Correcting Errors and Changing Accounting Methods: Missed Elections, Rescinding Elections, Uncertain Tax Positions

Description

Few matters are more troubling than discovering a new or existing client has missed a critical election. Relief exists for missed S-elections, check-the box elections, Section 754 elections, grouping elections, and other critical deadlines. Updated annually, the recent IRS Revenue Procedure 2019-43 provides a list of automatic accounting method changes. These changes can be made immediately, without IRS approval, and often include a Section 481(a) adjustment. Some taxpayers are reevaluating entity choices after tax reform. IRS Regulations 301.7701-3(c)(1)(iv) provide a method of changing entity classification.

Revenue Procedure 2013-30 provides relief for missed or late S-elections, and Section 9100 regulations provide automatic relief for certain late elections, including Section 754 elections. If an entity qualifies under the automatic procedures, corrections can be made without a costly private letter ruling (PLR). Sometimes, a PLR is the only option; however, at $30,000, this is not a viable option for many taxpayers. Certain taxpayers, however, may be eligible to submit a PLR for as little as $2,800.

Neglecting to mail Form 3115 to the proper IRS office and attach a second copy to your return, not waiting five years when changing an entity classification, and not correctly noting the applicable revenue procedure on the face of a return are examples of foot faults the IRS can use to deny the requested relief. Practitioners must not only understand relief available but also how to apply for relief properly and avoid missteps.

Listen as our panel of experts discusses using statutory and regulatory relief available under Section 9100 regulations, preparing Form 3115 for method changes, applying for a PLR, as well as when it is advisable to disclose an uncertain tax position in a return.