Rev Proc 2023-14: Automatic Accounting Method Changes

The Internal Revenue Service (IRS) provides annual guidance for taxpayers who wish to change their method of accounting for federal income tax purposes. This guidance, Revenue Procedure 2025-23, lists the specific changes that can be made automatically, without requesting direct permission from the IRS, and supersedes the previous year’s guidance. The purpose of this revenue procedure is to streamline the process for common accounting method changes. By providing a list of pre-approved changes, the IRS reduces the administrative burden on both taxpayers and the government. The procedure details the exclusive process for obtaining the consent that is required under the tax code.

Key Automatic Changes Provided

Revenue Procedure 2025-23 contains an extensive list of automatic accounting method changes, each identified by a specific Designated Change Number (DCN). While the list is comprehensive, many of the available changes fall into several broad categories that apply to a wide range of businesses. These changes address the timing of income and expense recognition, which is a fundamental aspect of tax accounting.

Depreciation and Amortization

A significant number of automatic changes relate to depreciation and amortization. Taxpayers can use the automatic procedure to change from an impermissible method of accounting for depreciation to a permissible method. This includes corrections such as applying the wrong recovery period or failing to claim any depreciation at all. The procedure allows for a catch-up of the missed depreciation deductions in a single year.

Capital Expenditures vs. Repairs

Another common area for automatic changes involves the treatment of expenditures as either deductible repairs or capital improvements. The tangible property regulations provide a framework for making this distinction, and taxpayers can file for an automatic change to adopt these regulations. This allows a business to correctly deduct expenses that were previously capitalized, or vice-versa, ensuring the proper treatment of costs for tangible property.

Inventory and UNICAP

For businesses that maintain inventories, several automatic changes are available. These can include changing the method of identifying or valuing inventory, such as adopting a new method under the Last-In, First-Out (LIFO) rules. Additionally, changes related to the Uniform Capitalization (UNICAP) rules are covered. The automatic procedure facilitates the correct application of these rules, which require certain direct and indirect costs to be capitalized into inventory.

Revenue Recognition

The timing of income recognition is another area with available automatic changes. Taxpayers can change their method of accounting for advance payments for goods and services. This allows for the deferral of income from certain advance payments to the next succeeding taxable year.

Information and Documentation for Filing

To initiate an automatic accounting method change, a taxpayer must complete and file Form 3115, Application for Change in Accounting Method. This form is the official document used to request the change and report the necessary details to the IRS. Gathering the correct information to accurately complete this form is a necessary step.

The form requires specific information, including the taxpayer’s name, address, and taxpayer identification number (TIN). A primary piece of information is the Designated Change Number (DCN) that corresponds to the specific automatic change being requested, which is listed in Revenue Procedure 2025-23. The taxpayer must also provide a clear and detailed description of both the present method of accounting being changed and the proposed new method.

A central component of the Form 3115 filing is the calculation of the Section 481(a) adjustment. This adjustment is required to prevent the duplication or omission of amounts of income or deduction due to the change. It represents the cumulative difference between the old method and the new method as if the new method had always been in place. A statement showing the detailed computation of this adjustment must be attached to the Form 3115.

The nature of the Section 481(a) adjustment determines how it is reported. A negative adjustment, which decreases taxable income, is taken in full in the year of the change. A positive adjustment, which increases taxable income, is spread over a four-year period to mitigate the immediate tax impact.

The Filing Procedure

The filing process for an automatic change is a two-part submission that must be completed within a specific timeframe. This dual-filing requirement is designed to ensure that both the IRS national office and the service center processing the tax return are aware of the change.

The first step involves filing a signed, duplicate copy of the completed Form 3115 with the IRS national office. This copy must be sent to the Internal Revenue Service, Ogden, UT 84201, Attn: M/S 6111. The deadline for this submission is no later than the date the taxpayer files their federal income tax return for the year of the change. It is permissible to send this copy earlier, but not before the first day of the year of change.

The second step is to attach the original Form 3115 to the taxpayer’s timely filed federal income tax return for the year the change is effective, including any valid extensions. Unlike the copy sent to the national office, the original form attached to the tax return does not need to be signed.

Because the process grants automatic consent, the IRS will not issue a formal approval letter. Consent is considered granted as long as the taxpayer has fully complied with all the procedural requirements of Revenue Procedure 2025-23. The IRS retains the right to review the Form 3115 during a future examination of the tax return.