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The IRS is still working on guidance that would align tax accounting procedures with new changes in how companies report revenue on their annual financial statements.
“We are making progress,” said John Moriarty, deputy associate chief counsel for Income Tax and Accounting at the IRS. “I have every reason to expect that we’ll talk about it in more detail in the near future.”
The revenue recognition standard more precisely depicts how and when companies record revenue from a sale or transaction. Companies must begin using the standard when they file quarterly reports this spring, although some companies began using the standard earlier.
The IRS solicited feedback on proposed guidance last year but hasn’t yet published its final guidance, Moriarty said March 9 at the Federal Bar Association’s Tax Law Conference in Washington.
Companies are looking for as simple a tax process as possible as the number of changes could be wide-ranging, Ellen McElroy, a partner with Eversheds Sutherland LLP, said at the conference.
“This has been a pretty arduous process for a lot of companies just getting to this point,” McElroy said.
IRS had hoped to have released the guidance by now, Moriarty said.
But IRS officials said in February that they were updating the pending guidance so that it conforms to the new tax law. The guidance is expected to detail whether the IRS would accept accounting method changes automatically or require consent and how the taxpayer would detail such changes.
Alison Jones, revenue recognition tax lead for Ernst and Young LLP, said she fields questions daily about how to file those accounting method changes. “That’s mission critical,” Jones told Bloomberg Tax. “We need to understand how to do it so we can get our dominoes all in a row.”
Quarterly estimated tax payments are due soon and taxpayers need to be able to plan ahead for filing next year, Jones said. She’s hoping the IRS will issue its guidance in waves—and get the most important guidance into the hands of accountants sooner rather than later.
“You have new tax rules and new book rules all colliding at the same time,” Jones said.
The tax law revised the rules associated with the recognition of income by amending tax code Section 451. It requires a taxpayer that uses the accrual method of accounting to recognize income no later than the taxable year in which the income is taken into account as revenue on an audited financial statement or another applicable financial statement. The law provides an exception for long-term-contract income.
(Adds comment from Alison Jones)
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