Accounting Methods — Adoption and Changes (Portfolio 572)

Description

This Tax Management Portfolio 572, Accounting Methods — Adoption and Changes, provides taxpayers with guidance when adopting or changing an accounting method. In the first year of operation, or in the first year in which a new line of business begins, a taxpayer generally may adopt any accounting method that clearly reflects income without obtaining special IRS permission. Thereafter, the Commissioner’s consent generally must be obtained before a taxpayer may change to another method of accounting. This Portfolio outlines the principles for determining whether an issue involves the accounting method rules.

The Portfolio also examines the procedures taxpayers must follow when requesting the Commissioner’s consent to change a method of accounting, the adjustments that must be made as a result of the change, and any effects the adjustments will have on net tax liability. In addition, the Portfolio discusses the implications of certain merger transactions on accounting method issues, as well as the impact accounting method changes can have for other purposes of the Code.

Table of Contents

I. Introduction
II. Determining Whether the Issue Involves the Accounting Method Rules
III. Adopting an Accounting Method
IV. Non-automatic Accounting Method Changes
V. Automatic Accounting Method Changes
VI. Statutorily Mandated Changes
VII. Section 381 Changes
VIII. Involuntary Changes
IX. Unauthorized Changes
X. Accounting Method Changes Not Governed by § 446
XI. Non-Timing Issues
XII. Transition to New Accounting Method – Section 481(a) Adjustment Mechanism and Other Change Mechanisms
XIII. Miscellaneous Issues