n-17-17.pdf

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PROPOSED REVENUE PROCEDURE FOR REQUESTING CONSENT TO CHANGE
A METHOD OF ACCOINTING WHERE THE CHANGE IS MADE AS A RESULT OF,
OR DIRECTLY RELATED TO, THE ADOPTION OF NEW FINANCIAL ACCOUNTING
STANDARDS, “REVENUE FROM CONTRACTS WITH CUSTOMERS.”

Notice 2017-17

PURPOSE

This notice invites comments on a proposed revenue procedure that, if finalized, will
provide procedures by which a taxpayer may request consent to change a method of
accounting for recognizing income when the change is made for the same taxable year
for which the taxpayer adopts the new financial accounting revenue recognition
standards and the change is made as a result of, or directly related to, the adoption of
the new revenue recognition standards (a qualifying same-year method change).
BACKGROUND
On May 28, 2014, the Financial Accounting Standards Board (FASB) and the
International Accounting Standard Board (IASB) jointly announced new financial
accounting standards for recognizing revenue (new standards), titled “Revenue from
Contracts with Customers.” See FASB Update No. 2014-09 and IASB International
Financial Reporting Standard (IFRS) 15.
The new standards are effective for publicly-traded entities, certain not-for-profit
entities, and certain employee benefit plans for annual reporting periods beginning after
December 15, 2017. For all other entities, the new standards are effective for annual
reporting periods beginning after December 15, 2018. Early adoption is allowed for
reporting periods beginning after December 15, 2016. See FASB Update No. 2015-14,
“Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date.”

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Since the joint announcement, FASB and IASB have revised the new standards and
provided guidance on how to implement the new standards in certain situations. See,
e.g., FASB Update No. 2015-14; FASB Update No. 2016-10, “Revenue from Contracts
with Customers (Topic 606), Identifying Performance Obligations and Licensing.”
On June 15, 2015, the Department of Treasury (Treasury Department) and the
Internal Revenue Service (IRS) published Notice 2015-40, 2015-24 I.R.B. 1057, which
requested comments on federal tax accounting issues related to the adoption of the
new standards, including, whether the new standards are permissible methods of
accounting for federal income tax purposes, the types of accounting method change
requests that might result from adopting the new standards, and whether the current
procedures for obtaining IRS consent to change a method of accounting are adequate
to accommodate those requests. Very few comments were received. Some
commenters requested additional time to respond and others reported that, as a result
of adopting the new standards, taxpayers might request multiple changes in accounting
method. This notice addresses only the procedures for obtaining IRS consent to a
qualifying same-year method change. The Treasury Department and the IRS continue
to invite comments on issues of conformity between the new standards and the Internal
Revenue Code (Code) and the Treasury Regulations (Regulations), and are considering
addressing these issues in separate guidance.
Qualifying same-year method changes may include automatic changes for which
existing guidance, including Revenue Procedure 2015-13, 2015-1 I.R.B. 419, and
Revenue Procedure 2016-29, 2016-21 I.R.B. 880, already provides automatic change
procedures. Taxpayers requesting consent for automatic changes for which existing

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guidance already provides automatic change procedures must use the existing
automatic change procedures to make a request. For qualifying same-year method
changes for which existing guidance does not provide automatic change procedures but
which comply with § 451 of the Code or other guidance regarding the taxable year of
inclusion of income, the taxpayer must make the change under the proposed revenue
procedure.
REQUEST FOR COMMENTS ON ISSUES OF CONFORMITY BETWEEN THE NEW
STANDARDS AND THE CODE AND REGULATIONS
Adoption of the new standards may create or increase differences between financial
accounting and tax accounting rules. The Treasury Department and the IRS recognize
that there is interest in clarifying whether the new standards are permissible methods of
accounting that may be used for federal income tax purposes. Accordingly, the
Treasury Department and the IRS continue to seek comments on the specific issues
identified in Notice 2015-40 regarding conformity between the new standards and the
Code and the Regulations. Comments are specifically requested on the following
issues:
1. To what extent would using the new standards for federal income tax purposes
result in acceleration or deferral of income under § 451 or other income provisions of
the Code?
2. What industry and/or transaction-specific issues might arise as a result of the new
standards that may need to be addressed in future guidance?
3. To what extent do the new standards deviate from the requirements of § 451? In
what situations should the IRS allow taxpayers who adopt the new standards to follow

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their book method of accounting for tax purposes (for example, where income is always
accelerated)?
4. To what extent do the rules regarding allocation of standalone sales price and
transaction price in the new standards affect taxpayers’ ability to satisfy their tax
obligations?
REQUEST FOR COMMENTS ON PROCEDURES FOR METHOD CHANGES
This notice sets forth proposed procedures for obtaining IRS consent to a qualifying
same-year method change. In connection with this notice, the Treasury Department
and the IRS request comments on all aspects of the proposed procedures and on the
specific method change issues identified in Notice 2015-40. Comments are specifically
requested on the following issues:
1. Is the exception for small businesses in paragraph 5.02(2) of the proposed
revenue procedure appropriate?
2. What types of changes in methods of accounting do taxpayers anticipate
requesting?
3. Do taxpayers anticipate requesting changes in methods of accounting prior to the
effective dates of the new standards?
4. Which procedures should taxpayers be required to use to request permission for a
qualifying same-year method change, the automatic accounting method change
procedures or the advance consent procedures?
5. What changes, other than those described in Section 5 of the proposed revenue
procedure, do taxpayers expect will be requested in the year the taxpayer adopts the
new financial standards, and should they be allowed as automatic changes?

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6. What related accounting method changes do taxpayers anticipate requesting that
may appropriately be made on a single Form 3115?
7. If multiple changes are requested on a single Form 3115, should the taxpayer
report a separate § 481 adjustment for each change and should those adjustments be
netted and a single spread period applied?
8. What alternatives to filing a Form 3115 would reduce the burden of compliance?
9. What transition procedures may be helpful?
10. What additional procedural changes would be appropriate and helpful?
WHERE TO SEND COMMENTS
Comments must be submitted by July 24, 2017. Comments, identified by Notice
2017-17, may be submitted using one of the following methods:
• By Mail:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2017-17)
Room 5203
P.O. Box 7602
Ben Franklin Station
Washington, D.C. 20044

• By Hand or Courier Delivery: Submissions may be hand-delivered Monday
through Friday between the hours of 8 a.m. and 4 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2017-17)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

• Electronic: Alternatively, persons may submit comments electronically to
Notice.Comments@irscounsel.treas.gov. Please include “Notice 2017-17” in the

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subject line of any electronic communications.
All submissions will be available for public inspection and copying in room 1621, 1111
Constitution Avenue, N.W., Washington, D.C., from 9 a.m. to 4 p.m.
PROPOSED REV. PROC. [2017-XX]
SECTION 1. PURPOSE
This revenue procedure provides procedures under § 446 of the Internal Revenue
Code (Code) and § 1.446-1(e) of the Income Tax Regulations (Regulations) to obtain
consent of the Commissioner of Internal Revenue (Commissioner) to change a method
of accounting for recognizing income for federal income tax purposes when the change
is a result of, or directly related to, adoption of the new financial accounting standards
for recognizing revenue by the taxpayer and is made for the same taxable year as the
adoption of the new financial accounting standards for recognizing revenue that were
issued by the Financial Accounting Standards Board (FASB) and the International
Accounting Standards Board (IASB). 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.”
SECTION 2. BACKGROUND
.01 Method of accounting generally.
(1) Section 446(a) of the Code and § 1.446-1(a)(1) of the 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.
(2) Section 1.446-1(a)(4) of the Regulations requires a taxpayer to maintain
accounting records that include the taxpayer’s regular books of account and other

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records and data necessary to support the entries on the taxpayer’s books of account
and on the taxpayer’s return.
.02 Consent for a change in method of accounting. Section 446(e) of the Code and
§ 1.446-1(e)(2)(i) of the Regulations provide that, except as otherwise provided, a
taxpayer must secure the consent of the Commissioner before changing a method of
accounting for any item for federal income tax purposes.
.03 Accounting for income generally. Section 451(a) of the Code and § 1.451-1(a) of
the Regulations provide that any item of gross income must be included in gross income
in the year in which it was received by the taxpayer unless it is includible for a different
year pursuant to the taxpayer’s method of accounting.
.04 New revenue recognition standards.
(1) The FASB and the IASB have announced new financial accounting
standards for recognizing revenue (new standards). See FASB Update No. 2014-09,
IASB International Financial Reporting Standard (IFRS) 15, and section 3 of this
revenue procedure.
(2) The new standards are effective for publicly-traded entities, certain not-for-
profit entities, and certain employee benefit plans for annual reporting periods beginning
after December 15, 2017. For all other entities, the new standards are effective for
annual reporting periods beginning after December 15, 2018. Early adoption is allowed
for reporting periods beginning after December 15, 2016. See FASB Update No. 2015-
14, “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective
Date.”
.05 Effect of new revenue recognition standards.

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(1) The Internal Revenue Service (Service) anticipates that many taxpayers will
request consent to change a method of accounting for one or more items of income as
a result of, or directly related, to the adoption of the new revenue standards for the
same taxable year that the new standards are adopted for financial accounting
purposes.
(2) The Service must balance taxpayers’ need to comply with the new
standards with the Service’s need to approve appropriate method changes.
SECTION 3. DEFINITIONS
.01 Change in Method of Accounting Definitions. The definitions in section 3 of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, or any successor, apply for purposes of this revenue
procedure.
.02 New Standards. “New standards” refers to the financial accounting standards
for recognizing revenue that were issued in 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,” as updated and revised
hereafter.
.03 Qualifying Same-Year Method Change. A qualifying same-year method change
is a change of method of accounting for recognizing income that is made for the same
year as the year the taxpayer adopts the new standards and made as a result of, or
directly related to, the adoption of those standards.
SECTION 4. SCOPE

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This revenue procedure applies to taxpayers that adopt the new standards and that
request the Commissioner’s consent, pursuant to § 446(e) of the Code and § 1.446-
1(e)(3) of the Income Tax Regulations, to make a qualifying same-year method change.
SECTION 5. GENERAL APPLICATION PROCEDURES AND AUDIT PROTECTION
.01 Qualifying Same-Year Method Change under Existing Automatic Change
Guidance.
A method change that is within the scope of section 4 of this revenue procedure
that qualifies as an automatic change in the List of Automatic Changes (under Rev.
Proc. 2016-29, 2016-21 I.R.B. 880, or any successor) and otherwise satisfies the
requirements of paragraphs 5.01(1)(a)-(d) of Rev. Proc. 2015-13 (or any successor),
must be implemented by applying the automatic change procedures in Section 6 of Rev.
Proc. 2015-13 (or any successor) and the List of Automatic Changes.
.02 Qualifying Same-Year Method Change that Complies with Income Provision of
the Code or the Regulations.
(1) A method change that is within the scope of section 4 of this revenue
procedure that is not described in section 5.01 of this revenue procedure, which
satisfies the requirements of sections 5.01(1)(c) and (d) of Rev. Proc. 2015-13 (or any
successor), and which complies with § 451 of the Code or other guidance, must be
implemented by applying the automatic change procedures in section 6 of Rev. Proc.
2015-13 (or any successor). A taxpayer making a change under this section 5.02 must
file a Form 3115, check the box for line 1(b), and write “Rev. Proc. 2017-XX” followed by
the applicable income provision of the Code or Income Tax Regulations or the
applicable relevant guidance. In addition, the taxpayer must attach a brief description of

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the change and why it satisfies the applicable income provision or guidance referenced
in line 1(b) of the Form 3115.
(2) A taxpayer with one or more separate and distinct trade(s) or business(es),
within the meaning of § 1.446-1(d), that individually have (a) total assets of less than
$10 million as of the first day of the taxable year for which a change in method of
accounting is requested, or (b) average annual gross receipts of $10 million or less for
the three preceding taxable years, as determined under § 1.263(a)-3(h)(3) (substituting
“separate and distinct trade or business” for “taxpayer”), may make the change for each
such separate and distinct trade or business on a cut-off basis. Accordingly, a § 481(a)
adjustment is neither permitted nor required for each such separate and distinct trade or
business. See section 2.07 of Rev. Proc. 2015-13.
(3) A § 481(a) adjustment must be computed for the year of change for all
separate and distinct trades or businesses other than those for which paragraph 5.02(2)
of this revenue procedure provides otherwise and for taxpayers for which paragraph
5.02(2) of this revenue procedure does not apply. See section 7.02 of Rev. Proc. 2015-
13.
.03 Multiple Requests. Multiple requests to make qualifying same-year method
changes may be made in one request.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for taxable years ending on or after [INSERT
DATE OF PUBLICATION OF FINAL REVENUE PROCEDURE].
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Charles Gorham of the Office of

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Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure, contact Mr. Gorham at (202) 317-7003 (not toll-free call), or
Peter E. Ford, at (202) 317-7011 (not a toll-free call).