IRS authorizes making certain automatic method changes consistent with financial accounting standard ASC 606

May 2018

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Overview

The IRS recently released Rev. Proc. 2018-29, allowing taxpayers that must recognize revenue under financial accounting standard ASC 606 to make an automatic change in their method of tax accounting for (1) identifying performance obligations, (2) allocating transaction price to determine performance obligations, and (3) considering performance obligations satisfied. The change ─ which taxpayers may make on a cut-off basis or with a Section 481(a) adjustment ─ must be an otherwise permissible method of accounting, and must be made in the taxpayer’s first, second, or third tax year ending on or after May 10, 2018.

The takeaway

Taxpayers that adopt ASC 606 for revenue recognition financial accounting purposes may make a corresponding change to their methods of accounting under Section 451 to reduce book-tax disparity.  Taxpayers should consider their tax methods of accounting in light of the changes under ASC 606 and determine what changes may be necessary. Rev. Proc. 2018-29 allows taxpayers to implement certain changes through an automatic accounting method change.

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Annette Smith
Partner and Leader – Federal Tax Services, PwC US
Tel: +1 (202) 414 1048
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