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471(c) and the proposed regulations. inventory method. The changes to voluntarily change to a non–small
Streamlined procedures are available for available under this section apply to a business taxpayer inventory method
a taxpayer making a change to comply small business taxpayer that, in general, can now automatically change to use an
with the Sec. 471(c) inventory methods is changing from a nonincidental accrual method for purchases and sales
in the final regulations in the taxpayer’s materials and supplies (NIMS) of inventory while retaining an overall
early-adoption year, or the taxpayer’s method under Sec. 471(c) or the final cash method. The five-year eligibility
first tax year beginning on or after Jan. regulations Sec. 471(c) NIMS method requirement does not apply to this
5, 2021, if the final regulations are not and going to permitted methods, or change if the change is made in the first
early adopted and the Sec. 481(a) ad- taxpayers changing from an applicable tax year the taxpayer does not qualify as
justment for the change is zero. financial statement (AFS) or a a small business taxpayer.
Under these procedures, neither a non-AFS method under Sec. 471(c) or Several other automatic accounting
Form 3115, Application for Change in the final regulations’ AFS or non-AFS method changes have been modified
Accounting Method, nor a separate state- methods and changing the manner by Rev. Proc. 2022-9. The modified
ment is required to be filed. Updates in which it accounts for inventory consent procedures for an overall
made by Rev. Proc. 2022-14 permit in its AFS or books and records, as cash to accrual method change under
a taxpayer that makes a change to a applicable, and is required to use such Section 15.01 of Rev. Proc. 2022-14
method under the final regulations in method of accounting for inventory now also apply to taxpayers that are
the taxpayer’s early-adoption year or in in its AFS or its books and records, as required to change in a mandatory Sec.
the first final regulations year if the tax- applicable, for purposes of applying the 448 year (the first or subsequent tax
payer does not early adopt and the Sec. Sec. 471(c) AFS or non-AFS inventory year in which the taxpayer is subject to
481(a) adjustment is zero to not apply method. The five-year eligibility Sec. 448) and a taxpayer’s mandatory
the five-year eligibility requirement requirement applies to the changes Sec. 447 year for farming businesses
for subsequent accounting method under the Sec. 471(c) NIMS inventory required to use an accrual method
changes. This will permit taxpayers that method but does not apply to the under Sec. 447.
were substantially complying with the changes under the AFS and non-AFS This accounting method change is
final regulations to make a subsequent Sec. 471(c) inventory methods. modified to state that, for purposes of
automatic change to another method Changes under the AFS and non-AFS the change, a taxpayer using an accrual
without waiting five years. Sec. 471(c) inventory methods do not method for purchases and sales of
Section 23.01 of Rev. Proc. receive audit protection. inventories and the cash method for
2022-14 is modified to clarify that computing all other items of income
a small business taxpayer may use Highlights of automatic method and expense is deemed to be using a
the automatic change from a last-in, changes to non–small business cash method of accounting and not
first-out (LIFO) method to a small taxpayer methods a hybrid method, thereby permitting
business taxpayer exception method. Rev. Proc. 2022-9 provides a second taxpayers using this method as a
A taxpayer that made a change from new accounting method change related small business taxpayer to use this
a small business taxpayer exception to inventory in Section 22.20 of Rev. automatic change to go to a full accrual
inventory method to LIFO in the Proc. 2022-14, applicable to a change accounting method.
first tax year it did not qualify as a from using a small business taxpayer However, a method that has other
small business taxpayer may disregard inventory method under Sec. 471(c), or items on an accrual method besides
that prior change for purposes of from the proposed or final regulations, purchases and sales of inventory, as
the five-year eligibility requirement. to accounting for inventory using a well as some items on a cash method,
Additionally, the five-year eligibility non–small business taxpayer method. is defined as a hybrid method of
requirement does not apply to a When an inventory is required to be accounting and is specifically scoped
taxpayer’s early-adoption year or taken, an accrual method must be out of the automatic change, which
the first final regulations year if the used for purchases and sales; with continues to limit the ability of
taxpayer does not early adopt. the modifications to the overall cash taxpayers using such a method to make
A new automatic accounting method automatic method change for an automatic method change to use
method change has been added to Rev. a small business taxpayer under Section an overall accrual method. A taxpayer
Proc. 2022-14 under Section 22.19 15.17 of Rev. Proc. 2022-14, it appears making a change from the cash
to permit a small business taxpayer to that a small business taxpayer using method in its first or mandatory Sec.
make changes within its Sec. 471(c) an overall cash method that wishes 448 year or a mandatory Sec. 447 year

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