As many companies work towards completing implementation of ASC Topic 606 (Revenue from Contracts with Customers), differing methods of accounting could be required for financial reporting vs. tax reporting. For annual reporting periods beginning after Dec. 15, 2018 (or beginning after Dec. 15, 2017 for publicly-traded entities), an entity must recognize revenue for promised goods and services to customers for financial reporting purposes in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services under a five-step model. For tax purposes, a taxpayer using an accrual method of accounting accrues income when the right to receive income is fixed and the amount can be determined with reasonable accuracy (the all events test). These two methods could create book-tax differences that can be cumbersome to track.
On May 11, 2018, the IRS issued Revenue Procedure 2018-29 which provides for an automatic change in the tax accounting method for taxpayers to eliminate these book-tax differences and allow for consistent book and tax reporting of revenues. This procedure is effective for the taxpayer's first, second, or third tax year ending on or after May 10, 2018. The Revenue Procedure generally permits taxpayers adopting the new revenue recognition standards for tax purposes to do so either on a retroactive or cut-off method. For more information, contact us in one of our many locations.