CCA 201033038: Continuing an adopted accounting method is not a method change

Plain-English summary

Chief Counsel Advice considered a taxpayer’s request for advance consent to make a protective change in its accounting method for certain obligations. The advice concluded that the taxpayer had already adopted Method B by using it on two consecutive tax returns and was seeking only to continue using that method. Because the request did not involve a change in accounting method, it was outside the scope of Rev. Proc. 97-27 and would be returned to the taxpayer.

Ruling snapshot

• Question: Could the Service process a request to change to Method B when the taxpayer had already adopted Method B?
• Outcome: Advice given
• Key authorities: IRC § 446; Rev. Proc. 97-27, Rev. Proc. 2002-18, and Rev. Proc. 2002-19

Full text (IRS public release)

ID: CCA_2010072214512650 Number: 201033038
Release Date: 8/20/2010
Office: ----------------
UILC: 446.00-00

From: ---------------
Sent: Thursday, July 22, 2010 2:51:34 PM
To: ------------------
Cc: -------------------------------------------
Subject: Issue pending CAM

As you know, we received a request for advance consent from Taxpayer to make a protective change in its method of accounting (“CAM”) for certain obligations for the Year 4 tax year. For the reasons stated below, we will not process Taxpayer's request. If you have any questions, please contact me at ------------
-------.

BACKGROUND

Taxpayer and the Director disagree as to whether, for the Year 1 taxable year, Taxpayer requested consent to change its method of accounting for certain obligations from Method A to Method B under the automatic method change procedures. Taxpayer began using Method B for the obligations in Year 1, and continued to use Method B for the obligations in succeeding taxable years. However, for the Year 4 taxable year, Taxpayer is requesting permission to “change” its method of accounting to continue using Method B for the obligations.

ISSUE

Can the Service grant Taxpayer’s request to change its method of accounting in Year 4?

ANALYSIS

Rev. Proc. 97-27, 1997-1 C.B. 680, as modified by Rev. Proc. 2002-19, 2002-1 C.B. 696, only applies to a taxpayer that is requesting permission to change its method of accounting. Sec. 4.01 of Rev. Proc. 97-

27. In this case, Taxpayer has been using Method B since Year 1 (and therefore is considered to have
    adopted Method B by virtue of having used it on two consecutive tax returns). Sec. 2.01(2) of Rev. Proc. 2002-18, 2002-1 C.B. 678. Therefore, Taxpayer’s request does not involve a “change” because Taxpayer wishes to continue using Method B. Taxpayer argues that its current method of accounting is Method A because that is the method the Director argues Taxpayer should be using. However, a Service-imposed change is not considered final (and therefore a taxpayer is not treated as using the Service-imposed method) by virtue of the Director’s position on audit. See section 7.02(1) of Rev. Proc. 2002-18. Accordingly, Taxpayer is outside the scope of Rev. Proc. 97-27.

CONCLUSION

Taxpayer’s Year 4 application to change its method of accounting for certain obligations is outside the scope of Rev. Proc. 97-27 and, therefore, will be returned to Taxpayer.