1. Yes.
2. No, the negative 481(a) adjustment would be taken into account under the normal procedures. The DCN 234 change would have a negative adjustment based on the existing section 263A balance on the tax balance sheet. The DCN 235 change's 481(a) adjustment would depend on the facts.
3/4. The choice is between the book method (for non-AFS taxpayers) and treatment as non-incidental materials and supplies. If the taxpayer elects to use its book method, there is no section 481(a) adjustment. If the taxpayer elects to use the non-incidental M&S treatment, it is not clear what the section 481(a) adjustment would be. As it so happens, the Service hasn't made a decision on how this provision works, but they rushed out the method changes regardless. So there are several possibilities that exist.
On the one hand, they probably would not be allowed to use LIFO for non-incidental M&S, since this was prohibited in the old rev procs. They may be allowed to eliminate the book labor and overhead, which would conform to the treatment under the old rev procs. They might be allowed to treat the raw materials and raw material content as expenses under the DMSH, but this might not effect the 481(a) because of the "treatment as an expense on the books" requirement for that safe harbor.
For a LIFO taxpayer, the choice seems to be between staying on their book LIFO (taking into account any book-tax LIFO submethod differences) OR going to non-incidental material & supply treatment, paying back the LIFO reserve, but possibly expensing book labor & overhead.
5. I do not anticipate them taking away the automatic method change in the near future. They usually leave automatic method changes up for at least a couple of years. If anything, the process will only become more certain in the future.
-Brian
Director of Tax Accounting Methods & Credits
SourceAdvisors.com
Opinions my own.