IRS Refines Automatic Accounting Method Changes and their Impact on International Tax

Disclaimer: The content in this blog was written prior to the passage of the “One Big Beautiful Bill” and may not reflect the most current tax laws or regulatory updates. For the latest guidance and implications of the new legislation, please consult with your McGuire Sponsel advisor or refer to our updated resources.

The IRS recently released Rev. Proc. 2025‑23 with important updates to the list of accounting method changes eligible for automatic IRS approval. These updates impact filings on or after June 9, 2025, for tax years ending on or after October 31, 2024. Some key changes include removing outdated rules, clarifying key provisions, and tightening requirements around changes involving foreign-related transitions.

Key Updates to Automatic Method Changes

The IRS removed several obsolete provisions, including:

• Late election rules under Sections 168(j), 168(l), and 181
• References to inventory valuation regulations
• Waiver language

At the same time, it clarified key rules like Section 481(a) adjustments, which now explicitly apply to any taxable year in which the method change is made, and streamlined language for depreciation, interest capitalization, and inventory accounting—making the guidance clearer and easier to apply, especially for multinational businesses.

Impacts on International Taxpayers

A major change for international tax practitioners is that accounting method adjustments tied to former Section 118(c)(Section 15.13), which includes certain contributions from foreign governments and public utilities—are no longer eligible for automatic change procedures. These must now follow the non-automatic route, requiring formal IRS review and approval, potentially delaying implementation.

In addition, the IRS added a new limitation to Section 15.08, which governs changes from the cash method to an accrual method for specific items. A new subparagraph, 15.08(1)(b)(ix), states that this change does not apply to any change in the method of accounting for foreign income taxes, as defined in Treas. Reg. § 1.901-2(a). This effectively excludes foreign taxes from the simplified method change process—an important clarification for companies dealing with international tax accruals.

Key Next Steps

• Re-evaluate Form 3115 Strategies: Taxpayers with pending non-automatic Form 3115 requests that now fall under the automatic procedure can still make the switch, provided they inform the IRS national office by July 9, 2025.
• Plan Ahead for International Changes: For tax teams managing international operations or operating in inventory-heavy industries, these updates demand attention.

For companies with cross-border operations or significant inventory activity, Rev. Proc. 2025-23 offers both simplification and new hurdles. While many changes improve clarity and ease of filing, international tax-related adjustments now require more planning and oversight when managing with cross-border businesses.

Have questions or need support? Reach out to McGuire Sponsel’s international tax team to coordinate next steps and ensure compliance with the updated procedures.