity to review what accounting methods make the most sense from the tax perspective, Kay said.

“A tax department may be assuming that the book method is a good method for tax, but they haven't looked at it lately,” Kay said.

Vote on Effective Date

The new revenue recognition standards are scheduled to go into effect for public companies in 2017 and the following year for private companies. In April, FASB proposed to delay the implementation by at least one year. The board is expected to vote on a new effective date this summer.

“The IRS is early on this,” said Scott Humphrey, a director at BKD LLP. If the IRS decides to implement any transition procedures, “they are considering them on the front end, instead of after the rules are in place, which is comforting and reassuring.”

Comments are due by Sept. 16.

Notice 2015-40 is scheduled to be published in Internal Revenue Bulletin 2015-24 dated June 15.

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