Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and method of accounting.

(Also: Part I, Sections 446, 451; 1.451-1.)

Rev. Proc. 2018-29

SECTION 1. PURPOSE

This revenue procedure provides new procedures for taxpayers changing their

method of accounting for the recognition of income for federal income tax purposes to a

(Commissioner) to change to an otherwise permissible method of accounting that uses

the New Standards to identify performance obligations, allocate transaction price to

performance obligations, and/or consider performance obligations satisfied, if such

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method change is made for the taxable year in which the taxpayer adopts the New

Standards.

This revenue procedure does not provide guidance relating to the amendments to

§ 451 made by section 13221 of “An Act to provide for reconciliation pursuant to titles II

and V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. No. 115-

SECTION 2. BACKGROUND

.01 On May 28, 2014, FASB and IASB jointly announced new financial accounting

standards for revenue recognition, titled “Revenue from Contracts with Customers

(Topic 606).” See FASB Update No. 2014-09 and IASB International Financial

Reporting Standard (IFRS) 15.

.02 Publicly-traded entities, certain not-for-profit entities, and certain employee

benefit plans are required to adopt the New Standards for annual reporting periods

beginning after December 15, 2017. All other entities are required to adopt the New

See FASB Update No. 2015-14; FASB Update No. 2016-8, “Revenue from Contracts

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with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue

Gross versus Net);” FASB Update No. 2016-10, “Revenue from Contracts with

Customers (Topic 606), Identifying Performance Obligations and Licensing;” FASB

Update No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-

Scope Improvements and Practical Expedients;” FASB Update No. 2017-13, “Revenue

Staff Announcements and Observer Comments (SEC Update);” FASB Update No.

2017-14, “Income Statement – Reporting Comprehensive Income (Topic 220), Revenue

Recognition (Topic 605), and Revenue from Contracts with Customers) (Topic 606)

(SEC Update).”

.04 Under the New Standards, an entity will recognize revenue for promised goods

and services to customers in an amount that reflects the consideration to which the

entity expects to be entitled in exchange for those goods and services based on the

following five sequential steps: (i) identify the contracts with a customer; (ii) identify the

accounting for recognizing income when the change is made for the same taxable year

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in which the taxpayer adopts the New Standards and the change is made as a result of,

or directly related to, the adoption of the New Standards.

.06 Commenters to Notice 2017-17 noted that the New Standards would affect

taxpayers in the technology and construction industries and service providers with

warranty and repair service contracts. Many of these taxpayers will have to accelerate

method change requests associated with adopting the New Standards. More

specifically, commenters requested an expansion of current automatic accounting

method change procedures, guidance on the recognition of advance payments, an

expansion of the small business exception in the proposed revenue procedure in Notice

2017-17, and the option of implementing an accounting method change on either a cut-

off basis or with a § 481(a) adjustment.

.07 In this revenue procedure, the Treasury Department and the Service adopt

certain of the suggestions submitted by commenters in response to Notice 2017-17.

a cut-off basis or with a § 481(a) adjustment. Other comments, such as comments

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requesting guidance on the recognition of advance payments, will be considered in

connection with the issuance of guidance implementing the amendments made to § 451

by the Act. The Treasury Department and the Service intend to provide additional

guidance on these issues if needed to improve the procedures contained in this revenue

procedure once the Treasury Department, the Service, and taxpayers obtain more

(d) through (k), and adding new § 451(b) and (c). New § 451(b) and (c) are effective for

generally provides that for an accrual method taxpayer, the all events test with respect

to any item of gross income (or portion thereof) shall not be treated as met any later

than when such item (or portion thereof) is taken into account as revenue in an

applicable financial statement of the taxpayer, or such other financial statement as the

Secretary may specify. However, new § 451(b) is inapplicable to certain taxpayers,

such as taxpayers that do not have an applicable financial statement or other financial

changing their method of accounting to comply with amended § 451. Rather, this

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revenue procedure provides guidance for taxpayers changing a method of accounting to

an otherwise permissible method of accounting that recognizes revenue in income in a

manner described in the New Standards. For example, this revenue procedure

provides procedures under which a taxpayer that has adopted the New Standards may

make a corresponding change in its method of accounting for federal income tax

compliance costs, burden, and administrative complexity, the Treasury Department and

the Service are issuing this revenue procedure to provide procedures under § 446 and

§ 1.446-1(e) for a taxpayer to obtain automatic consent of the Commissioner to change

a method of accounting used to recognize income for federal income tax purposes to a

obligations, to allocate transaction price to performance obligations, and/or to consider

performance obligations satisfied.

.12 This revenue procedure requests comments on future guidance that may be

.11 Changes in the timing of recognition of income due to the New Standards.

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(1) Description of change. On May 28, 2014, the Financial Accounting Standards

Board (FASB) and the International Accounting Standards Board (IASB) jointly

announced new financial accounting standards for revenue recognition entitled

“Revenue from Contracts with Customers (Topic 606)” (New Standards). See FASB

Update No. 2014-09, and IASB International Financial Reporting Standard (IFRS) 15.

Standards.

(2) Applicability. This change applies to a taxpayer that wants to change its

method of accounting for the recognition of income for federal income tax purposes to a

method under the New Standards for: (i) identifying performance obligations, (ii)

allocating transaction price to performance obligations, and/or (iii) considering

performance obligations satisfied. A taxpayer may request a change under this section

16.11 only if the taxpayer’s new method of accounting is otherwise permissible for

federal income tax purposes and the change in method of accounting is made for the

330.

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(3) Inapplicability. This change does not apply to:

(a) a change in the manner in which the taxpayer identifies contracts or

determines the transaction price, including the inclusion and exclusion of variable

consideration in the transaction price, under the New Standards;

(b) a change in method of accounting for recognizing income that is made in a

(d) any change in method of accounting that qualifies under another automatic

change described in the List of Automatic Changes provided in this revenue procedure

(or any successor), even if it is described in section 16.11(2) of this revenue procedure,

and otherwise satisfies the requirements of paragraphs 5.01(1)(a)-(d) of Rev. Proc.

2015-13, 2015-5 I.R.B. 419 (or any successor). The taxpayer must request such

change(s) in method of accounting by applying the automatic change procedures in

Section 6 of Rev. Proc. 2015-13 (or any successor) and the respective section of Rev.

Proc. 2017-30 (or any successor); or

(5) Manner of making change.

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(a) Cut-off basis or § 481(a) adjustment. A taxpayer making a change under this

section 16.11 may implement the change with either a § 481(a) adjustment as provided

in sections 7.02 and 7.03 of Rev. Proc. 2015-13, or on a cut-off basis. If the taxpayer

implements the change on a cut-off basis, (i) the taxpayer must allocate any payment

allocations prior to the year of change using the taxpayer’s former method of

member of a consolidated group (within the meaning of § 1.1502-1(h)), then the

member must implement all changes with respect to its intercompany transactions

(within the meaning of § 1.1502-13(b)(1)(i)) under this section 16.11 on a cut-off basis

and can apply the first two sentences of this section 16.11(5)(a) to all other transactions.

See § 1.1502-17(b)(2); section 7.02 of Rev. Proc. 2015-13.

(b) Reduced filing requirement. A taxpayer making a change under this section

16.11 is required to complete only the following information on Form 3115 (Rev.

December 2015):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13,16c, and 19; and

(v) Part IV, all lines. For a taxpayer making a change under this section 16.11

using a § 481(a) adjustment, the statement required for Line 26 of Form 3115 should list