Accounting Method Change Opportunities for Taxpayers Under IRS Examination
July 23, 2015
Calendar-year taxpayers who have been under IRS examination for 12 consecutive months have an opportunity from July 15, 2015, to Oct. 15, 2015, to make accounting method changes under Revenue Procedure 2015-13 and receive audit protection.
As a general rule, taxpayers under IRS examination can file an accounting method change to correct problems with their current tax accounting method, but the taxpayers do not receive audit protection in most cases. Because taxpayers do not receive audit protection, an IRS examiner can propose an adjustment for the accounting method in a year prior to the filing of a method change. In addition, a taxpayer filing an accounting method change while under examination must include any unfavorable adjustment into income over a two-year period beginning with the year Form 3115, “Application for Change in Accounting Method,” is filed.
An exception is available to taxpayers who have been under examination for at least 12 months. Such taxpayers will receive audit protection if they file Form 3115 during the three-month window beginning on the 15th day of the seventh month of their tax year through the 15th day of the 10th month of their tax year. A second exception is available to taxpayers whose audit is completed. Taxpayers can file an accounting method change and receive audit protection within 120 days of the close of an IRS examination even if a new IRS examination begins immediately following the close of the prior examination. These two exceptions are available only if the IRS examiner has not identified the accounting method as an issue under consideration in the current examination.
For calendar-year taxpayers, the three-month window presents an opportunity to file a method change to correct issues with their accounting methods, get audit protection for years currently under examination, and spread an unfavorable adjustment over a four-year time frame beginning with the year for which Form 3115 is filed. Taxpayers should consider taking advantage of this window to make accounting method changes.
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