Question

Which of the following statements are CORRECT when requesting permission to change accounting methods?

a. It is NOT necessary to request permission to change from an impermissible method to a permissible method.
b. The SEC must grant approval for the accounting change.
c. The IRS automatically approves certain types of accounting method changes.
d. The business may have to pay a fee and provide a good business reason for making the change.

Answer 1

The IRS, not the SEC, oversees changes in accounting methods, with automatic approval for certain types, and while a fee and a business reason are part of the requirements, the fee is not always necessary.

Step-by-step explanation:

When requesting permission to change accounting methods, it is important to understand the procedures and rules set forth by the Internal Revenue Service (IRS). Contrary to statement a, businesses often need to request permission from the IRS to change from impermissible to permissible methods as detailed in IRS Form 3115 (Application for Change in Accounting Method). Statement b regarding the SEC is incorrect, as the Securities and Exchange Commission (SEC) approval is separate from the IRS's authority concerning tax accounting methods. Statement c is correct; the IRS does have automatic approval procedures for certain types of accounting method changes, which can be found in the IRS's regularly updated automatic change procedures list. Finally, statement d is partially correct; while there may be a user fee associated with the Form 3115, and a business reason for the change should be provided, the fee is not always required, and a convincing business reason is often part of the procedural requirements for making the change.