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ARTICLE · 30 MAY 2014

IRS Issues Guidance On New Automatic Method Changes For Implementing Final Regulations On Sales-Based Royalties And Vendor Chargebacks

Grant Thornton LLP
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IRS provided taxpayers with automatic accounting method change procedures for sales-based royalties to comply with final regulations (T.D. 9652).

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Grant Thornton'S Washington National Tax Office
Grant Thornton'S Washington National Tax Office
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Rev. Proc. 2014-33, 2014-22 I.R.B. 1, issued May 6, provides taxpayers with automatic accounting method change procedures for sales-based royalties and sales-based vendor chargebacks to comply with final regulations (T.D. 9652) issued in January 2014.

The revenue procedure modifies Rev. Proc. 2011-14, 2011-4 I.R.B. 330 and the comprehensive automatic accounting method procedures by adding three new automatic method changes:

1. Sales-based royalties under Section 263A

2. Sales-based vendor chargebacks under a simplified Section 263A method

3. Sales-based vendor chargebacks under Section 471

The first method change relates to treatment of sales-based royalties under Section 263A. Sales-based royalties are royalty costs incurred only upon the sale of the property produced or acquired for resale. Under the final regulations, taxpayers must capitalize these costs under Section 263A; however, those costs may be allocated entirely to the cost of goods sold or

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