Rev. Proc. 2019-34 provides simplified procedures for an insurance company to obtain automatic consent to change its methods of accounting for life insurance reserves, amounts under § 807(c)(3), and specified policy acquisition expenses under § 848, as applicable, to comply with §§ 807 and 848, as amended by sections 13517 and 13519 of the Tax Cuts and Jobs Act, for the first taxable year beginning after December 31, 2017.

26 CFR 601.204: Changes in accounting periods and in methods of accounting.

(Also: Part I, Sections 446, 807, 848.)

The 2019 interest rates to be used in computing the special use value of farm real property for which an election is made under section 2032A of the Code are listed for estate of decedents.

26 CFR 20.2032A-4: Method of valuing farm real property.

This revenue ruling contains a list of the average annual effective interest rates on new loans under the Farm Credit System. This revenue ruling also contains a list of the states within each Farm Credit System Bank Territory.

Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election is made under § 2032A. The rates in Table 1 of this revenue ruling may be used by estates that value farmland under § 2032A as of a date in 2019.

Average annual effective interest rates, calculated in accordance with

§ 2032A(e)(7)(A) and § 20.2032A-4(e) of the Estate Tax Regulations, to be used under § 2032A(e)(7)(A)(ii), are set forth in the accompanying Table of Interest Rates (Table 1). The states within each Farm Credit System Bank Territory are set forth in the accompanying Table of Farm Credit System Bank Territories (Table 2).

Rev. Rul. 81-170, 1981-1 C.B. 454, contains an illustrative computation of an average annual effective interest rate. The rates applicable for valuation in 2018 are in Rev. Rul. 2018-22, 2018-34 I.R.B. 308. For rate information for years prior to 2018, see Rev. Rul. 2017-16, 2017-35 I.R.B. 215, and other revenue rulings that are referenced therein.

This revenue procedure provides simplified procedures under § 446 of the Internal Revenue Code and § 1.446-1(e) of the Income Tax Regulations for an insurance company to obtain the automatic consent of the Commissioner of Internal Revenue (Commissioner) to change its methods of accounting to comply with amendments to §§ 807 and 848 made by Pub. L. No. 115-97 (131 Stat. 2054, 2144, 2148), commonly referred to as the Tax Cuts and Jobs Act (TCJA), for the first taxable year beginning after December 31, 2017. Except as provided in sections 3.02 and 10 of this revenue procedure, these simplified procedures are the exclusive procedures for an insurance company within the scope of section 3 of this revenue procedure to obtain the consent of the Commissioner to change a method of accounting described in this revenue procedure.

This revenue procedure generally is consistent with the simplified procedures provided in Rev. Proc. 2019-30, 2019-33 I.R.B. 638, for an insurance company to obtain the automatic consent of the Commissioner to change its method of accounting for discounting unpaid losses and expenses unpaid, estimated salvage recoverable, and unearned premiums attributable to title insurance to comply with § 846 as amended by the TCJA. This revenue procedure is, however, only available for one taxable year. As a result, the timing of the issuance of this revenue procedure may pose challenges to an insurance company that has already prepared its tax return for the first taxable year beginning after December 31, 2017, and this revenue procedure provides accommodations for such an insurance company.

.01 Life Insurance Reserve Method Change. This revenue procedure applies to any insurance company that changes its method of computing life insurance reserves to comply with amendments to § 807 made by the TCJA for the first taxable year beginning after December 31, 2017, provided the insurance company takes into account the § 481(a) adjustment described in section 6.01(1) of this revenue procedure in the manner prescribed in sections 6.02(1) and 6.02(3) of this revenue procedure and follows the procedures prescribed in section 7 of this revenue procedure.

.02 Section 807(c)(3) Method Change. This revenue procedure applies to any insurance company that changes its method of computing amounts under § 807(c)(3) to comply with amendments to § 807 made by the TCJA for the first taxable year beginning after December 31, 2017, provided the insurance company takes into account the § 481(a) adjustment described in section 6.01(2) of this revenue procedure in the manner prescribed in sections 6.02(2) and 6.02(3) of this revenue procedure and follows the procedures prescribed in section 7 of this revenue procedure. However, the portions of this revenue procedure related to § 807(c)(3) do not apply to an insurance company that changes its method of computing amounts under § 807(c)(3) to comply with amendments to § 807 made by the TCJA by complying with the procedures in section 26.04 of Rev. Proc. 2018-31 (as modified by Rev. Proc. 2019-10) (or its successor) to obtain the consent of the Commissioner for such change.

.03 Capitalization of Specified Policy Acquisition Expenses Method Change. This revenue procedure applies to any insurance company that changes its methods of capitalizing and amortizing specified policy acquisition expenses to comply with amendments to § 848 made by the TCJA for the first taxable year beginning after December 31, 2017, provided the insurance company follows the procedures prescribed in sections 6.01(3) and 7 of this revenue procedure.

Under § 1.446-1(e)(2)(i), the consent of the Commissioner is hereby granted to any insurance company within the scope of section 3 of this revenue procedure to change its method of accounting for life insurance reserves, amounts under § 807(c)(3), and specified policy acquisition expenses, as applicable, to comply with amendments to §§ 807 and 848, as applicable, made by the TCJA, provided the insurance company complies with the provisions of this revenue procedure and the applicable provisions of Rev. Proc. 2015-13.

.01 Except as otherwise provided in this revenue procedure, the provisions of Rev. Proc. 2015-13 apply to an insurance company within the scope of section 3 of this revenue procedure.

.02 The limitations in section 5 of Rev. Proc. 2015-13 do not apply to a change in method of accounting made under this revenue procedure. Therefore, an insurance company within the scope of this revenue procedure is eligible to make a change in method of accounting under this revenue procedure even if the requested year of change is the final year of the insurance company’s trade or business as described in section 5.03(1) of Rev. Proc. 2015-13 or the insurance company engages in a liquidation or reorganization transaction to which § 381 applies as described in section 5.02(1) of Rev. Proc. 2015-13.

In accordance with § 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a Form 3115 is waived for an insurance company making a change in method of accounting under this revenue procedure, provided the insurance company satisfies all of the applicable terms and conditions set forth in section 6 of this revenue procedure; properly reports the amount of any § 481 adjustment described in section 6.01 of this revenue procedure, as applicable, on its Federal income tax returns; and, except as otherwise provided in this revenue procedure, satisfies all of the applicable terms and conditions set forth in Rev. Proc. 2015-13.

.01 No Audit Protection for Life Insurance Reserve Method Changes. The audit protection in section 8 of Rev. Proc. 2015-13 does not apply to a change in method of accounting that is within the scope of section 3.01 of this revenue procedure.

.02 Audit Protection for Section 807(c)(3) and Capitalization of Specified Policy Acquisition Expenses Method Changes. Except as otherwise provided herein, the IRS will not require an insurance company that makes a change in method of accounting that is within the scope of section 3.02 or section 3.03 of this revenue procedure to change its method of accounting for the same item (that is, for discounting amounts under § 807(c)(3) or capitalizing and amortizing specified policy acquisition expenses under § 848, as applicable) for taxable years prior to the year of change, provided the insurance company complies with the applicable provisions of this revenue procedure. The IRS may change an insurance company’s method of accounting for the same item that is the subject of a change in method of accounting described in section 3.02 or section 3.03 of this revenue procedure if the insurance company’s method of accounting for the same item (that is, for discounting amounts under § 807(c)(3) or capitalizing and amortizing specified policy acquisition expenses under § 848, as applicable) is an issue under consideration (whether under examination, before an Appeals office, or before a federal court), within the meaning of section 3.08 of Rev. Proc. 2015-13, on August 6, 2019. The exceptions in section 8.02 of Rev. Proc. 2015-13 do not apply to an insurance company within the scope of section 3.02 or section 3.03 of this revenue procedure with respect to the insurance company’s method of accounting for the same item that is the subject of a change in method of accounting described in section 3.02 or section 3.03 of this revenue procedure (that is, for discounting amounts under § 807(c)(3) or capitalizing and amortizing specified policy acquisition expenses under § 848, as applicable).

Section 26.04(1) of Rev. Proc. 2018-31 (as modified by Rev. Proc. 2019-10), is modified by adding a second sentence to read as follows: “However, this section 26.04 does not apply to any change in method of accounting to which Rev. Proc. 2019-30, 2019-33 I.R.B. 638 or Rev. Proc. 2019-34, 2019-35 I.R.B. 669, applies.”

Accordingly, a change in a method of accounting subject to section 26.04 of Rev. Proc. 2018-31 (or its successor) to which this Rev. Proc. 2019-34 does not apply continues to be subject to section 26.04 of Rev. Proc. 2018-31 (or its successor). For example, if in its first taxable year beginning after December 31, 2017, a taxpayer changes its method of computing life insurance reserves in a manner in addition to that required to comply with the amendments to § 807 made by the TCJA, such additional change is not subject to this Rev. Proc. 2019-34 and continues to be subject to section 26.04 of Rev. Proc. 2018-31 (or its successor).

If before August 26, 2019, a taxpayer properly filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13 requesting the Commissioner’s consent for a change in method of accounting described in section 3 of this revenue procedure, and the Form 3115 is pending with the national office on August 26, 2019, the taxpayer may choose to make the change in method of accounting under the automatic change procedures in this revenue procedure and Rev. Proc. 2015-13 if the taxpayer is otherwise eligible to use this revenue procedure and the automatic change procedures in Rev. Proc. 2015-13. The taxpayer must notify the national office contact person for the Form 3115 (if unknown, see section 9.08(6) of Rev. Proc. 2019-1 (or any successor)) of the taxpayer’s intent to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 before the later of (a) September 25, 2019, or (b) the issuance of a letter ruling granting or denying consent for the change. The notification should indicate that the taxpayer chooses to convert the Form 3115 to the automatic change procedures in this revenue procedure and Rev. Proc. 2015-13. If the taxpayer timely notifies the national office that it chooses to convert the Form 3115 to the automatic change procedures in this revenue procedure and Rev. Proc. 2015-13, the national office will send a letter to the taxpayer acknowledging its request and will return the user fee submitted with the Form 3115.

This revenue procedure is effective for an insurance company’s first taxable year beginning after December 31, 2017.

The principal author of this revenue procedure is Dan Phillips of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Mr. Phillips at (202) 317-6995 (not a toll-free number).

Rev. Proc. 2019-34 provides simplified procedures for an insurance company to obtain automatic consent to change its method of accounting for specified policy acquisition expenses under § 848, as amended by section 13519 of the Tax Cuts and Jobs Act, for the first taxable year beginning after December 31, 2017. See Rev. Proc. 2019-34, page 669.