Taxpayers Engaging In Tax-Free Liquidations And Reorganizations Can Now Change Accounting Methods

Author:Mr Dwight Mersereau
Profession:McDermott Will & Emery

Taxpayers that engaged in transactions under §381(a), including tax-free liquidations under §332 and certain tax-free reorganizations under §361, previously could not change their methods of accounting for the year of the transaction using the automatic consent procedures under Rev. Proc. 2011-14, 2011-1 C.B. 330. (See "Navigating the Accounting Method Change Landscape—The New §381 Regulations and Other Developments" for a full discussion of accounting method change issues.) Additionally, taxpayers that were under examination by the Internal Revenue Service (IRS) previously could not seek under either the automatic consent procedures or the advance consent procedures of Rev. Proc. 97-27, 1997-1 C.B. 680, to change to an accounting method other than the principal or carryover methods required under the §381 regulations. Because the methods taxpayers otherwise are required to use under §381 regulations might not be optimal or even permitted, however, such prohibitions on taxpayers create a burden for taxpayers and the IRS.

Consequently, on September 4, 2012, the U.S. Department of the Treasury and the IRS published Rev. Proc. 2012-39, 2012-41 I.R.B., which removes those limitations for taxpayers engaging in a §381(a) transaction on or after August 31, 2011. Therefore, taxpayers that otherwise qualify to use the automatic change procedures may do so now, even if they engage in a §381(a) transaction during the proposed year of change...

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