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Changes in method of accounting, rules clarified for “early adopters”

Rev. Proc. 2018-49 and changes in method of accounting

The IRS today released an advance version of Rev. Proc. 2018-49 to clarify the availability of certain changes in method of accounting for taxpayers that were “early adopters” of a method of recognizing revenues under new financial accounting standards (FASB and IASB).

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Rev. Proc. 2018-49 [PDF 33 KB] modifies the effective date of Rev. Proc. 2018-29 and certain provisions of Rev. Proc. 2018-31 to provide that the automatic method change procedures apply with respect to early adopters of the new financial accounting standards.

Background

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) in 2014 announced new financial accounting standards for revenue recognition. The new standards were titled “Revenue from Contracts with Customers (Topic 606).”

Publicly traded entities, certain not-for-profit entities, and certain employee benefit plans were required to adopt the new standards for annual reporting periods beginning after December 15, 2017. [All other entities must adopt the new standards for annual reporting periods beginning after December 15, 2018.] Early adoption, however, was allowed for reporting periods beginning after December 15, 2016.

  • Concerning taxpayer requests for automatic consent of the IRS Commissioner to a change in method of accounting, the IRS issued Rev. Proc. 2018-31 to provide the list of automatic changes. Read TaxNewsFlash
  • Rev. Proc. 2018-29 was issued in May 2018 to modify Rev. Proc. 2018-31 to provide procedures for taxpayers seeking to change certain methods of accounting to recognize income consistently with the new financial accounting standards. Read TaxNewsFlash

After the IRS released Rev. Proc. 2018-29, there were questions as to whether Rev. Proc. 2018-29 applied to “early adopters” of the new standards. 

Rev. Proc. 2018-49

The IRS today issued Rev. Proc. 2018-49 to modify the effective date provisions of Rev. Proc. 2018-29 and certain scope limitations under Rev. Proc. 2015-13 to clarify that the automatic method change rules apply to “early adopters.”

The effective date provisions of the earlier revenue procedures—that is, Rev. Proc. 2018-29 and Rev. Proc. 2018-31—are modified so that the guidance is effective on May 10, 2018, and applies to tax years ending on or before May 10, 2021.

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