New Accounting Method Change Procedures Issued for Small Business Taxpayers

June 2022

BY

Karen MessnerManaging Director, National Tax Accounting Methods

Lina IvanovaManager, National Tax Accounting Methods

The following article, New accounting method change procedures issued for small business taxpayers, originally appeared in the May 2022 issue of The Tax Adviser.
 

Tax Accounting

The IRS and Treasury released two revenue procedures (Rev. Procs. 2022-9 and 2022-14) on Dec.16, 2021, and Jan. 31, 2022, respectively, on accounting method change procedures. Rev. Proc.2022-9 modifies Rev. Proc. 2019-43, the exclusive revenue procedure for automatic consent accounting method changes, to enable small business taxpayers to obtain automatic consent to change to simplified methods of accounting to comply with the final regulations under Secs. 263A,448, 460, and 471 issued on Jan. 5, 2021 (T.D. 9942).
 
Rev. Proc. 2022-9 modifies existing automatic method changes, adds several new automatic changes, and contains transition rules that provide more flexibility for taxpayers to change to or from the simplified methods. Procedures also are provided for taxpayers to revoke a syndicate election made under the proposed small business taxpayer regulations issued in August 2020. Rev.Proc. 2022-14 updates the list of automatic accounting method changes and significantly modifies Rev. Proc. 2019-43, including revising some items in Rev. Proc. 2022-9.
 
In December 2017, the law known as the Tax Cuts and Jobs Act, P.L. 115-97, introduced a number of simplifying tax provisions for eligible small business taxpayers. These small business taxpayer methods expand the use of the overall cash method of accounting and grant exemptions from the requirement to take an inventory under Sec. 471(a), from capitalizing costs under the uniform capitalization rules under Sec. 263A, from the required use of the percentage-of-completion method for certain exempt long-term construction contracts under Sec. 460, or from the requirement to capitalize costs under Sec. 263A for Sec. 460 home construction contracts. The final regulations apply for tax years beginning on or after Jan. 5, 2021; however, they may be applied fora tax year beginning after Dec. 31, 2017, and before Jan. 5, 2021 (early-adoption year), or alternatively, a taxpayer may rely on the proposed regulations for these tax years.