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IRS announces temporary suspension for filing accounting method change requests for loan origination costs.

Ann. 93-60 provides that lenders seeking to voluntarily change from a method of deducting to a method of capitalizing loan origination costs should not file a Form 3115, Application for Change in Accounting Method, with the IRS National Office. The Service announced that a revenue procedure would be issued to address these changes in method of accounting.

Except for taxpayers for which the loan origination cost issue was a "pending" examination issue on the date the Form 3115 was filed, the IRS National Office will suspend processing any pending Forms 3115, and will return both the form and the user fee to the taxpayer. Taxpayers in this situation are therefore not required to perfect or otherwise respond to any outstanding requests for additional information from the Service.

Taxpayers that have previously filed Forms 3115 will be given audit protection for prior years and the ability to change for a current year, provided they make a voluntary change under whatever procedures the IRS requires. Taxpayers that previously filed Forms 3115 and are currently under examination (or subsequently come under examination) will not lose audit protection; they should give a copy of the previously filed Form 3115 and returning cover letter to the examining agent.

Taxpayers that did not previously file Forms 3115 and are currently under examination or subsequently come under examination must file a Form 3115 with the examining agent within the first 90 days of the examination or within any of the window periods available under Rev. Proc. 92-20 (120 days after end of exam or first 30 days of tax year). In all these cases, including those filed within the first 90 days of the exam (and for which Rev. Proc. 92-20 otherwise would impose less favorable terms and conditions), the client will receive the terms and conditions that are available to taxpayers not under examination. However, the Service apparently does not intend to give audit protection to taxpayers that have not previously filed a Form 3115 and are not able to change within an available window period.

Summary of recommended actions for taxpayers

Taxpayer previously filed Form 3115-issue not pending: * Take no further action in perfecting or responding to IRS inquiries. * If currently under examination, provide a copy of the returned Form 3115 and cover letter from the Service to the examining agent. * If subsequently under examination, provide a copy of the returned Form 3115 and cover letter from the IRS to the examining agent. Taxpayer did not previously file Form 3115: * If currently under examination for more than 90 days, file a Form 3115 with examining agent during the 120-day or 30-day window of Rev. Proc. 92-20. * If currently under examination for not more than 90 days or subsequently under examination, file a Form 3115 with the examining agent during the first 90 days of the exam. Taxpayer previously filed a Form 3115--issue pending: * Form 3115 will not be returned to taxpayer. * Await further guidance on terms and conditions. Year of change should be no earlier than the most recent tax year under examination as of Mar. 23, 1992, but no later than the most recent tax year for which a Federal income tax return has been filed as of the date the examination began.

The Service is considering whether to allow changes to be made on a cutoff basis for loans originating on or after the first day of the year of change. It is anticipated that the revenue procedure will be automatic and may provide that the year of change will be the first tax year for which a return has not been filed after a specified period (90 to 120 days after the date of publication). Thus, in the event that the revenue procedure is not issued by the end of June, the IRS may not require changes for tax years ending on or before Dec. 31, 1992.
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Author:Conjura, Carol
Publication:The Tax Adviser
Date:Jun 1, 1993
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