In Uncategorized on 03/27/2023 at 16:28

An unpermitted change of accounting method implicates Section 481, and even closed years open to IRS. So discovers Conmac Investments Inc., T. C. Memo. 2023-40, filed 3/27/23. Conmac owned AR farmland, rented to tenants for 25% of gross income. That included various Federal farm subsidies, kaleidoscopically variegated, so I’ll defer to agricultural expert Judge Elizabeth Crewson Paris to explain it all, T. C. Memo. 2023-41, at p. 3.

Conmac hadn’t amortized or depreciated the base acres (apparently those plots, parcels, and portions of land favored for receipt of our tax dollars) until a year now closed. Conmac started to do so without filing Form 3115 or otherwise soliciting the Secretary or Commissioner for consent.

Conmac claimed change in facts dispensed with need for IRS signoff.

“Petitioner maintains that its change in tax reporting was based on a change in underlying facts. However, petitioner never identifies what facts changed despite having ample opportunity to do so. Instead, petitioner contends that existing federal tax law allegedly allowed it to allocate and deduct a portion of the purchase price of tillable farmland using the present value of future farm program subsidy payments, and therefore that the company did not change its accounting method.” T. C. Memo. 2023-41, at p. 7.

True, the Regs do  allow an unpermitted change due to change in facts. But Reg Section 1.446-1(e)(2)(ii)(b) provides also that for …changes involving depreciable or amortizable assets, see paragraph (e)(2)(ii)(d) of this section and § 1.1016-3(h).”

There is caselaw that would permit the change Conmac wants, but in that case amended returns were filed for all open years with explanatory statements, and this ruled out Section 481; but Conmac never did that.

And as for SOL locking out years at issue, that also fails.

“… importantly for our purposes, a section 481 adjustment may include amounts attributable to otherwise time-barred tax years. See Huffman v. Commissioner, 126 T.C. 322 (2006), aff’d, 518 F.3d 357 (6th Cir. 2008); Rev. Proc. 2015-13, § 2.06(1), 2015-5 I.R.B. 419, 425. In fact, ‘[t]he only limitation on § 481(a) adjustments is that no pre-1954 adjustments shall be made.’ Mingo v. Commissioner, 773 F.3d 629, 636 (5th Cir. 2014) (alteration in original omitted) (quoting Commissioner v. Welch, 345 F.2d 939, 950 (5th Cir. 1965), rev’g T.C. Memo. 1963-38), aff’g T.C. Memo. 2013-149. ‘[O]nce there has been a change in the method of accounting, no statute of limitations applies to the Commissioner’s ability to correct errors on old tax returns.” Id.” T. C. Memo. 2023-41, at p. 11.

The Section 481 change IRS wants only restores Conmac to its old accounting method and prevents omission of income, so is not unfair.


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