n-15-40.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Request for Comments Regarding New Financial Accounting Standards Board and
International Accounting Standards Board Revenue Recognition Standards

Notice 2015-40

PURPOSE
This notice invites comments regarding the effect on taxpayers’ methods of
accounting of new financial accounting revenue recognition standards, titled “Revenue
from Contracts with Customers,” announced by the Financial Accounting Standards
Board (FASB) and the International Accounting Standards Board (IASB).
BACKGROUND
Section 446(a) of the Internal Revenue Code and § 1.446-1(a)(1) of the Income Tax
Regulations provide that taxable income is computed under the method of accounting
the taxpayer regularly uses to compute income in keeping the taxpayer’s books.
Section 1.446-1(a)(4) requires a taxpayer to maintain accounting records that include
the taxpayer’s regular books of account and other records and data necessary to
support the entries on the taxpayer’s books of account and on the taxpayer’s return.

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Under § 451, a taxpayer using an accrual method of accounting accrues income when
the right to receive income is fixed and the amount can be determined with reasonable
accuracy (the all events test). See § 1.451-1(a).
In a joint announcement on May 28, 2014, the FASB and the IASB announced new
financial accounting standards for recognizing revenue (new standards). See FASB
Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” and IASB
International Financial Reporting Standard (IFRS) 15, “Revenue from Contracts with
Customers.”
The new standards for the timing of income for financial accounting purposes may
affect the timing of income for tax accounting purposes for many taxpayers, such as
taxpayers (1) presently using the percentage of completion method, (2) deriving income
from the provision of services, (3) engaging in bill and hold transactions for the sale of
goods, (4) accounting for sales and returns of goods, and (5) earning income from
warranties. The new standards may affect some industries more than others.
Commenters on the new standards have noted that the software, entertainment,
manufacturing, and construction industries may be particularly affected because the
new standards may change the timing of income recognition for financial accounting
purposes significantly for these industries.
Accounting method changes for federal income tax purposes require the permission
of the Internal Revenue Service (IRS). The new standards raise a number of
substantive and procedural issues for the IRS, including whether the new standards are
permissible methods of accounting for federal income tax purposes, the types of
accounting method change requests that will result from adopting the new standards,

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and whether the current procedures for obtaining IRS consent to change a method of
accounting are adequate to accommodate those requests. See section 2.03(1) & (2) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419.
REQUEST FOR COMMENTS
Adoption of the new standards may create or increase differences between financial
accounting and tax accounting rules. The Treasury Department and the IRS are
considering whether to issue guidance on the new standards and request public
comments on the scope, substance, and form of guidance needed.
Comments are requested on issues of conformity between the new standards and
the Code. Specific comments are requested on the following issues:
1. To what extent do the new standards deviate from the requirements of § 451?
How may they affect deferral of income?
2. What industry and/or transaction-specific issues may arise as a result of the new
standards that might be addressed in future guidance?
3. What types of changes in methods of accounting do taxpayers anticipate
requesting?
4. Do taxpayers anticipate requesting changes in methods of accounting prior to the
effective dates of the new standards?
5. Should taxpayers be required to use the automatic consent accounting method
change procedures or the advance consent procedures to request permission to
change a method of accounting under the new standards, and why?

6. Which accounting method changes under the new standards, if any, should be
allowed using a cut-off method instead of a § 481(a) adjustment, and why?

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7. Will advance or automatic consent procedures or other procedural guidance
(such as Rev. Proc. 2004-34, 2004-22 I.R.B. 991) need to be modified and if so, how?
8. What transition procedures may be helpful?
9. What related accounting method changes do taxpayers anticipate requesting that
may appropriately be made on a single Form 3115, Application for Change in
Accounting Method?
Comments should be submitted in writing on or before September 16, 2015.
Comments should be sent to the following address:
Internal Revenue Service
CC:PA:LPD:PR (Notice 2015-40)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Comments may be hand delivered to:
Courier's Desk
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224
CC:PA:LPD:PR (Notice 2015-40)

Comments also may be sent electronically to
notice.comments@irscounsel.treas.gov. Please include "Notice 2015-40" in the subject
line.
All comments will be available for public inspection.
DRAFTING INFORMATION
The principal author of this notice is Charles Gorham of the Office of Associate Chief
Counsel (Income Tax & Accounting). For further information regarding this notice
contact Mr. Gorham at (202) 317-5091 (not a toll-free call).