Simplified Accounting Method Change Procedures for Insurers Is Revised

Simplified Accounting Method Change Procedures for Insurers Is Revised

Internal Revenue Service

The IRS has revised guidance (Rev. Proc. 2019-30) that provides simplified procedures for an insurance company to obtain automatic consent to change its accounting methods for discounting unpaid losses and expenses, estimated salvage recoverable, and unearned premiums attributable to title insurance to comply with <a href="/research/federal/usc26/846" resolve="/lr/resolve//cqqn">section 846</a>, as amended by the Tax Cuts and Jobs Act. Changes were made in response to questions about the scope of the revenue procedure and the adjustments required under the terms and conditions. The IRS has expanded the scope of the guidance to include fiscal year taxpayers and clarified the required adjustments. According to Rev. Proc. 2019-30, the timing of the issuance of proposed and final regulations (<a href="/lr/resolve//28kz2">REG-103163-18</a>; <a href="/lr/resolve//29m4v">T.D. 9863</a>) implementing TCJA changes to <a href="/research/federal/usc26/846" resolve="/lr/resolve//cqqn">section 846</a> created challenges for taxpayers subject to the section 846 discounting rules in making accounting method changes to comply with amended section 846. Rev. Proc. 2019-30 provides simplified procedures to reduce administrative and compliance burdens on taxpayers affected by those changes. Simultaneously released guidance (<a href="/lr/resolve//29rl2">Rev. Proc. 2019-31</a>) provides revised unpaid loss discount factors for the 2018 accident year and earlier accident years that were determined under the final regs, revising the factors previously provided in guidance (<a href="/lr/resolve//28pxs">Rev. Proc. 2019-6</a>) that were determined under the proposed regs. Rev. Proc. 2019-30 applies to any property and casualty insurance company that changes its accounting method for discounting unpaid losses under <a href="/research/federal/usc26/846" resolve="/lr/resolve//cqqn">section 846</a>, discounting salvage recoverable under section 832, or both to comply with amended section 846. The guidance also applies to any life insurance company that changes its accounting method for discounting unpaid losses to comply with amended section 846. The insurance company must have a tax year beginning after December 31, 2017, and ending before June 17, 2019, and must meet conditions specified in Rev. Proc. 2019-30. Specified limitations under <a href="/lr/resolve//dppt">Rev. Proc. 2015-13</a> do not apply to a change in method of accounting made under Rev. Proc. 2019-30. Thus, an eligible insurance company may make a change in accounting method even if the requested year of change is the final year of the taxpayer’s trade or business or the taxpayer engages in a liquidation or reorganization transaction to which <a href="/research/federal/usc26/381" resolve="/lr/resolve//cqbm">section 381</a> applies. Rev. Proc. 2019-30 provides terms and conditions for making the accounting method changes, including how to account for <a href="/research/federal/usc26/481#cnxq-0000002" resolve="/lr/resolve//cnxq#cnxq-0000002">section 481(a)</a> adjustments and adjustments to be taken into account by some taxpayers that used the factors in <a href="/lr/resolve//28pxs">Rev. Proc. 2019-6</a>. The IRS generally won’t require an insurance company that makes an accounting method change for discounting unpaid losses, estimated salvage recoverable, or unearned premiums attributable to title insurance under Rev. Proc. 2019-30 to change its accounting method for the same item for tax years before the year of change if the insurance company complies with the provisions of the revenue procedure. The IRS may change an insurance company’s accounting method for the same item if it is an issue under consideration. Rev. Proc. 2019-30 is effective for tax years beginning after December 31, 2017, and ending before January 1, 2020. <a href="/lr/resolve//281c3">Rev. Proc. 2018-31</a> is modified to provide that section 26.04 of Rev. 2018-31 is inapplicable to any change in accounting method made under Rev. Proc. 2019-30.

The <a href="//s3.amazonaws.com/pdfs.taxnotes.com/2019/2019-29348_TNTIRSDocs_SUPPORT-DOC-original-rp-19-30.pdf">original version</a> of Rev. Proc. 2019-30 was released on July 22, 2019. Changes to the original are highlighted in the <a href="//s3.amazonaws.com/pdfs.taxnotes.com/2019/2019-29347_TNTIRSdocs_Rev.-Proc.-2019-30-revised-_highlighted-changes_.pdf">PDF version</a> of the revised guidance.

The IRS has revised guidance (Rev. Proc. 2019-30) that provides simplified procedures for an insurance company to obtain automatic consent to change its accounting methods for discounting unpaid losses and expenses, estimated salvage recoverable, and unearned premiums attributable to title insurance to comply with section 846, as amended by the Tax Cuts and Jobs Act.

The IRS has revised guidance (Rev. Proc. 2019-30) that provides simplified procedures for an insurance company to obtain automatic consent to change its accounting methods for discounting unpaid losses and expenses, estimated salvage recoverable, and unearned premiums attributable to title insurance to comply with section 846, as amended by the Tax Cuts and Jobs Act. Changes were made in response to questions about the scope of the revenue procedure and the adjustments required under the terms and conditions. The IRS has expanded the scope of the guidance to include fiscal year taxpayers and clarified the required adjustments. According to Rev. Proc. 2019-30, the timing of the issuance of proposed and final regulations (REG-103163-18; T.D. 9863) implementing TCJA changes to section 846 created challenges for taxpayers subject to the section 846 discounting rules in making accounting method changes to comply with amended section 846. Rev. Proc. 2019-30 provides simplified procedures to reduce administrative and compliance burdens on taxpayers affected by those changes. Simultaneously released guidance (Rev. Proc. 2019-31) provides revised unpaid loss discount factors for the 2018 accident year and earlier accident years that were determined under the final regs, revising the factors previously provided in guidance (Rev. Proc. 2019-6) that were determined under the proposed regs. Rev. Proc. 2019-30 applies to any property and casualty insurance company that changes its accounting method for discounting unpaid losses under section 846, discounting salvage recoverable under section 832, or both to comply with amended section 846. The guidance also applies to any life insurance company that changes its accounting method for discounting unpaid losses to comply with amended section 846. The insurance company must have a tax year beginning after December 31, 2017, and ending before June 17, 2019, and must meet conditions specified in Rev. Proc. 2019-30. Specified limitations under Rev. Proc. 2015-13 do not apply to a change in method of accounting made under Rev. Proc. 2019-30. Thus, an eligible insurance company may make a change in accounting method even if the requested year of change is the final year of the taxpayer’s trade or business or the taxpayer engages in a liquidation or reorganization transaction to which section 381 applies. Rev. Proc. 2019-30 provides terms and conditions for making the accounting method changes, including how to account for section 481(a) adjustments and adjustments to be taken into account by some taxpayers that used the factors in Rev. Proc. 2019-6. The IRS generally won’t require an insurance company that makes an accounting method change for discounting unpaid losses, estimated salvage recoverable, or unearned premiums attributable to title insurance under Rev. Proc. 2019-30 to change its accounting method for the same item for tax years before the year of change if the insurance company complies with the provisions of the revenue procedure. The IRS may change an insurance company’s accounting method for the same item if it is an issue under consideration. Rev. Proc. 2019-30 is effective for tax years beginning after December 31, 2017, and ending before January 1, 2020. Rev. Proc. 2018-31 is modified to provide that section 26.04 of Rev. 2018-31 is inapplicable to any change in accounting method made under Rev. Proc. 2019-30.

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Simplified Accounting Method Change Procedures for Insurers Is Revised