The American Institute of CPAs sent a comment letter to the Internal Revenue Service (IRS) on July 9, 2013 recommending changes to final regulations (TD 9534) regarding methods of accounting to be used by corporations that acquire the assets of other corporations in certain corporate reorganizations. The final regulations, which were released in 2011, were intended to clarify and simplify the rules and to help eliminate potential controversy between a taxpayer and the IRS.
The letter identified ambiguities in the application of the final regulations under Internal Revenue Code section 381 in two areas.
First, the AICPA said it does not believe the final regulations “provide guidance addressing application of the regulations in cases where the taxpayer’s documentation evidences an intent to integrate trades or businesses of the transferor and transferee, but where such integration either occurs in a year subsequent to the year of the section 381(a) transaction or never occurs.”
Second, the AICPA stated, because the IRS did not modify the scope restriction for prior five-year changes, “taxpayers could be unfairly precluded from using the automatic consent procedures to change a method of accounting within five years of making a required change to a principal method under sections 381(c)(4) and 381(c)(5).” The AICPA explained it believes that the “prior five-year change scope restriction is appropriate to limit a taxpayer’s ability to voluntarily change the same method of accounting within a short period of time,” but “does not believe it is appropriate to apply the same standard to a taxpayer that is required to change to a principal method of accounting as a result of a transaction to which section 381(a) applies. Specifically, the relevant policy considerations that support limiting a taxpayer’s ability to voluntarily change a method of accounting within a short period of time do not exist with respect to changing the same method of accounting subsequent to a change to a principal method of accounting as a result of a transaction to which section 381(a) applies.”
For more information or to speak to someone about the AICPA letter, contact Shirley Twillman at 202.434.9220 or firstname.lastname@example.org.