Three-month window provides opportunity to apply for accounting method changes

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May 2016

Overview

Rev. Proc. 2015-13 sets forth the rules for requesting IRS permission to change a method of accounting. For taxpayers under examination that seek to change a method of accounting, there generally is no audit protection, but Rev. Proc. 2015-13 provides several exceptions to this general rule. One exception is the ‘three-month window,’ which permits taxpayers to voluntarily file accounting method changes from impermissible methods with unfavorable (positive) Section 481(a) adjustments and secure audit protection.

The three-month window begins on the 15th day of the seventh month of the taxpayer’s tax year and ends on the 15th day of the tenth month of the taxpayer’s tax year. Accordingly, a calendar-year taxpayer under IRS examination that has been planning to file a method change to change from an impermissible method with a positive Section 481(a) adjustment and secure audit protection should consider filing Form 3115, Application for Change in Accounting Method, during the three-month window period that will begin on July 15, 2016, and end on October 15, 2016. The window period is modified for a short tax year, and different eligibility requirements apply to foreign corporations.

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George Manousos

Partner, Federal Tax Services, PwC US

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