26 CFR 601.

204: Changes in accounting periods and in methods of accounting

.
(Also Part I, §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 195,
197, 248, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467, 471,
472, 475, 481, 585, 709, 807, 816, 832, 833, 846, 860A-860G, 861, 904, 953, 985,
1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61-1, 1.61-4, 1.61-8, 1.77-1,
1.77-2, 1.118-2, 1.162-1, 1.162-3, 1.162-4, 1.162-11, 1.162-12, 1.166-1, 1.166-2, 1.166-
4, 1.167(a)-2, 1.167(a)-3(b), 1.167(a)-4, 1.167(a)-7, 1.167(a)-8, 1.167(a)-11, 1.167(a)-
14, 1.167(e)-1, 1.168(d)-1, 1.168(i)-1, 1.168(i)-4, 1.168(i)-6, 1.168(i)-7, 1.168(i)-8,
1.168(k)-1, 1.168(k)-2, 1.171-4, 1.174-1, 1.174-3, 1.174-4, 1.179-5, 1.194-1, 1.195-1,
1.197-2, 1.248-1, 1.263(a)-1, 1.263(a)-2, 1.263(a)-3, 1.263(a)-4, 1.263(a)-5, 1.263A-1,
1.263A-2, 1.263A-3, 1.263A-4, 1.263A-7, 1.267(a)-1, 1.280F-6, 1.404(b)-1T, 1.446-1,
1.446-1T, 1.446-2, 1.446-5, 1.446-6, 1.446-7, 1.448-1, 1.448-2, 1.451-1, 1.451-3, 1.451-
8, 1.454-1, 1.455-6, 1.460-3, 1.460-4, 1.461-1, 1.461-4, 1.461-5, 1.467-1, 1.471-1,
1.471-2, 1.471-3, 1.471-4, 1.471-5, 1.471-8, 1.472-1, 1.472-2, 1.472-6, 1.472-8, 1.481-
1, 1.481-4, 1.709-1, 1.709-2, 1.832-4, 1.832-5, 1.860A-6, 1.861-18, 1.985-5, 1.985-8,
1.1016-3, 1.1245-3, 1.1272-1, 1.1273-1, 1.1273-2, 1.1275-2, 1.1363-2, 1.1374-4,
1.1400L(b)-1, 1.1502-68.)

Rev. Proc. 2022-14

LIST OF AUTOMATIC CHANGES .................................................................................. 7

SECTION 1. GROSS INCOME (§ 61) ............................................................................. 7
.01 Up-front Payments for Network Upgrades received by Utilities ............................. 7
SECTION 2. COMMODITY CREDIT LOANS (§ 77) ....................................................... 8
.01 Treating amounts received as loans ...................................................................... 8
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162) ............................................. 9
.01 Advances made by a lawyer on behalf of clients ................................................... 9
.02 ISO 9000 Costs ..................................................................................................... 9
.03 Restaurant or tavern smallwares packages ......................................................... 10
.04 Timber grower fertilization costs .......................................................................... 10
.05 Materials and supplies ......................................................................................... 11
.06 Repair and maintenance costs ............................................................................ 11
.07 Wireline network asset maintenance allowance and units of property methods of
accounting under Rev. Proc. 2011-27 ....................................................................... 11
.08 Wireless network asset maintenance allowance and units of property methods of
accounting under Rev. Proc. 2011-28 ....................................................................... 12
.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business of
transporting, delivering, or selling electricity .............................................................. 12
.10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business of
generating steam or electric power. ........................................................................... 13
 2

.11 Cable network asset capitalization methods of accounting under Rev. Proc. 2015-
12............................................................................................................................... 14
SECTION 4. BAD DEBTS (§ 166) ................................................................................. 16
.01 Change from reserve method to specific charge-off method ................. 161081089
.02 Conformity election by bank after previous election automatically revoked ......... 16
SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM (§
171) ............................................................................................................................... 18
.01 Revocation of § 171(c) election ........................................................................... 18
.02 Change to comply with § 163(e)(3) ...................................................................... 19
SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 167, 168, 197, 280F(a),
or 1502, OR FORMER § 56(g)(4)(A), 168, 1400I, 1400L, or 1400N(d)) ........................ 20
.01 Impermissible to permissible method of accounting for depreciation or
amortization ............................................................................................................... 20
.02 Permissible to permissible method of accounting for depreciation ...................... 38
.03 Sale, lease, or financing transactions .................................................................. 47
.04 Change in general asset account treatment due to a change in the use of MACRS
property ..................................................................................................................... 48
.05 Change in method of accounting for depreciation due to a change in the use of
MACRS property........................................................................................................ 51
.06 Depreciation of qualified non-personal use vans and light trucks ........................ 55
.07 Impermissible to permissible method of accounting for depreciation or
amortization for disposed depreciable or amortizable property ................................. 56
.08 Tenant construction allowances........................................................................... 61
.09 Safe harbor method of accounting for determining the depreciation of certain
tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-
22............................................................................................................................... 63
.10 Partial dispositions of tangible depreciable assets to which the IRS’s adjustment
pertains (§ 168; § 1.168(i)-8) ..................................................................................... 64
.11 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-4) .. 68
.12 Permissible to permissible method of accounting for depreciation of MACRS
property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8) ......................................... 71
.13 Disposition of a building or structural component (§ 168; § 1.168(i)-8) ................ 80
.14 Dispositions of tangible depreciable assets (other than a building or its structural
components) (§ 168; § 1.168(i)-8) ............................................................................. 92
.15 Dispositions of tangible depreciable assets in a general asset account (§
168(i)(4); § 1.168(i)-1).............................................................................................. 101
.16 Summary of certain changes in methods of accounting related to dispositions of
MACRS property...................................................................................................... 108
.17 Depreciation of fiber optic transfer node and fiber optic cable used by a cable
system operator (§§ 167 and 168) ........................................................................... 114
.18 Late elections or revocation of elections under § 168(k)(5), (7), and (10).......... 116
.19 Qualified improvement property placed in service after December 31, 2017 (§
168) ......................................................................................................................... 118
.20 Certain late elections under §§ 168 and 1502 or revocation of certain elections
under § 168 (§ 168(g)(7), (k)(5), (k)(7), and (k)(10); §§ 1.168(k)-2 and 1.1502-68). 121
.21 Change in depreciation as a result of applying the additional first year
depreciation regulations (§ 168(k); §§ 1.168(k)-2 and 1.1502-68) ........................... 125
 3

.22 Depreciation of tangible property under § 168(g) by controlled foreign

corporations. ............................................................................................................ 132
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174) ............. 137
.01 Changes to a different method or different amortization period ......................... 137
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D) .................................. 140
.01 Deduction for Energy Efficient Commercial Buildings (§ 179D) ......................... 140
SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197) .... 142
.01 Computer software expenditures ....................................................................... 142
SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§§ 195,
248 AND 709) ............................................................................................................. 143
.01 Start-up expenditures ........................................................................................ 143
.02 Organizational expenditures under § 248 .......................................................... 145
.03 Organization fees under § 709........................................................................... 147
SECTION 11. CAPITAL EXPENDITURES (§ 263) ..................................................... 148
.01 Package design costs ........................................................................................ 148
.02 Line pack gas or cushion gas ............................................................................ 149
.03 Removal costs ................................................................................................... 150
.04 Distributor commissions..................................................................................... 152
.05 Intangibles ......................................................................................................... 153
.06 Rotable spare parts safe harbor method. .......................................................... 153
.07 Repairable and reusable spare parts ................................................................. 154
.08 Tangible property ............................................................................................... 158
.09 Railroad track structure expenditures ................................................................ 167
.10 Remodel-refresh safe harbor method ................................................................ 168
SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) ............ 174
.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-
producers ................................................................................................................. 174
.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-
producers ................................................................................................................. 185
.03 Impact fees ........................................................................................................ 191
.04 Change to capitalizing environmental remediation costs under § 263A............. 191
.05 Change in allocating environmental remediation costs under § 263A ............... 192
.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles... 193
.07 Change to not apply § 263A to one or more plants removed from the list of plants
that have a preproductive period in excess of 2 years. ............................................ 195
.08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for self-
constructed assets ................................................................................................... 196
.09 Real property acquired through foreclosure ....................................................... 197
.10 Sales-Based Royalties ....................................................................................... 198
.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method .... 200
.12 U.S. ratio method ............................................................................................... 202
.13 Depletion ........................................................................................................... 207
.14 Interest capitalization ......................................................................................... 209
.15 Change to not apply § 263A to replanting costs for lost or damaged citrus plants
pursuant to § 263A(d)(2)(C) ..................................................................................... 210
.16 Small business taxpayer exception from requirement to capitalize costs under §
263A ........................................................................................................................ 212
 4

.17 Recharacterizing costs under the simplified resale method, simplified production
method, or the modified simplified production method............................................. 214
.18 Revocation of a historic absorption ratio election............................................... 217
.19 Late revocation of elections under § 263A(d)(3) ................................................ 219
SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO
TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267) ................................. 220
.01 Change to comply with § 267 ............................................................................ 220
SECTION 14. DEFERRED COMPENSATION (§ 404) ............................................... 221
.01 Deferred compensation ..................................................................................... 221
.02 Grace period contributions ................................................................................. 224
SECTION 15. METHODS OF ACCOUNTING (§ 446) ................................................ 224
.01 Change in overall method from the cash method to an accrual method ............ 224
.02 Multi-year insurance policies for multi-year service warranty contracts ............. 237
.03 Nonaccrual-experience method ......................................................................... 239
.04 Interest accruals on short-term consumer loans—Rule of 78’s method............. 242
.05 Film producer’s treatment of certain creative property costs ............................. 243
.06 Deduction of incentive payments to health care providers................................. 244
.07 Change by bank for uncollected interest............................................................ 245
.08 Change from the cash method to an accrual method for specific items............. 247
.09 Multi-year service warranty contracts ................................................................ 249
.10 Overall cash method for specified transportation industry taxpayers ................. 250
.11 Change to overall cash/hybrid method for certain banks ................................... 254
.12 Change to overall cash method for farmers ....................................................... 258
.13 Nonshareholder contributions to capital under § 118......................................... 260
.14 Debt issuance costs........................................................................................... 261
.15 Transfers of interties under the safe harbor described in Notice 2016-36 (§ 118).
................................................................................................................................. 262
.16 Change to or from the net asset value (NAV) method. ...................................... 264
.17 Small business taxpayer changing to overall cash method, or to a method of
accounting in which a small business taxpayer uses an accrual method for purchases
and sales of inventories and uses the cash method for computing all other items of
income and expense................................................................................................ 267
SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451) ............................................ 271
.01 Accrual of interest on nonperforming loans ....................................................... 271
.02 Advance rentals ................................................................................................. 273
.03 State or local income or franchise tax refunds ................................................... 273
.04 Capital Cost Reduction Payments ..................................................................... 274
.05 Credit card annual fees...................................................................................... 274
.06 Advance payments ............................................................................................ 275
.07 Retainages ........................................................................................................ 277
.08 Change in applicable financial statements (AFS) for purposes of applying certain
revenue recognition methods of accounting. ........................................................... 278
.09 Changes in the timing of recognition of income due to the New Standards ....... 287
.10 Changes in the timing of income recognition under § 451(b) and (c)................. 292
SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454) ................................. 321
.01 Series E, EE or I U.S. savings bonds ................................................................ 321
SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455) ...................................... 322
 5

.01 Prepaid subscription income .............................................................................. 322

SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460) ............... 324
.01 Small business taxpayer exceptions from requirement to account for certain long-
term contracts under § 460 or to capitalize costs under § 263A for certain home
construction contracts .............................................................................................. 324
SECTION 20. TAXABLE YEAR INCURRED (§ 461) .................................................. 327
.01 Timing of incurring liabilities for employee compensation .................................. 327
(1) Self-insured employee medical benefits ......................................................... 327
(2) Bonuses .......................................................................................................... 329
(3) Vacation pay, sick pay, and severance pay .................................................... 330
(4) Commissions .................................................................................................. 332
.02 Timing of incurring liabilities for real property taxes, personal property taxes, state
income taxes, and state franchise taxes .................................................................. 334
.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of
contract, or violation of law ...................................................................................... 335
.04 Timing of incurring certain liabilities for payroll taxes ......................................... 337
.05 Cooperative advertising ..................................................................................... 340
.06 Timing of incurring certain liabilities for services or insurance ........................... 340
.07 Rebates and allowances.................................................................................... 341
.08 Ratable accrual of real property taxes ............................................................... 341
.09 California Franchise Taxes ................................................................................ 343
.10 Gift cards issued as a refund for returned goods ............................................... 343
.11 Timing of incurring liabilities under the recurring item exception to the economic
performance rules .................................................................................................... 344
.12 Economic performance safe harbor for ratable service contracts ...................... 345
.13 Timing of incurring inventory costs .................................................................... 345
SECTION 21. RENT (§ 467) ....................................................................................... 348
.01 Change from an improper method of inclusion of rental income or expense to
inclusion in accordance with the rent allocation ....................................................... 348
SECTION 22. INVENTORIES (§ 471) ......................................................................... 349
.01 Cash discounts .................................................................................................. 349
.02 Estimating inventory “shrinkage”........................................................................ 351
.03 Qualifying volume-related trade discounts ......................................................... 353
.04 Impermissible methods of identification and valuation of inventories................. 354
.05 Core Alternative Valuation Method .................................................................... 357
.06 Replacement cost for automobile dealers’ parts inventory ................................ 358
.07 Replacement cost for heavy equipment dealers’ parts inventory ....................... 359
.08 Rotable spare parts ........................................................................................... 360
.09 Advance Trade Discount Method....................................................................... 361
.10 Permissible methods of identification and valuation of inventories. ................... 362
.11 Change in the official used vehicle guide utilized in valuing used vehicles ........ 365
.12 Invoiced advertising association costs for new vehicle retail dealerships .......... 366
.13 Rolling-average method of accounting for inventories ....................................... 367
.14 Sales-Based Vendor Chargebacks .................................................................... 368
.15 Certain changes to the cost complement of the retail inventory method............ 369
.16 Certain changes within the retail inventory method ........................................... 370
 6

.17 Change from currently deducting inventories to permissible methods of

identification and valuation of inventories. ............................................................... 371
.18 Small business taxpayer § 471(c) inventory methods........................................ 373
.19 Changes within a § 471(c) inventory method. .................................................... 379
.20 Change from a small business taxpayer § 471(c) inventory method to an inventory
method under § 471(a). ........................................................................................... 382
SECTION 23. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472) .......................... 383
.01 Change from the LIFO inventory method........................................................... 383
.02 Determining current-year cost under the LIFO inventory method ...................... 388
.03 Alternative LIFO inventory method for retail automobile dealers ....................... 389
.04 Used vehicle alternative LIFO method ............................................................... 391
.05 Determining the cost of used vehicles purchased or taken as a trade-in ........... 394
.06 Change to the inventory price index computation (IPIC) method ....................... 395
.07 Changes within the inventory price index computation (IPIC) method ............... 397
.08 Changes to the Vehicle-Pool Method ................................................................ 400
.09 Changes within the used vehicle alternative LIFO method ................................ 402
.10 Changes to dollar-value pools of manufacturers................................................ 402
SECTION 24. MARK-TO-MARKET ACCOUNTING METHOD (Including § 475) ........ 404
.01 Commodities dealers, securities traders, and commodities traders electing to use
the mark-to-market method of accounting under § 475(e) or (f) .............................. 404
.02 Taxpayers requesting to change their method of accounting from the mark-to-
market method of accounting described in § 475 to a realization method ............... 406
SECTION 25. BANK RESERVES FOR BAD DEBTS (§ 585) ..................................... 410
.01 Changing from the § 585 reserve method to the § 166 specific charge-off method
................................................................................................................................. 410
SECTION 26. INSURANCE COMPANIES (§§ 807, 816, 832, 833) ............................ 414
.01 Safe harbor method of accounting for premium acquisition expenses............... 414
.02 Certain changes in method of accounting for organizations to which § 833 applies
................................................................................................................................. 416
.03 Change in qualification as life/nonlife insurance company under § 816............. 417
.04 Changes in basis of computing reserves under § 807(f).................................... 418
SECTION 27. DISCOUNTED UNPAID LOSSES (§ 846)............................................ 424
.01 Composite method for discounting unpaid losses.............................................. 424
SECTION 28. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§
860A-860G)................................................................................................................. 425
.01 REMIC Inducement Fees .................................................................................. 425
SECTION 29. FUNCTIONAL CURRENCY (§ 985) ..................................................... 426
.01 Change in functional currency ........................................................................... 426
SECTION 30. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)................................... 427
.01 De minimis original issue discount (OID) ........................................................... 427
.02 Proportional method of accounting for OID on a pool of credit card receivables 428
SECTION 31. MARKET DISCOUNT BONDS (§ 1278) ............................................... 430
.01 Revocation of § 1278(b) election ....................................................................... 430
SECTION 32. SHORT-TERM OBLIGATIONS (§ 1281) .............................................. 432
.01 Interest income on short-term obligations .......................................................... 432
.02 Stated interest on short-term loans of cash method banks ................................ 433
EFFECTIVE DATE ...................................................................................................... 434
 7

EFFECT ON OTHER DOCUMENTS .......................................................................... 439

PAPERWORK REDUCTION ACT............................................................................... 442
SIGNIFICANT CHANGES ........................................................................................... 443
DRAFTING INFORMATION ........................................................................................ 450
LIST OF AUTOMATIC CHANGES CONTACT LIST ................................................... 452

This revenue procedure provides the List of Automatic Changes to which the

automatic change procedures in Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and

modified by Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc.

2021-34, 2021-35 I.R.B. 337, by Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, by Rev.

Proc. 2017-59, 2017-48 I.R.B. 543, and by section 17.02(b) and (c) of Rev. Proc. 2016-

1, 2016-1 I.R.B. 1, apply. The definitions in section 3 of Rev. Proc. 2015-13 apply to

this revenue procedure.

LIST OF AUTOMATIC CHANGES

SECTION 1. GROSS INCOME (§ 61)

.01 Up-front Payments for Network Upgrades received by Utilities.

(1) Description of change. This change applies to a Utility that wants to

change its method of accounting for Up-front Payments to the safe harbor method

described in Rev. Proc. 2005-35, 2005-2 C.B. 76. In general, this change applies to a

Utility that receives an Up-front Payment from a Generator to finance Network Upgrades

to the Utility’s Transmission System. For federal income tax purposes, if an Up-front

Payment is made pursuant to an Interconnection Agreement that satisfies all of the

conditions of section 5.02 of Rev. Proc. 2005-35, a Utility may treat that Up-front

Payment as not being taxable income under § 61 when received (the safe harbor

method). In addition, a Utility that uses the safe harbor method is not entitled to any

deduction for its reimbursements of the Up-front Payment. To the extent that Federal

Energy Regulatory Commission (FERC) interest is deductible, it must be properly

 8

allocated to the periods in which it accrues. A Utility using the safe harbor method must

comply with all other applicable provisions of Rev. Proc. 2005-35. See Rev. Proc.

2005-35 for the definitions of certain terms for purposes of this change.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 1.01 is “91.”

(3) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

SECTION 2. COMMODITY CREDIT LOANS (§ 77)

.01 Treating amounts received as loans.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for loans received from the Commodity Credit

Corporation from including the loan amount in gross income for the taxable year in

which each loan is received to treating each loan amount as a loan.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(3) Manner of making change. This change is made on a cut-off basis and

applies only to loans received from the Commodity Credit Corporation on or after the

beginning of the year of change. Accordingly, a § 481(a) adjustment is neither

permitted nor required.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 2.01 is “1.”

 9

(5) Contact information. For further information regarding a change under

this section, contact William Ruane at (202) 317-4718 (not a toll-free number).

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)

.01 Advances made by a lawyer on behalf of clients.

(1) Description of change. This change applies to a lawyer who advances

money to pay for costs of litigation or for other expenses on behalf of clients, and who

wants to change the method of accounting for such advances from treating them as

deductible business expenses to treating them as loans to clients. This change applies

to cases handled either on a non-contingent or a contingent fee basis. See Pelton &

Gunther, P.C. v. Commissioner, T.C. Memo. 1999-339 (non-contingent fee); Canelo v.

Commissioner, 53 T.C. 217 (1969), aff’d per curiam, 447 F.2d 484 (9th Cir. 1971)

(contingent fee).

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.01 is “2.”

(3) Contact information. For further information regarding a change under

this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).

.02 ISO 9000 costs.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for costs incurred to obtain, maintain, and renew ISO

9000 certification to conform with Rev. Rul. 2000-4, 2000-1 C.B. 331, as modified by

this revenue procedure.

 10

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.02 is “3.”

(3) Contact information. For further information regarding a change under

this section, contact Justin Grill at (202) 317-7003 (not a toll-free number).

.03 Restaurant or tavern smallwares packages.

(1) Description of change. This change applies to a taxpayer engaged in the

trade or business of operating a restaurant or tavern (within the meaning of section 4.01

of Rev. Proc. 2002-12, 2002-1 C.B. 374) that wants to change its method of accounting

for the costs of smallwares to the smallwares method described in Rev. Proc. 2002-12,

as modified by this revenue procedure.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.03 is “4.”

(3) Contact information. For further information regarding a change under

this section, contact Renay France at (202) 317-7003 (not a toll-free number).

.04 Timber grower fertilization costs.

(1) Description of change. This change applies to a timber grower that wants

to change its method of accounting to treat post-establishment fertilization costs of an

established timber stand as ordinary and necessary business expenses deductible

under § 162. See Rev. Rul. 2004-62, 2004-1 C.B. 1072, as modified by this revenue

procedure.
 11

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.04 is “86.”

(3) Contact information. For further information regarding a change under

this section, contact Alexa Dubert at (202) 317-7003 (not a toll-free number).

.05 Materials and supplies. See section 11.08 of this revenue procedure.

.06 Repair and maintenance costs. See section 11.08 of this revenue procedure.

.07 Wireline network asset maintenance allowance and units of property methods

of accounting under Rev. Proc. 2011-27.

(1) Description of change. This change applies to a wireline

telecommunications carrier that is within the scope of Rev. Proc. 2011-27, 2011-18

I.R.B. 740, and wants to change its treatment of wireline network asset expenditures to

use either (a) the wireline network asset maintenance allowance method of accounting,

or (b) all or some of the units of property described in Rev. Proc. 2011-27.

(2) Section 481(a) adjustment. In general, a change to the wireline network

asset maintenance allowance method of accounting or to use all or some of the units of

property specified in Rev. Proc. 2011-27 requires an adjustment under § 481(a). The

§ 481(a) adjustment shall not include any amount attributable to property for which the

taxpayer elected to apply the repair allowance under § 1.167(a)-11(d)(2).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.07 is “158.”

(4) Contact information. For further information regarding a change under

this section, contact Ian Heminsley at (202) 317-5100 (not a toll-free number).
 12

.08 Wireless network asset maintenance allowance and units of property

methods of accounting under Rev. Proc. 2011-28.

(1) Description of change. This change applies to a wireless

telecommunications carrier that is within the scope of Rev. Proc. 2011-28, 2011-18

I.R.B. 743, and wants to change its treatment of wireless network asset expenditures to

use either (a) the wireless network asset maintenance allowance method of accounting,

or (b) all or some of the units of property described in Rev. Proc. 2011-28.

(2) Section 481(a) adjustment. In general, a change to the wireless network

asset maintenance allowance method of accounting or to use all or some of the units of

property specified in Rev. Proc. 2011-28 requires an adjustment under § 481(a). The

§ 481(a) adjustment does not include any amount attributable to property for which the

taxpayer elected to apply the repair allowance under § 1.167(a)-11(d)(2).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.08 is “159.”

(4) Contact information. For further information regarding a change under

this section, contact Sophia Wang at (202) 317-5100 (not a toll-free number).

.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business

of transporting, delivering, or selling electricity.

(1) Description of change. This change applies to a taxpayer that is within

the scope of Rev. Proc. 2011-43, 2011-37 I.R.B. 326, and wants to change its treatment

of transmission and distribution property expenditures to use the method of accounting

described in Rev. Proc. 2011-43.

 13

(2) Section 481(a) adjustment. A taxpayer must take the entire net § 481(a)

adjustment into account (whether positive or negative) in computing taxable income for

the year of change. The § 481(a) adjustment does not include any amount attributable

to property for which the taxpayer elected to apply the repair allowance under

§ 1.167(a)-11(d)(2) for any taxable year in which the election was made. For guidance

regarding permissible § 481(a) calculation methodologies, see section 7.02 and

Appendix A of Rev. Proc. 2011-43.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.09 is “160.”

(4) Contact information. For further information regarding a change under this

section, contact Natasha Mulleneaux at (202) 317-5100 (not a toll-free number).

.10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business

of generating steam or electric power.

(1) Description of change. This change applies to a taxpayer that is within

the scope of Rev. Proc. 2013-24, 2013-22 I.R.B. 1142, and wants to change its

treatment of generation property expenditures to use all or some of the unit of property

definitions and the corresponding major component definitions described in Rev. Proc.

2013-24.

(2) Section 481(a) adjustment.

(a) A taxpayer must take the entire net § 481(a) adjustment into account

(whether positive or negative) in computing taxable income for the year of change. For

guidance regarding the use of extrapolation in computing a § 481(a) adjustment, see

sections 6.02 and Appendix B of Rev. Proc. 2013-24.

 14

(b) A taxpayer changing to this method of accounting must not include in

the § 481(a) adjustment any amount attributable to property for which the taxpayer

elected to apply the repair allowance under § 1.167(a)–11(d)(2) for any taxable year in

which the repair allowance election was made.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 3.10 is “182.”

(4) Contact information. For further information regarding a change under

this section, contact Morgan Lawrence at (202) 317-7011 (not a toll-free number).

.11 Cable network asset capitalization methods of accounting under Rev. Proc.

2015-12.

(1) Description of change. This change applies to a cable system operator

that is within the scope of Rev. Proc. 2015-12, 2015-2 I.R.B. 266, and wants to make

one or more of the following changes in method of accounting:

(a) Change its treatment of cable network asset expenditures to the

cable network asset maintenance allowance method of accounting provided in section 5

of Rev. Proc. 2015-12;

(b) Change to use any of the unit of property definitions provided in

section 6 of Rev. Proc. 2015-12;

(c) Change to use the specific identification method for installations and

customer drop costs described in section 7.01(1) of Rev. Proc. 2015-12;

(d) Change to use the safe harbor allocation method for installations and

customer drop costs described in section 7.01(2) of Rev. Proc. 2015-12; or

 15

(e) Change to deduct the labor costs associated with installing customer

premises equipment under section 7.02 of Rev. Proc. 2015-12.

(2) Concurrent automatic change. A taxpayer that wants to make one or

more changes in method of accounting pursuant to this section 3.11 and a change to a

UNICAP method under section 12 of this revenue procedure for the same year of

change should file a single Form 3115 that includes all of these changes and must enter

the designated automatic accounting method change numbers for all of these changes

on the appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13

for information on making concurrent changes.

(3) Section 481(a) adjustment.

(a) In general, a change to one or more of the changes in method of

accounting described in section 3.11(1) of this revenue procedure requires an

adjustment under § 481(a). The § 481(a) adjustment shall not include any amount

attributable to property for which the taxpayer elected to apply the repair allowance

under § 1.167(a)-11(d)(2).

(b) Itemized listing on Form 3115. The taxpayer must include on Form

3115 (Rev. December 2018), Part IV, line 26, the total § 481(a) adjustment for all

changes in methods of accounting being made. If the taxpayer is making more than

one change in method of accounting under Rev. Proc. 2015-12, the taxpayer must

include on an attachment to Form 3115:

(i) the information required by Part IV, line 26 for each change in

method of accounting (including the amount of the § 481(a) adjustment for each change

in method of accounting, which includes the portion of the § 481(a) adjustment

attributable to UNICAP);
 16

(ii) the information required by Part II, line 14 of Form 3115 that is

associated with each change; and

(iii) the citation to the paragraph of Rev. Proc. 2015-12 that provides

for each proposed method of accounting.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to a method of

accounting provided in section 5 or 6 of Rev. Proc. 2015-12 is “208.” The designated

automatic accounting method change number for a change to a method of accounting

provided in section 7 of Rev. Proc. 2015-12 is “209.”

(5) Contact information. For further information regarding a change under

this section, contact Merrill Feldstein at (202) 317-5100 (not a toll-free number).

SECTION 4. BAD DEBTS (§ 166)

.01 Change from reserve method to specific charge-off method.

(1) Description of change. This change applies to a taxpayer (other than a

bank as defined in § 585(a)(2)) that wants to change its method of accounting for bad

debts from a reserve method (or other improper method) to a specific charge-off method

that complies with § 166. For procedures applicable to banks, see § 585(c) and the

regulations thereunder and section 25 of this revenue procedure.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 4.01 is “5.”

(3) Contact information. For further information regarding a change under

this section, contact Renay France at (202) 317-7003 (not a toll-free number).

.02 Conformity election by bank after previous election automatically revoked.

 17

(1) Description of change. This change applies to a bank that wants to

change its method of accounting for bad debts by making the conformity election under

§ 1.166-2(d)(3)(iii)(C)(3).

(2) Applicability. This change only applies to a bank (as defined in

§ 1.166-2(d)(4)(i)) that:

(a) is subject to supervision by Federal authorities, or by state authorities

maintaining substantially equivalent standards;

(b) has previously adopted or elected to change to the method of accounting

for bad debts described in § 1.166-2(d)(3);

(c) has had that previous election automatically revoked under

§ 1.166-2(d)(3)(iv)(C);

(d) meets the express determination requirement of § 1.166-2(d)(3)(iii)(D) for

the year of change; and

(e) now seeks the consent of the Commissioner to make an election under

§ 1.166-2(d)(3)(iii)(C)(3).

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 4.02 is “211.”

(5) Contact information. For further information regarding a change under

this section, contact K. Scott Brown at (202) 317-6945 (not a toll-free number).
 18

SECTION 5. INTEREST EXPENSE (§163) AND AMORTIZABLE BOND PREMIUM

(§ 171)
.01 Revocation of § 171(c) election.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for amortizable bond premium by revoking its § 171(c)

election. Under § 171(c), a taxpayer that holds certain taxable bonds may elect to

amortize any bond premium on the bonds in accordance with regulations prescribed by

the Secretary. Sections 1.171-1 through 1.171-5 provide rules relating to the

amortization of bond premium by a taxpayer. Section 1.171-4 provides the procedures

to make a § 171(c) election to amortize bond premium.

(2) Revocation of election. The revocation of a § 171(c) election applies to

all taxable bonds that are held by the taxpayer on the first day of the first taxable year

for which the revocation is effective (year of change), and to all taxable bonds that are

subsequently acquired by the taxpayer.

(3) Manner of making change. This change is made using a cut-off basis

and applies only to taxable bonds held on or after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

Under the cut-off basis, for taxable bonds held at the beginning of the year of

change, the taxpayer may not amortize any remaining bond premium on the bonds.

Because the cut-off basis is prescribed for this change, the basis of any bond, adjusted

for amounts previously amortized during the period of the election, is not affected by the

revocation.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 5.01 is “16.”

 19

(5) Additional requirements. On a statement attached to the Form 3115, the

taxpayer must provide:

(a) the reason(s) for revoking the election; and

(b) a description of the method by which, and the date on which, the

taxpayer made the § 171(c) election that is proposed to be revoked.

(6) Audit protection. Any audit protection applicable to this change under

section 8 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not preclude the

Commissioner from examining the method used by the taxpayer to determine the

amount of amortizable bond premium under § 171(b) for a taxable year prior to the year

of change.

(7) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

.02 Change to comply with § 163(e)(3).

(1) Description of change. This change applies to a taxpayer that wants to

change its method or methods of accounting to comply with the requirements of

§ 163(e)(3), which defers certain deductions attributable to original issue discount debt

instruments held by related foreign persons. Any portion of the original issue discount

will not be allowable as a deduction to the U.S. person issuer until paid.

(2) Accelerated § 481(a) adjustment period in certain situations. In addition

to the circumstances set forth in section 7.03(4) of Rev. Proc. 2015-13, 2015-5 I.R.B.

419, the § 481 adjustment period provided in section 7.03 of Rev. Proc. 2015-13 will be

accelerated for a U.S. person with a remaining balance of a § 481(a) adjustment that

arose by reason of a change in method of accounting described in this section 5.02 if a

debt instrument subject to the change is paid off, retired, or significantly modified within
 20

the meaning of § 1.1001-3 prior to the end of the § 481(a) adjustment period. The

portion of the remaining § 481(a) adjustment attributable to the debt instrument must be

taken into account in the taxable year the debt instrument is paid off, retired, or

significantly modified within the meaning of § 1.1001-3.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 5.02 is “212.”

(4) Contact information. For further information regarding a change under

this section, contact Anisa Afshar at (202) 317-6934 (not a toll-free number).

SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 167, 168, 197, 280F(a),

or 1502, OR FORMER § 56(g)(4)(A), 168, 1400I, 1400L, or 1400N(d))
.01 Impermissible to permissible method of accounting for depreciation or

amortization.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from an impermissible to a permissible method of accounting for depreciation or

amortization (depreciation) for any item of depreciable or amortizable property under the

taxpayer’s present or proposed method of accounting:

(i) for which the taxpayer used the impermissible method of

accounting in at least two taxable years immediately preceding the year of change (but

see section 6.01(1)(b) of this revenue procedure for property placed in service in the

taxable year immediately preceding the year of change);

(ii) for which the taxpayer is making a change in method of

accounting under § 1.446-1(e)(2)(ii)(d);

 21

(iii) for which depreciation is determined under § 56(a)(1),

§ 56(g)(4)(A) (as in effect on the day before the date of enactment of Public Law 115-

97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act

(TCJA)), § 167, §168, §197, §1400I, or §1400L(c), under § 168 prior to its amendment

in 1986 (former § 168), or under any additional first year depreciation deduction

provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)); and

(iv) that is owned by the taxpayer at the beginning of the year of

change (but see section 6.07 of this revenue procedure for property disposed of before

the year of change).

(b) Taxpayer has not adopted a method of accounting for the item of

property. If a taxpayer does not satisfy section 6.01(1)(a)(i) of this revenue procedure

for an item of depreciable or amortizable property because this item of property is

placed in service by the taxpayer in the taxable year immediately preceding the year of

change (“1-year depreciable property”), the taxpayer may change from the

impermissible method of determining depreciation to the permissible method of

determining depreciation for the 1-year depreciable property by filing a Form 3115 for

this change, provided the § 481(a) adjustment reported on the Form 3115 includes the

amount of any adjustment that is attributable to all property (including the 1-year

depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change

from the impermissible method of determining depreciation to the permissible method of

determining depreciation for a 1-year depreciable property by filing an amended federal

income tax return, or an administrative adjustment request under § 6227 (AAR), as

applicable, for the property’s placed-in-service year prior to the date the taxpayer files

its federal income tax return for the taxable year succeeding the placed-in-service year.
 22

(c) Inapplicability. This change does not apply to:

(i) any property to which § 1016(a)(3) (regarding property held by a

tax-exempt organization) applies;

(ii) a taxpayer that is required under § 263A and the regulations

thereunder to capitalize the costs with respect to which the taxpayer wants to change its

method of accounting under this section 6.01 if the taxpayer is not capitalizing these

costs, unless the taxpayer concurrently changes its method to capitalize these costs in

conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or

12.12 of this revenue procedure (as applicable);

(iii) any property for which a taxpayer is making a change in

depreciation under § 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);

(iv) any property subject to § 167(g) regarding property depreciated

under the income forecast method;

(v) any § 1250 property that a taxpayer is reclassifying to an asset

class of Rev. Proc. 87-56, 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-

22, 1988-1 C.B. 785), or Rev. Proc. 83-35, 1983-1 C.B. 745, as appropriate, that does

not explicitly include § 1250 property (for example, asset class 57.0, Distributive Trades

and Services);

(vi) any property for which a taxpayer is revoking a timely valid

election, or making a late election, under § 167, § 168, § 179, §1400I, § 1400L(c),

former § 168, § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993

Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles), or any additional

first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l),

§ 1400L(b), or § 1400N(d)). A taxpayer may request consent to revoke or make the

 23

election by submitting a request for a letter ruling under Rev. Proc. 2022-1, 2022-1

I.R.B. 1 (or successor). However, if a taxpayer is revoking or making an election under

§ 179, see § 179(c) and § 1.179-5. See § 1.446-1(e)(2)(ii)(d)(3)(iii);

(vii) any property for which depreciation is determined under

§ 56(g)(4)(A) (as in effect on the day before the date of enactment of the TCJA) or

§ 167 (other than under § 168, § 1400I, § 1400L(c), former § 168, or any additional first

year depreciation deduction provision of the Code (for example, § 168(k), § 168(l),

§ 1400L(b), or § 1400N(d))) and a taxpayer is changing the useful life of the property. A

change in the useful life of property is corrected by adjustments in the applicable

taxable year provided under § 1.446-1(e)(2)(ii)(d)(5)(iv). However, this section

6.01(1)(c)(vii) does not apply if the taxpayer is changing to or from a useful life, recovery

period, or amortization period that is specifically assigned by the Code (for example,

§ 167(f)(1), § 168(c)), the regulations thereunder, or other guidance published in the

Internal Revenue Bulletin and, therefore, this change is a change in method of

accounting (unless section 6.01(1)(c)(xv) of this revenue procedure applies). See

§ 1.446-1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable property for which the use changes in the

hands of the same taxpayer. See § 1.446-1(e)(2)(ii)(d)(3)(ii). But see sections 6.04 and

6.05 of this revenue procedure for changing to the methods of accounting provided in

§ 1.168(i)-1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2), and § 1.168(i)-4, respectively;

(ix) any property for which depreciation is determined in accordance

with § 1.167(a)-11 (regarding the Class Life Asset Depreciation Range System (ADR));

(x) any change in method of accounting involving a change from

deducting the cost or other basis of any property as an expense to capitalizing and
 24

depreciating the cost or other basis, or vice versa (but see section 11.08 of this revenue

procedure for making such a change in method of accounting under the final tangible

property regulations);

(xi) any change in method of accounting involving a change from one

permissible method of accounting for the property to another permissible method of

accounting for the property. For example:

(A) a change from the straight-line method of depreciation to the

income forecast method of depreciating for videocassettes. See Rev. Rul. 89-62, 1989-

1 C.B. 78; or

(B) a change from charging the depreciation reserve with costs

of removal and crediting the depreciation reserve with salvage proceeds to deducting

costs of removal as an expense (provided the costs of removal are not required to be

capitalized under any provision of the Code, such as § 263(a)) and including salvage

proceeds in taxable income (see section 6.02 of this revenue procedure for making this

change for property for which depreciation is determined under § 167);

(xii) any change in method of accounting involving both a change

from treating the cost or other basis of the property as nondepreciable or

nonamortizable property to treating the cost or other basis of the property as

depreciable or amortizable property and the adoption of a method of accounting for

depreciation requiring an election under § 167, § 168, §1400I, § 1400L(c), former § 168,

§ 13261(g)(2) or (3) of the 1993 Act, or any additional first year depreciation deduction

provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)) (for

example, a change in the treatment of the space consumed in landfills placed in service

in 2006 from nondepreciable to depreciable property (assuming section 6.01(1)(c)(xiii)

 25

of this revenue procedure does not apply) and the making of an election under

§168(f)(1) to depreciate this property under the unit-of-production method of

depreciation under § 167);

(xiii) any change in method of accounting for any item of income or

deduction other than depreciation, even if the change results in a change in computing

depreciation under § 1.446-1(e)(2)(ii)(d)(2)(i), (ii), (iii), (iv), (v), (vi), (vii), or (viii). For

example, a change in method of accounting involving:

(A) a change in inventory costs (for example, when property is

reclassified from inventory property to depreciable property, or vice versa) (but see

section 11.02 of this revenue procedure for making a change in method of accounting

from inventory property to depreciable property for unrecoverable line pack gas or

unrecoverable cushion gas, and section 11.06 of this revenue procedure for making a

change in method of accounting from inventory property to depreciable property for

rotable spare parts); or

(B) a change in the character of a transaction from sale to lease,

or vice versa (but see section 6.03 of this revenue procedure for making this change);

(xiv) a change from determining depreciation under § 168 to

determining depreciation under former § 168 for any property subject to the transition

rules in § 203(b) or § 204(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1, 60-

80;

(xv) any change in the placed-in-service date of a depreciable or

amortizable property. This change is corrected by adjustments in the applicable taxable

year provided under § 1.446-1(e)(2)(ii)(d)(5)(v);

 26

(xvi) any property for which the taxpayer has claimed a federal

income tax credit (e.g., the rehabilitation credit under § 47);

(xvii) any qualified improvement property, as defined in § 168(e)(6),

placed in service by the taxpayer after December 31, 2017, to which section 6.19 of this

revenue procedure applies;

(xviii) any property to which section 4 or 5 of Rev. Proc. 2020-22,

2020-18 I.R.B. 745, applies. (See sections 4.02 and 4.03, or 5.02 of Rev. Proc. 2020-

22, as applicable, for making any changes to depreciation for such property.);

(xix) any change in method of accounting to which section 6.21 of

this revenue procedure applies; or

(xx) the change in method of accounting specified in section 6.22 of

this revenue procedure. However, an original Form 3115 for such change in method of

accounting may be filed under this section 6.01 instead of section 6.22 of this revenue

procedure if the duplicate copy was properly filed under this section 6.01 before May 11,

2021.

(2) Certain eligibility rules inapplicable. The eligibility rule in section

5.01(1)(d) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change. If

during any of the five taxable years ending with the year of change, a taxpayer

requested or made a change in method of accounting from expensing to capitalizing, or

vice versa, the cost or other basis of an asset, the eligibility rule in section 5.01(1)(f) of

Rev. Proc. 2015-13 is not applicable to a change under this section 6.01 for that same

asset.

(3) Additional requirements. A taxpayer also must comply with the following:
 27

(a) Permissible method of accounting for depreciation. A taxpayer must

change to a permissible method of accounting for depreciation for the item of

depreciable or amortizable property. The permissible method of accounting is the same

method that determines the depreciation allowable for the item of property (as provided

in section 6.01(7) of this revenue procedure).

(b) Statements required. A taxpayer (including a qualified small taxpayer

as defined in section 6.01(4)(b) of this revenue procedure) must provide the following

statements, if applicable, and attach them to the completed Form 3115:

(i) a detailed description of the present and proposed methods of

accounting. A general description of these methods of accounting is unacceptable (for

example, MACRS to MACRS, erroneous method to proper method, claiming less than

the depreciation allowable to claiming the depreciation allowable);

(ii) to the extent not provided elsewhere on the Form 3115, a

statement describing the taxpayer’s business or income-producing activities. Also, if the

taxpayer has more than one business or income-producing activity, a statement

describing the taxpayer’s business or income-producing activity in which the item of

property at issue is primarily used by the taxpayer;

(iii) to the extent not provided elsewhere on the Form 3115, a

statement of the facts and law supporting the proposed method of accounting, new

classification of the item of property, and new asset class in, as appropriate, Rev. Proc.

87-56 or Rev. Proc. 83-35. If the taxpayer is the owner and lessor of the item of

property at issue, the statement of the facts and law supporting the new asset class also

must describe the business or income-producing activity in which that item of property is

primarily used by the lessee;

 28

(iv) to the extent not provided elsewhere on the Form 3115, a

statement identifying the year in which the item of property was placed in service by the

taxpayer;

(v) if any item of property is public utility property within the meaning

of § 168(i)(10) or former § 167(I)(3)(A), as applicable, a statement providing that the

taxpayer agrees to the following additional terms and conditions:

(A) a normalization method of accounting (within the meaning of

former § 167(I)(3)(G), former § 168(e)(3)(B), or § 168(i)(9), as applicable) will be used

for the public utility property subject to the Form 3115;

(B) as of the beginning of the year of change, the taxpayer will

adjust its deferred tax reserve account or similar reserve account in the taxpayer’s

regulatory books of account by the amount of the deferral of federal income tax liability

associated with the § 481(a) adjustment applicable to the public utility property subject

to the Form 3115; and

(C) within 30 calendar days of filing the federal income tax return

for the year of change, the taxpayer will provide a copy of the completed Form 3115 to

any regulatory body having jurisdiction over the public utility property subject to the

Form 3115;

(vi) if the taxpayer is changing the classification of an item of § 1250

property placed in service after August 19, 1996, to a retail motor fuels outlet under

§ 168(e)(3)(E)(iii), a statement containing the following representation: “For purposes of

§ 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents that (A) 50

percent or more of the gross revenue generated from the item of § 1250 property is

from the sale of petroleum products (not including gross revenue from related services,
 29

such as the labor cost of oil changes and gross revenue from the sale of nonpetroleum

products such as tires and oil filters), (B) 50 percent or more of the floor space in the

item of property is devoted to the sale of petroleum products (not including floor space

devoted to related services, such as oil changes and floor space devoted to

nonpetroleum products such as tires and oil filters), or (C) the item of § 1250 property is

1,400 square feet or less.”; and

(vii) if the taxpayer is changing the classification of an item of

property from § 1250 property to § 1245 property under § 168 or former § 168, a

statement of the facts and law supporting the new § 1245 property classification, and a

statement containing the following representation: “Each item of depreciable property

that is the subject of the Form 3115 filed under section 6.01 of Rev. Proc. 2022-14 for

the year of change beginning [Insert the date], and that is reclassified from [Insert, as

appropriate: nonresidential real property, residential rental property, qualified leasehold

improvement property, qualified restaurant property, qualified retail improvement

property, qualified improvement property as defined in § 168(e)(6) (as amended by §

13204 of the TCJA), 19-year real property, 18-year real property, or 15-year real

property] to an asset class of [Insert, as appropriate, either: Rev. Proc. 87-56, 1987-2

C.B. 674, or Rev. Proc. 83-35, 1983-1 C.B. 745] that does not explicitly include § 1250

property, is § 1245 property for depreciation purposes.”

(4) Reduced filing requirement for qualified small taxpayers.

(a) In general. A qualified small taxpayer, as defined in section

6.01(4)(b) of this revenue procedure, is required to complete only the following

information on Form 3115 (Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

 30

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16c, 17, and 19;

(v) Part IV, all lines except line 25; and

(vi) Schedule E.

(b) Definition of qualified small taxpayer. A “qualified small taxpayer” is a

taxpayer whose average annual gross receipts, as determined under § 1.263(a)-3(h)(3),

for the three preceding taxable years is less than or equal to $10,000,000.

(5) Section 481(a) adjustment. Because the adjusted basis of the property is

changed as a result of a method change made under this section 6.01 (see section

6.01(6) of this revenue procedure), items are duplicated or omitted. Accordingly, this

change is made with a § 481(a) adjustment. This adjustment may result in either a

negative § 481(a) adjustment (a decrease in taxable income) or a positive § 481(a)

adjustment (an increase in taxable income) and may be a different amount for regular

tax, alternative minimum tax, and adjusted current earnings purposes. This § 481(a)

adjustment equals the difference between the total amount of depreciation taken into

account in computing taxable income for the property under the taxpayer’s present

method of accounting (including the amount attributable to any property described in

section 6.01(1)(b) of this revenue procedure that is included in the taxpayer’s Form

3115), and the total amount of depreciation allowable for the property under the

taxpayer’s proposed method of accounting (as determined under section 6.01(7) of this

revenue procedure, and including the amount attributable to any property described in

section 6.01(1)(b) of this revenue procedure that is included in the taxpayer’s Form

3115), for open and closed years prior to the year of change. However, the amount of
 31

the § 481(a) adjustment must be adjusted to account for the proper amount of the

depreciation allowable that is required to be capitalized under any provision of the Code

(for example, § 263A) at the beginning of the year of change.

(6) Basis adjustment. As of the beginning of the year of change, the basis of

depreciable property to which this section 6.01 applies must reflect the reductions

required by § 1016(a)(2) for the depreciation allowable for the property (as determined

under section 6.01(7) of this revenue procedure).

(7) Meaning of depreciation allowable.

(a) In general. Section 6.01(7) of this revenue procedure provides the

amount of the depreciation allowable determined under § 56(a)(1), § 56(g)(4)(A) (as in

effect on the day before the date of enactment of the TCJA), § 167, § 168, or § 197, or

former § 168, § 1400I, or § 1400L(c). This amount, however, may be limited by other

provisions of the Code (for example, § 280F).

(b) Section 56(a)(1) property. The depreciation allowable for any taxable

year for property for which depreciation is determined under § 56(a)(1) is determined by

using the depreciation method, recovery period, and convention provided for under

§ 56(a)(1) that applies for the property’s placed-in-service date.

(c) Section 56(g)(4)(A) property. The depreciation allowable for any

taxable year for property for which depreciation is determined under § 56(g)(4)(A) (as in

effect on the day before the date of enactment of the TCJA) is determined by using the

depreciation method, recovery period or useful life, as applicable, and convention

provided for under § 56(g)(4)(A) (as in effect on the day before the date of enactment of

the Act) that applies for the property’s placed-in-service date.

 32

(d) Section 167 property. Generally, for any taxable year, the

depreciation allowable for property for which depreciation is determined under § 167, is

determined either:

(i) under the depreciation method adopted by the taxpayer for the

property; or

(ii) if that depreciation method does not result in a reasonable

allowance for depreciation or the taxpayer has not adopted a depreciation method for

the property, under the straight-line depreciation method.

For determining the estimated useful life and salvage value of the property, see

§ 1.167(a)-1(b) and (c), respectively.

The depreciation allowable for any taxable year for property subject to § 167(f)

(regarding certain property excluded from § 197) is determined by using the

depreciation method and useful life prescribed in § 167(f). If computer software is

depreciated under § 167(f)(1) and is qualified property (as defined in § 168(k)(2) as

amended by the TCJA and § 1.168(k)-2), qualified property (as defined in § 168(k)(2) as

in effect on the day before the date of enactment of the TCJA and § 1.168(k)-1), 50-

percent bonus depreciation property (as defined in § 168(k)(4) (as in effect on the day

before the date of enactment of the Economic Stimulus Act of 2008, Pub. L. No. 110-

185, 122 Stat. 613 (February 13, 2008)) and § 1.168(k)-1), qualified disaster assistance

property (as defined in § 168(n)(2) (as in effect on the day before the date of enactment

of the Tax Technical Corrections Act of 2018, Pub. L. No. 115-141, Division U, 132 Stat.

1211 (March 23, 2018)), qualified New York Liberty Zone (Liberty Zone) property (as

defined in § 1400L(b)(2) (as in effect on the day before the date of enactment of the Tax

Technical Corrections Act of 2018) and § 1.1400L(b)-1), qualified Gulf Opportunity Zone
 33

(GO Zone) property (as defined in § 1400N(d)(2) (as in effect on the day before the date

of enactment of the Tax Technical Corrections Act of 2018) and sections 2.02 and 2.03

of Notice 2006-77, 2006-2 C.B. 590, as clarified, modified, and amplified by Notice

2007-36, 2007-1 C.B. 1000), specified Gulf Opportunity Zone extension property (GO

Zone extension property) (as defined in § 1400N(d)(6) (as in effect on the day before

the date of enactment of the Tax Technical Corrections Act of 2018) and section 4 of

Notice 2007-36), or qualified Recovery Assistance (RA) property (as defined in sections

2.02 and 2.03 of Notice 2008-67, 2008-32 I.R.B. 307), the depreciation allowable for

that computer software under § 167(f)(1) is also determined by taking into account the

additional first year depreciation deduction provided by § 168(k), § 168(n) (as in effect

on the day before the date of enactment of the Tax Technical Corrections Act of 2018),

§ 1400L(b) (as in effect on the day before the date of enactment of the Tax Technical

Corrections Act of 2018), or § 1400N(d) (as in effect on the day before the date of

enactment of the Tax Technical Corrections Act of 2018), or by § 15345(a)(1) and (d)(1)

of the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat.

1651 (June 18, 2008), as applicable, unless the taxpayer made a timely valid election

not to deduct any additional first year depreciation for the computer software.

(e) Section 168 property. The depreciation allowable for any taxable

year for property for which depreciation is determined under § 168, is determined as

follows:

(i) by using either:

(A) the general depreciation system in § 168(a); or

(B) the alternative depreciation system in § 168(g) if the property

is required to be depreciated under the alternative depreciation system pursuant to

 34

§ 168(g)(1) or other provisions of the Code (for example, property described in

§ 263A(e)(2)(A) or § 280F(b)(1)). Property required to be depreciated under the

alternative depreciation system pursuant to § 168(g)(1) includes property in a class (as

set out in § 168(e)) for which the taxpayer made a timely valid election under

§ 168(g)(7);

(ii) if the property is qualified property, 50-percent bonus depreciation

property, qualified disaster assistance property, Liberty Zone property, GO Zone

property, GO Zone extension property, or RA property, by also taking into account the

additional first year depreciation deduction provided by § 168(k), § 168(n) (as in effect

on the day before the date of enactment of the Tax Technical Corrections Act of 2018),

§ 1400L(b) (as in effect on the day before the date of enactment of the Tax Technical

Corrections Act of 2018), or § 1400N(d) (as in effect on the day before the date of

enactment of the Tax Technical Corrections Act of 2018), or by § 15345(a)(1) and (d)(1)

of the Food, Conservation, and Energy Act of 2008, as applicable, unless the taxpayer

made a timely valid election not to deduct the additional first year depreciation (or made

a deemed election not to deduct the additional first year depreciation; for further

guidance, see, for example, Rev. Proc. 2002-33, 2002-1 C.B. 963, Rev. Proc. 2003-50,

2003-2 C.B. 119, Notice 2006-77, Notice 2008-67, section 5 of Rev. Proc. 2011-26,

2011-16 I.R.B. 664, Rev. Proc. 2015-48, 2015-40 I.R.B. 469, or Rev. Proc. 2019-33,

2019-34 I.R.B. 662) for the class of property (as defined in § 1.168(k)-2(f)(1)(ii),

§ 1.168(k)-1(e)(2), § 1.1400L(b)-1(e)(2), or section 4.02 of Notice 2006-77, as

applicable) in which that property is included;

(iii) if the property is qualified second generation biofuel plant

property (as defined in § 168(l)(2) and (3)) or qualified cellulosic biofuel plant property
 35

(as defined in former § 168(l)(2) and (3)), by also taking into account the additional first

year depreciation deduction provided by § 168(l)(1), unless the taxpayer made a timely

valid election not to deduct the additional first year depreciation for the property; and

(iv) if the property is qualified reuse and recycling property (as

defined in § 168(m)(2)), by also taking into account the additional first year depreciation

deduction provided by § 168(m)(1), unless the taxpayer made a timely valid election not

to deduct the additional first year depreciation for the property.

(f) Section 197 property. The amortization allowable for any taxable year

for an amortizable § 197 intangible (including any property for which a timely election

under § 13261(g)(2) of the 1993 Act was made) is determined in accordance with

§ 1.197-2(f).

(g) Former § 168 property. The depreciation allowable for any taxable

year for property subject to former § 168 is determined by using either:

(i) the accelerated method of cost recovery applicable to the property

(for example, for 5-year property, the recovery method under former § 168(b)(1)); or

(ii) the straight-line method applicable to the property if the property

is required to be depreciated under the straight-line method (for example, property

described in former § 168(f)(2) or former § 280F(b)(2)) or if the taxpayer elected to

determine the depreciation allowance under the optional straight-line percentage (for

example, the straight-line method in former § 168(b)(3)).

(h) Qualified revitalization building. The depreciation allowable for any

taxable year for any qualified revitalization building (as defined in § 1400I(b)(1) (as in

effect on the day before the date of enactment of the Tax Technical Corrections Act of
 36

2018)) for which the taxpayer has made a timely valid election under § 1400I(a) is

determined as follows:

(i) if the taxpayer elected to deduct one-half of any qualified

revitalization expenditures (as defined in § 1400I(b)(2) and as limited by § 1400I(c) (as

in effect on the day before the date of enactment of the Tax Technical Corrections Act

of 2018)) chargeable to a capital account with respect to the qualified revitalization

building for the taxable year in which the building is placed in service by the taxpayer,

the depreciation allowable for the qualified revitalization building’s placed-in-service

year is equal to one-half of the qualified revitalization expenditures for the building and

the depreciation allowable for the remaining depreciable basis of the qualified

revitalization building for its placed-in-service year and subsequent taxable years is

determined using the general depreciation system of § 168(a) or the alternative

depreciation system of § 168(g), as applicable; or

(ii) if the taxpayer elected to amortize all of the qualified revitalization

expenditures chargeable to a capital account with respect to the qualified revitalization

building ratably over the 120-month period beginning with the month in which the

building is placed in service, the depreciation allowable for the qualified revitalization

expenditures is determined in accordance with this election and the depreciation

allowable for the remaining depreciable basis of the qualified revitalization building is

determined using the general depreciation system of § 168(a) or the alternative

depreciation system of § 168(g), as applicable.

(i) Qualified New York Liberty Zone leasehold improvement property.

The depreciation allowable for any taxable year for qualified New York Liberty Zone

leasehold improvement property (as defined in § 1400L(c)(2) (as in effect on the day
 37

before the date of enactment of the Tax Technical Corrections Act of 2018)) is

determined by using the depreciation method and recovery period prescribed in

§ 1400L(c) (as in effect on the day before the date of enactment of the Tax Technical

Corrections Act of 2018) unless the taxpayer made a timely valid election under

§ 1400L(c)(5) (as in effect on the day before the date of enactment of the Tax Technical

Corrections Act of 2018) not to use that recovery period.

(8) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such adjustment and a single positive § 481(a)

adjustment for all the changes that are included in that Form 3115 generating such

adjustment. For example, a taxpayer files a single Form 3115 to change the

depreciation methods, recovery periods, and/or conventions under § 168(a) resulting

from the reclassification of two computers from nonresidential real property to 5-year

property, one office desk from nonresidential real property to 7-year property, and two

office desks from 5-year property to 7-year property. On that Form 3115, the taxpayer

must provide either (i) a single net § 481(a) adjustment that covers all the changes

resulting from all of these reclassifications, or (ii) a single negative § 481(a) adjustment

that covers the changes resulting from the reclassifications of the two computers and

one office desk from nonresidential real property to 5-year property and 7-year property,
 38

respectively, and a single positive § 481(a) adjustment that covers the changes

resulting from the reclassifications of the two office desks from 5-year property to 7-year

property.

(b) A taxpayer making both this change and a change to a UNICAP

method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes. For example, a qualified small taxpayer must include on the single Form 3115

the information required by section 6.01(4)(a) of this revenue procedure for this change

and the information required by the lines on Form 3115 applicable to the UNICAP

method change, including Part II line 14 and 15, Part IV, and Schedule D, and must

include a separate response to each line on Form 3115 that is applicable to both

changes (such as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)

for which the taxpayer’s response is different for this change and the change to a

UNICAP method.

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.01 is “7.”

(10) Contact information. For further information regarding a change under

this section, contact James Liechty at (202) 317-7005 (not a toll-free number).

.02 Permissible to permissible method of accounting for depreciation.

 39

(1) Description of change. This change applies to a taxpayer that wants to

change from a permissible method of accounting for depreciation under § 56(g)(4)(A)(iv)

(as in effect on the day before the date of enactment of Public Law 115-97, 131 Stat.

2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA)) or

§ 167 to another permissible method of accounting for depreciation under

§ 56(g)(4)(A)(iv) (as in effect on the day before the date of enactment of the TCJA) or

§ 167. Pursuant to § 1.167(a)-7(a) and (c), a taxpayer may account for depreciable

property either by treating each individual asset as an account or by combining two or

more assets in a single account and, for each account, depreciation allowances are

computed separately.

(2) Applicability.

(a) In general. This change applies to any taxpayer wanting to make a

change in method of accounting for depreciation specified in section 6.02(4) of this

revenue procedure for the property in an account:

(i) for which the present and proposed methods of accounting for

depreciation specified in section 6.02(4) of this revenue procedure are permissible

methods for the property under § 56(g)(4)(A)(iv) (as in effect on the day before the date

of enactment of the TCJA) or § 167; and

(ii) that is owned by the taxpayer at the beginning of the year of

change.

(b) Inapplicability. This change does not apply to:

(i) a taxpayer that is required under § 263A and the regulations

thereunder to capitalize the costs with respect to which the taxpayer wants to change its

method of accounting under this section 6.02 if the taxpayer is not capitalizing these
 40

costs, unless the taxpayer concurrently changes its method to capitalize these costs in

conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or

12.12 of this revenue procedure (as applicable);

(ii) any property to which § 1016(a)(3) (regarding property held by a

tax-exempt organization) applies;

(iii) any property described in § 167(f) (regarding certain property

excluded from § 197);

(iv) any property subject to § 167(g) (regarding property depreciated

under the income forecast method);

(v) any property for which depreciation is determined under

§ 56(a)(1), § 56(g)(4)(A)(i), (ii), (iii), or (v) (as in effect on the day before the date of

enactment of the TCJA), § 168, § 1400I (as in effect on the day before the date of

enactment of the Tax Technical Corrections Act of 2018, Pub. L. No. 115-141, Division

U, 132 Stat. 1211 (March 23, 2018)), § 1400L(c) (as in effect on the day before the date

of enactment of the Tax Technical Corrections Act of 2018), § 168 prior to its

amendment in 1986 (former § 168), or any additional first year depreciation deduction

provision of the Code (for example, § 168(k), § 168(l), § 1400L(b) (as in effect on the

day before the date of enactment of the Tax Technical Corrections Act of 2018), or

§ 1400N(d) (as in effect on the day before the date of enactment of the Tax Technical

Corrections Act of 2018));

(vi) any property that the taxpayer elected under § 168(f)(1) or former

§ 168(e)(2) to exclude from the application of, respectively, § 168 or former § 168;

(vii) any property for which depreciation is determined in accordance

with § 1.167(a)-11 (ADR);

 41

(viii) any depreciable property for which the taxpayer is changing the

depreciation method pursuant to § 1.167(e)-1(b) (change from declining-balance

method to straight-line method), § 1.167(e)-1(c) (certain changes for § 1245 property),

or § 1.167(e)-1(d) (certain changes for § 1250 property). These changes must be made

prospectively and are not permitted under the cited regulations for property for which

the depreciation is determined under § 168, § 1400I (as in effect on the day before the

date of enactment of the Tax Technical Corrections Act of 2018), § 1400L(c) (as in

effect on the day before the date of enactment of the Tax Technical Corrections Act of

2018), former § 168, or any additional first year depreciation deduction provision of the

Code (for example, § 168(k), § 168(l), § 1400L(b) (as in effect on the day before the

date of enactment of the Tax Technical Corrections Act of 2018), or § 1400N(d) (as in

effect on the day before the date of enactment of the Tax Technical Corrections Act of

2018)); or

(ix) any distributor commissions (as defined by section 2 of Rev.

Proc. 2000-38, 2000-2 C.B. 310, as modified by Rev. Proc. 2007-16, 2007-1 C.B. 358)

for which the taxpayer is changing the useful life under the distribution fee period

method or the useful life method (both described in Rev. Proc. 2000-38). A change in

this useful life is corrected by adjustments in the applicable taxable year provided under

§ 1.446-1(e)(2)(ii)(d)(5)(iv).

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(4) Changes covered. This section 6.02 only applies to the following

changes in methods of accounting for depreciation:

 42

(a) a change from the straight-line method to the sum-of-the-years-digits

method, the sinking fund method, the unit-of-production method, or the declining-

balance method using any proper percentage of the straight-line rate;

(b) a change from the declining-balance method using any percentage of

the straight-line rate to the sum-of-the-years-digits method, the sinking fund method, or

the declining-balance method using a different proper percentage of the straight-line

rate;

(c) a change from the sum-of-the-years-digits method to the sinking fund

method, the declining-balance method using any proper percentage of the straight-line

rate, or the straight-line method;

(d) a change from the unit-of-production method to the straight-line

method;

(e) a change from the sinking fund method to the straight-line method,

the unit-of-production method, the sum-of-the-years-digits method, or the declining-

balance method using any proper percentage of the straight-line rate;

(f) a change in the interest factor used in connection with a compound

interest method or sinking fund method;

(g) a change in averaging convention as set forth in § 1.167(a)-10(b).

However, as specifically provided in § 1.167(a)-10(b), in any taxable year in which an

averaging convention substantially distorts the depreciation allowance for the taxable

year, it may not be used (see Rev. Rul. 73-202, 1973-1 C.B. 81);

(h) a change from charging the depreciation reserve with costs of

removal and crediting the depreciation reserve with salvage proceeds to deducting

costs of removal as an expense and including salvage proceeds in taxable income as

 43

set forth in § 1.167(a)-8(e)(2). See Rev. Rul. 74-455, 1974-2 C.B. 63. This section 6.02

applies to this change, however, only if:

(i) the change is applied to all items in the account for which the

change is being made; and

(ii) the removal costs are not required to be capitalized under any

provision of the Code (for example, § 263(a), 263A, or 280B);

(i) a change from crediting the depreciation reserve with the salvage

proceeds realized on normal retirement sales to computing and recognizing gains and

losses on the sales (see Rev. Rul. 70-165, 1970-1 C.B. 43);

(j) a change from crediting ordinary income (including the combination

method of crediting the lesser of estimated salvage value or actual salvage proceeds to

the depreciation reserve, with any excess of salvage proceeds over estimated salvage

value credited to ordinary income) with the salvage proceeds realized on normal

retirement sales, to computing and recognizing gains and losses on the sales (see Rev.

Rul. 70-166, 1970-1 C.B. 44);

(k) a change from item accounting for specific assets to multiple asset

accounting (pooling) for the same assets, or vice versa;

(l) a change from one type of multiple asset accounting (pooling) for

specific assets to a different type of multiple asset accounting (pooling) for the same

assets;

(m) a change from one method described in Rev. Proc. 2000-38 for

amortizing distributor commissions (as defined by section 2 of Rev. Proc. 2000-38) to

another method described in Rev. Proc. 2000-38 for amortizing distributor commissions;

or
 44

(n) a change from pooling to a single asset, or vice versa, for distributor

commissions (as defined by section 2 of Rev. Proc. 2000-38) for which the taxpayer is

using the distribution fee period method or the useful life method (both described in

Rev. Proc. 2000-38).

(5) Additional requirements. A taxpayer also must comply with the following:

(a) Basis for depreciation. At the beginning of the year of change, the

basis for depreciation of property to which this change applies is the adjusted basis of

the property as provided in § 1011 at the end of the taxable year immediately preceding

the year of change (determined under taxpayer’s present method of accounting for

depreciation). If applicable under the taxpayer’s proposed method of accounting for

depreciation, this adjusted basis is reduced by the estimated salvage value of the

property (for example, a change to the straight-line method).

(b) Rate of depreciation. The rate of depreciation for property changed

to:

(i) the straight-line or the sum-of-the-years-digits method of

depreciation must be based on the remaining useful life of the property as of the

beginning of the year of change; or

(ii) the declining-balance method of depreciation must be based on

the useful life of the property measured from the placed-in-service date, and not the

expected remaining life from the date the change becomes effective.

(c) Regulatory requirements. For changes in method of depreciation to

the sum-of-the-years-digits or declining-balance method, the property must meet the

requirements of § 1.167(b)-0 or 1.167(c)-1, as appropriate.

 45

(d) Public utility property. If any item of property is public utility property

within the meaning of former § 167(l)(3)(A), the taxpayer (including a qualified small

taxpayer as defined in section 6.01(4)(b) of this revenue procedure) must attach to the

Form 3115 a statement providing that the taxpayer agrees to the following additional

terms and conditions:

(i) a normalization method of accounting within the meaning of

former § 167(l)(3)(G) will be used for the public utility property subject to the Form 3115;

and

(ii) within 30 calendar days of filing the federal income tax return for

the year of change, the taxpayer will provide a copy of the completed Form 3115 to any

regulatory body having jurisdiction over the public utility property subject to the Form

3115.

(6) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(e) Part IV, line 25; and

(f) Schedule E.

(7) Section 481(a) adjustment. Because the adjusted basis of the property is

not changed as a result of a method change made under this section 6.02, no items are
 46

being duplicated or omitted. Accordingly, a § 481(a) adjustment is neither required nor

permitted.

(8) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets.

(b) A taxpayer making both this change and a change to a UNICAP

method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes. For example, a qualified small taxpayer must include on the single Form 3115

the information required by section 6.02(6) of this revenue procedure for this change

and the information required by the lines on Form 3115 applicable to the UNICAP

method change, including Part II line 14 and 15, Part IV, and Schedule D, and must

include a separate response to each line on Form 3115 that is applicable to both

changes (such as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)

for which the taxpayer’s response is different for this change and the change to a

UNICAP method.

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.02 is “8.”

(10) Contact information. For further information regarding a change under

this section, contact Bruce Chang at (202) 317-7005 (not a toll-free number).
 47

.03 Sale, lease, or financing transactions.

(1) Description of change and scope.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting from:

(i) improperly treating property as sold by the taxpayer to properly

treating property as leased or financed by the taxpayer;

(ii) improperly treating property as leased by the taxpayer to properly

treating property as sold or financed by the taxpayer;

(iii) improperly treating property as financed by the taxpayer to

properly treating property as sold or leased by the taxpayer;

(iv) improperly treating property as purchased by the taxpayer to

properly treating property as leased by the taxpayer; and

(v) improperly treating property as leased by the taxpayer to properly

treating property as purchased by the taxpayer.

(b) Inapplicability. This change does not apply to:

(i) a rent-to-own dealer that wants to change its method of

accounting for rent-to-own contracts described in section 3 of Rev. Proc. 95-38, 1995-2

C.B. 397; or

(ii) a taxpayer that holds assets for sale or lease, if any asset so held

is not the subject of a sale or lease transaction as of the beginning of the year of

change.

(2) Manner of making the change. A taxpayer changing its method of

accounting under this section 6.03 must submit a statement with the Form 3115 that
 48

provides the name of the counterparty to the sale, lease, or financing transactions as of

the beginning of the year of change.

(3) No ruling on the characterization of any transaction as a sale, lease, or

financing transaction. The consent granted under section 9 of Rev. Proc. 2015-13 for a

change specified in this section 6.03 is not a determination by the Commissioner that

the taxpayer has properly characterized any transaction as a sale, lease, or financing

transaction and does not create any presumption that the proposed characterization of

any transaction as a sale, lease, or financing transaction is permissible. The director

will ascertain whether the taxpayer’s characterization of any transaction as a sale,

lease, or financing transaction is permissible.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.03 is “10.”

(5) Contact information. For further information regarding a change under

this section, contact Edward Schwartz at (202) 317-7006 (not a toll-free number).

.04 Change in general asset account treatment due to a change in the use of

MACRS property.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

the method of accounting for general asset account treatment of MACRS property (as

defined in § 1.168(b)-1(a)(2)) to the method of accounting provided in § 1.168(i)-

1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2), which applies when there is a change in the use of

MACRS property pursuant to § 1.168(i)-4(d).

 49

(b) Taxpayer has not adopted a method of accounting for the item of

property. If a taxpayer does not satisfy section 6.04(1)(a) of this revenue procedure for

an item of MACRS property because a change in the use of this item of MACRS

property occurred in the taxable year immediately preceding the year of change (1-year

change in use property), the taxpayer may change from the impermissible method for

general asset account treatment to the permissible method provided in § 1.168(i)-

1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2) for the 1-year change in use property by filing a

Form 3115. Alternatively, the taxpayer may change from the impermissible method for

general asset account treatment to the permissible method provided in § 1.168(i)-

1(c)(2)(ii)(I) or § 1.168(i)-1(h)(2) for a 1-year change in use property by filing an

amended federal income tax return, or an administrative adjustment request under

§ 6227 (AAR), as applicable, for the year of change in the use of such property provided

such filing occurs prior to the date the taxpayer files its federal income tax return for the

taxable year succeeding the year of change in the use of such property.

(c) Inapplicability.

(i) The change described in section 6.04(1)(a) of this revenue procedure

does not apply to any property to which section 4.05 of Rev. Proc. 2020-22, 2020-18

I.R.B. 745, applies unless the taxpayer and property are within the scope of Rev. Proc.

2021-28, 2021-27 I.R.B. 5. (See sections 4.02 and 4.03 of Rev. Proc. 2020-22, as

applicable, for making such changes for such property.); and

(ii) The change described in section 6.04(1)(a) of this revenue procedure

does not apply to any property to which section 5.04 of Rev. Proc. 2020-22, 2020-18

I.R.B. 745, applies. (See section 5.02 of Rev. Proc. 2020-22 for making such change

for such property.).

 50

(2) Certain eligibility rules inapplicable.

(a) In general. The eligibility rule in section 5.01(1)(d) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change.

(b) Special rule. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to a taxpayer within the scope of section 3 of Rev.

Proc. 2021-28, 2021-27 I.R.B. 5, making this change for any residential rental property

within the scope of section 3 of Rev. Proc. 2021-28 for a taxable year beginning in

2019, 2020, 2021, or 2022.

(3) Manner of making change.

(a) The change is made on a modified cut-off basis (as defined in § 1.446-

1(e)(2)(ii)(d)(5)(iii)) and, thus, the adjusted depreciable basis of the MACRS property as

of the beginning of the year of change is recovered using the proposed method of

accounting for general asset account treatment. Accordingly, a § 481(a) adjustment is

neither permitted nor required. See § 1.168(i)-1(h)(2)(ii) and (iii) for more information

regarding how to establish the general asset account when a change in the use of

MACRS property occurs pursuant to § 1.168(i)-4(d).

(b) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;
 51

(v) Part IV, line 25; and

(vi) Schedule E, all lines except lines 1, 4c, 5, 6, 7b, and 7c.

(4) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets.

(b) A taxpayer making this change and a change under section 6.05,

section 6.12(3)(b), and/or section 6.15 of this revenue procedure for the same year of

change should file a single Form 3115 for all such changes and must enter the

designated automatic accounting method change numbers for the changes on the

appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.04 is “87.”

(6) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.05 Change in method of accounting for depreciation due to a change in the use

of MACRS property.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to (i) change

the method of accounting for depreciation of MACRS property (as defined in § 1.168(b)-

1(a)(2)) to the method of accounting for depreciation provided in § 1.168(i)-4, which

applies when there is a change in the use of MACRS property, or (ii) revoke the election
 52

provided in § 1.168(i)-4(d)(3)(ii) to disregard a change in the use of MACRS property.

See § 1.168(i)-4(g)(2).

(b) Taxpayer has not adopted a method of accounting for the item of

property. If a taxpayer does not satisfy section 6.05(1)(a)(i) of this revenue procedure

for an item of MACRS property because a change in the use of this item of MACRS

property occurred in the taxable year immediately preceding the year of change (1-year

change in use property), the taxpayer may change from the impermissible method of

determining depreciation to the permissible method of determining depreciation

provided in § 1.168(i)-4 for the 1-year change in use property by filing a Form 3115 for

this change, provided the § 481(a) adjustment reported on the Form 3115 includes the

amount of any adjustment that is attributable to all property (including the 1-year change

in use property) subject to the Form 3115. Alternatively, the taxpayer may change from

the impermissible method of determining depreciation to the permissible method of

determining depreciation provided in § 1.168(i)-4 for a 1-year change in use property by

filing an amended federal income tax return, or an administrative adjustment request

under § 6227 (AAR), as applicable, for the year of change in the use of such property

provided such filing occurs prior to the date the taxpayer files its federal income tax

return for the taxable year succeeding the year of change in the use of such property.

(c) Inapplicability.

(i) The change described in section 6.05(1)(a)(i) of this revenue

procedure does not apply to any property to which section 4.05 of Rev. Proc. 2020-22,

2020-18 I.R.B. 745, applies unless the taxpayer and property are within the scope of

Rev. Proc. 2021-28, 2021-27 I.R.B. 5. (See sections 4.02 and 4.03, or 5.02 of Rev.

Proc. 2020-22, as applicable, for making such change for such property.);
 53

(ii) The change described in section 6.05(1)(a)(i) of this revenue

procedure does not apply to any property to which section 5.04 of Rev. Proc. 2020-22,

2020-18 I.R.B. 745, applies. (See section 5.02 of Rev. Proc. 2020-22 for making such

change for such property.); and

(iii) The change described in this section 6.05 does not apply to any

property that is not owned by the taxpayer at the beginning of the year of change.

(2) Certain eligibility rules inapplicable.

(a) In general. The eligibility rule in section 5.01(1)(d) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change.

(b) Special rule. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to a taxpayer within the scope of section 3 of Rev.

Proc. 2021-28, 2021-27 I.R.B. 5, making this change for any residential rental property

within the scope of section 3 of Rev. Proc. 2021-28 for a taxable year beginning in

2019, 2020, 2021, or 2022.

(3) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(e) Part IV, all lines except line 25; and

(f) Schedule E, all lines except lines 1, 4c, 5, 6, 7b, and 7c.
 54

(4) Section 481(a) adjustment. A taxpayer changing its method of

accounting under this section 6.05 is required to calculate a § 481(a) adjustment as of

the first day of the year of change as if the proposed method of accounting had always

been used by the taxpayer beginning with the taxable year in which the change in the

use of the MACRS property occurred by the taxpayer.

(5) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such adjustment and a single positive § 481(a)

adjustment for all the changes that are included in that Form 3115 generating such

adjustment.

(b) A taxpayer making this change and a change under section 6.04,

section 6.12(3)(b), and/or section 6.15 of this revenue procedure for the same year of

change should file a single Form 3115 for all such changes and must enter the

designated automatic accounting method change numbers for the changes on the

appropriate line on the Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.05 is “88.”

 55

(7) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.06 Depreciation of qualified non-personal use vans and light trucks.

(1) Description of change. This change applies to a taxpayer that wants to

change the method of accounting for depreciation for certain vehicles in accordance

with § 1.280F-6(f)(2)(iv). Section 1.280F-6(f)(2)(iv) applies to a truck or van that is a

qualified nonpersonal use vehicle as defined under § 1.274-5T(k), was placed in service

by the taxpayer before July 7, 2003, and was treated by the taxpayer as a passenger

automobile under § 1.280F-6T as in effect prior to July 7, 2003. If the taxpayer files

Form 3115, in accordance with § 1.280F-6(f)(2)(iv), the treatment of the truck or van will

be changed from property to which § 280F(a) applies to property to which § 280F(a)

does not apply.

(2) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(e) Part IV, all lines except line 25; and

(f) Schedule E.

(3) Concurrent automatic change. A taxpayer making this change for more

than one asset for the same year of change should file a single Form 3115 for all such
 56

assets and provide a single net § 481(a) adjustment for all the changes included in that

Form 3115. If one or more of the changes in that single Form 3115 generate a negative

§ 481(a) adjustment and other changes in that same Form 3115 generate a positive

§ 481(a) adjustment, the taxpayer may provide a single negative § 481(a) adjustment

for all the changes that are included in that Form 3115 generating such adjustment and

a single positive § 481(a) adjustment for all the changes that are included in that Form

3115 generating such adjustment.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.06 is “89.”

(5) Contact information. For further information regarding a change under

this section, contact Bernard Harvey at (202) 317-7005 (not a toll-free number).

.07 Impermissible to permissible method of accounting for depreciation or

amortization for disposed depreciable or amortizable property.

(1) Description of change. This change applies to a taxpayer that wants to

make the change in method of accounting for depreciation or amortization

(depreciation) provided under section 3 of Rev. Proc. 2007-16, 2007-1 C.B. 358, for an

item of depreciable or amortizable property that has been disposed of by the taxpayer.

Section 3 of Rev. Proc. 2007-16 allows a taxpayer to make a change in method of

accounting for depreciation for the disposed property if the taxpayer used an

impermissible method of accounting for depreciation for the property under which the

taxpayer did not take into account any depreciation allowance, or did take into account

some depreciation but less than the depreciation allowable, in the year of change (as

defined in section 6.07(4) of this revenue procedure) or any prior taxable year.
 57

(2) Applicability.

(a) In general. Except as provided in section 6.07(2)(b) of this revenue

procedure, this section 6.07 applies to a taxpayer that is changing from an

impermissible method of accounting for depreciation to a permissible method of

accounting for depreciation for any item of depreciable or amortizable property subject

to §§ 167, 168, 197, 1400I, or 1400L(c), to former § 168, or to any additional first year

depreciation deduction provision of the Code (for example, § 168(k), § 168(l),

§ 1400L(b), or § 1400N(d)):

(i) that has been disposed of by the taxpayer during the year of

change (as defined in section 6.07(4) of this revenue procedure); and

(ii) for which the taxpayer did not take into account any depreciation

allowance, or did take into account some depreciation but less than the depreciation

allowable (hereinafter, both are referred to as “claimed less than the depreciation

allowable”), in the year of change (as defined in section 6.07(4) of this revenue

procedure) or any prior taxable year.

(b) Inapplicability. This section 6.07 does not apply to:

(i) any property to which § 1016(a)(3) (regarding property held by a

tax-exempt organization) applies;

(ii) any property for which a taxpayer is revoking a timely valid

depreciation election, or making a late depreciation election, under the Code or

regulations thereunder, or under other guidance published in the Internal Revenue

Bulletin (including under § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993

(1993 Act), 1993-3 C.B. 1, 128 (relating to amortizable § 197 intangibles));

 58

(iii) any property for which the taxpayer deducted the cost or other

basis of the property as an expense; or

(iv) any property disposed of by the taxpayer in a transaction to

which a nonrecognition section of the Code applies (for example, § 1031, transactions

subject to § 168(i)(7)(B)). However, this section 6.07(2)(b)(iv) does not apply to

property disposed of by the taxpayer in a § 1031 or § 1033 transaction if the taxpayer

elects under § 1.168(i)-6(i) and (j) to treat the entire basis (that is, both the exchanged

and excess basis (as defined in § 1.168(i)-6(b)(7) and (8), respectively) of the

replacement MACRS property (as defined in § 1.168(i)-6(b)(1)) as property placed in

service by the taxpayer at the time of replacement and treat the adjusted depreciable

basis of the relinquished MACRS property (as defined in § 1.168(i)-6(b)(2)) as being

disposed of by the taxpayer at the time of disposition.

(3) Manner of making the change.

(a) Change made on an original return for the year of change. This

change may be made on a taxpayer’s timely filed (including any extension) original

federal tax return for the year of change (as defined in section 6.07(4) of this revenue

procedure), provided the taxpayer files the original Form 3115 in accordance with

section 6.03(1)(a) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419.

(b) Change made on an amended return or an AAR for the year of

change. This change may also be made on an amended federal income tax return, or

administrative adjustment request under § 6227 (AAR), as applicable, for the year of

change (as defined in section 6.07(4) of this revenue procedure), provided:

(i)(A) the taxpayer files the original Form 3115 with the taxpayer’s

amended federal income tax return for the year of change (as defined in section 6.07(4)
 59

of this revenue procedure) prior to the expiration of the period of limitation for

assessment under § 6501(a) for the taxable year in which the item of depreciable or

amortizable property was disposed of by the taxpayer, or if applicable (B) the

partnership subject to the centralized partnership audit regime enacted as part of the

Bipartisan Budget Act of 2015 (BBA partnership) files the original Form 3115 with its

AAR for the year of change (as defined in section 6.07(4) of this revenue procedure)

prior to the expiration of the applicable period of limitations for making adjustments

under § 6235 for the reviewed year as defined in § 301.6241-1(a)(8) of the Procedure

and Administration Regulations; and

(ii) the taxpayer’s amended federal income tax return, or AAR, as

applicable, for the year of change (as defined in section 6.07(4) of this revenue

procedure) includes the adjustments to taxable income and any collateral adjustments

to taxable income or tax liability (for example, adjustments to the amount or character of

the gain or loss of the disposed depreciable or amortizable property) resulting from the

change in method of accounting for depreciation made by the taxpayer under this

section 6.07.

(4) Year of change. The year of change for this change is the taxable year in

which the item of depreciable or amortizable property was disposed of by the taxpayer.

(5) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13 do not apply to this change.

(6) Filing requirements.

(a) Notwithstanding section 6.03(1)(a) of Rev. Proc. 2015-13, a taxpayer

making this change in accordance with section 6.07(3)(b) of this revenue procedure

must attach the original Form 3115 to the taxpayer’s timely filed amended federal
 60

income tax return, or AAR, as applicable, for the year of change and must file the

required duplicate copy (with signature) of the Form 3115 with the IRS in Ogden, UT, no

later than when the original Form 3115 is filed with the amended federal income tax

return, or AAR, as applicable, for the year of change. If a taxpayer is making this

change in accordance with section 6.07(3)(a) of this revenue procedure, the filing

requirements in section 6.03(1)(a) of Rev. Proc. 2015-13 apply.

(b) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(v) Part IV, all lines except line 25; and

(vi) Schedule E.

(7) Section 481(a) adjustment period. A taxpayer must take the entire

§ 481(a) adjustment into account in computing taxable income for the year of change.

(8) Concurrent automatic change. A taxpayer making this change for more

than one asset for the same year of change should file a single Form 3115 for all such

assets.

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.07 is “107.”

 61

(10) Contact information. For further information regarding a change under

this section, contact James Liechty at (202) 317-7005 (not a toll-free number).

.08 Tenant construction allowances.

(1) Description of change and scope.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting for tenant construction allowances:

(i) from improperly treating the taxpayer as having a depreciable

interest in the property subject to the tenant construction allowances for federal income

tax purposes to properly treating the taxpayer as not having a depreciable interest in

such property for federal income tax purposes; or

(ii) from improperly treating the taxpayer as not having a depreciable

interest in the property subject to the tenant construction allowances for federal income

tax purposes to properly treating the taxpayer as having a depreciable interest in such

property for federal income tax purposes.

(b) Inapplicability. This change does not apply to:

(i) any tenant construction allowance that qualifies under § 110;

(ii) any portion of a tenant construction allowance that is not

expended on depreciable property; or

(iii) any amount expended for depreciable property in excess of the

tenant construction allowance.

(2) Definition. For purposes of this section 6.08, the term “tenant

construction allowance(s)” means any amount received by a lessee from a lessor to

construct, acquire, or improve property for use by the lessee pursuant to a lease.
 62

(3) Manner of making the change. A taxpayer changing its method of

accounting under this section 6.08 must submit the following information:

(a) If a lessee is filing the Form 3115, the lessee must submit a

statement with the Form 3115 that provides the amount of the tenant construction

allowance received by the lessee, the amount of such tenant construction allowance

expended by the lessee on property, and the name of the lessor that provided the

tenant construction allowance.

(b) If a lessor is filing the Form 3115, the lessor must submit a statement

with the Form 3115 that provides the amount of the tenant construction allowance

provided to the lessee and the name of the lessee that received such tenant

construction allowance.

(4) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018) to make

this change in accordance with section 6.08(3)(a) of this revenue procedure:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(e) Part IV, line 25; and

(f) Schedule E.

(5) No ruling on which party has the depreciable interest in the property

subject to tenant construction allowances. The consent granted under section 9 of Rev.

Proc. 2015-13 for a change specified in this section 6.08 is not a determination by the
 63

Commissioner that the taxpayer has properly determined that the taxpayer has, or does

not have, a depreciable interest in the property subject to the tenant construction

allowances for federal income tax purposes and does not create any presumption that

the proposed determination of which party has the depreciable interest in such property

is permissible. The director will ascertain whether the taxpayer’s determination of which

party has the depreciable interest in the property subject to the tenant construction

allowances is permissible.

(6) Concurrent automatic change. A taxpayer making this change for more

than one asset for the same year of change should file a single Form 3115 for all such

assets.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.08 is “145.”

(8) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.09 Safe harbor method of accounting for determining the depreciation of certain

tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-

22.

(1) Description of change. This change applies to a taxpayer that is within

the scope of Rev. Proc. 2011-22, 2011-18 I.R.B. 737, and wants to change to the

recovery periods described in section 5 of Rev. Proc. 2011-22 and any collateral

change to the depreciation methods for all, or some of, the assets listed in that section.

(2) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

 64

complete only the following information on Form 3115 (Rev. December 2018) to make

this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(e) Part IV, all lines except line 25; and

(f) Schedule E.

(3) Concurrent automatic change. A taxpayer making this change for more

than one asset for the same year of change should file a single Form 3115 for all such

assets and provide a single net § 481(a) adjustment for all the changes included in that

Form 3115. If one or more of the changes in that single Form 3115 generate a negative

§ 481(a) adjustment and other changes in that same Form 3115 generate a positive

§ 481(a) adjustment, the taxpayer may provide a single negative § 481(a) adjustment

for all the changes that are included in that Form 3115 generating such adjustment and

a single positive § 481(a) adjustment for all the changes that are included in that Form

3115 generating such adjustment.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.09 is “157.”

(5) Contact information. For further information regarding a change under

this section, contact Charles Magee at (202) 317-7005 (not a toll-free number).

.10 Partial dispositions of tangible depreciable assets to which the IRS’s

adjustment pertains (§ 168; § 1.168(i)-8).

 65

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that is described in

§ 1.168(i)-8(d)(2)(iii) and, pursuant to § 1.168(i)-8(d)(2)(iii), that wants to make the

partial disposition election specified in § 1.168(i)-8(d)(2)(i) to the disposition of a portion

of an asset to which the IRS’s adjustment (as described in § 1.168(i)-8(d)(2)(iii))

pertains.

(b) Inapplicability. This change does not apply to:

(i) Any asset of which the disposed portion was a part that is not

owned by the taxpayer at the beginning of the year of change; or

(ii) Any partial disposition election specified in § 1.168(i)-8(d)(2)(i)

that is not made pursuant to § 1.168(i)-8(d)(2)(iii) (for example, this change does not

apply to the partial disposition election specified in § 1.168(i)-8(d)(2)(i) that is made

pursuant to § 1.168(i)-8(d)(2)(iv)).

(2) Change in method of accounting. The IRS will treat the making of the late

election specified in section 6.10(1) of this revenue procedure as a change in method of

accounting.

(3) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change.

(4) Manner of making change.

(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

 66

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(v) Part IV, all lines except line 25; and

(vi) Schedule E.

(b) A taxpayer (including a qualified small taxpayer) making this change

must:

(i) Apply § 1.168(i)-8(h)(1) and (3) (accounting for asset disposed of);

(ii) If the asset (as determined under § 1.168(i)-8(c)(4)) of which the

disposed portion is a part is properly included in one of the asset classes 00.11 through

00.4 of Rev. Proc. 87-56, 1987-2 C.B. 674, classify the replacement portion of such

asset under the same asset class as the disposed portion of the asset in the taxable

year in which the replacement portion is placed in service by the taxpayer;

(iii) If the taxpayer’s present method of accounting is not in accord

with § 1.168(i)-8(c)(4) (determination of asset disposed of), change to the appropriate

asset as determined under § 1.168(i)-8(c)(4);

(iv) If the taxpayer continues to deduct depreciation for the disposed

portion of the asset (as determined under § 1.168(i)-8(c)(4)) under the taxpayer’s

present method of accounting, change from depreciating such disposed portion to

recognizing gain or loss for the disposed portion or, if § 280B and § 1.280B-1 apply to

the disposition, change from depreciating such disposed portion to capitalizing the loss

sustained on account of the demolition to the land on which the demolished structure

was located; and

 67

(v) If any asset is public utility property within the meaning of

§ 168(i)(10), attach a statement to its Form 3115 providing that the taxpayer agrees to

the following additional terms and conditions:

(A) A normalization method of accounting (within the meaning of

§ 168(i)(9)) will be used for the public utility property subject to the Form 3115;

(B) Within 30 calendar days of filing the federal income tax return

for the year of change, the taxpayer will provide a copy of the completed Form 3115 to

any regulatory body having jurisdiction over the public utility property subject to the

Form 3115; and

(C) As of the beginning of the year of change, the taxpayer will

adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory

books of account by the amount of the deferral of federal income tax liability associated

with the § 481(a) adjustment applicable to the public utility property subject to the Form

3115.

(5) Concurrent automatic change. A taxpayer making this change for more

than one asset for the same year of change should file a single Form 3115 for all such

assets. If the change for more than one asset included in that Form 3115 is specified in

section 6.10(1) of this revenue procedure, the single Form 3115 should provide a single

net § 481(a) adjustment for all such changes. If one or more of the changes specified in

section 6.10(1) of this revenue procedure in that single Form 3115 generate a negative

§ 481(a) adjustment and other changes specified in section 6.10(1) of this revenue

procedure in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all such changes that

are included in that Form 3115 generating such negative adjustment and a single
 68

positive § 481(a) adjustment for all such changes that are included in that Form 3115

generating such positive adjustment.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.10 is “198.”

(7) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.11 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-

4).

(1) Description of change. This change, as described in Rev. Proc. 2014-17,

2014-12 I.R.B. 661, applies to a taxpayer that wants to change its method of accounting

to comply with § 1.167(a)-4 for leasehold improvements in which the taxpayer has a

depreciable interest at the beginning of the year of change:

(a) From improperly depreciating the leasehold improvements to which

§ 168 applies over the term of the lease (including renewals, if applicable) to properly

depreciating these improvements under § 168;

(b) From improperly amortizing leasehold improvements to which § 197

applies over the term of the lease (including renewals, if applicable) to properly

amortizing these improvements under § 197; or

(c) From improperly amortizing leasehold improvements to which

§ 167(f)(1) applies over the term of the lease (including renewals, if applicable) to

properly amortizing these improvements under § 167(f)(1).

 69

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this

change.

(3) Manner of making change.

(a) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19;

(v) Part IV, all lines except line 25; and

(vi) Schedule E.

(b) If any leasehold improvement is public utility property within the

meaning of § 168(i)(10) or former § 167(l)(3)(A), a taxpayer (including a qualified small

taxpayer) making this change must attach to its Form 3115 a statement providing that

the taxpayer agrees to the following additional terms and conditions:

(i) A normalization method of accounting (within the meaning of

§ 168(i)(9) or former § 167(l)(3)(G)) will be used for the public utility property subject to

the change;

(ii) As of the beginning of the year of change, the taxpayer will adjust

its deferred tax reserve account or similar account in the taxpayer’s regulatory books of

account by the amount of the deferral of federal income tax liability associated with the

§ 481(a) adjustment applicable to the public utility property subject to the change; and
 70

(iii) Within 30 calendar days of filing the federal income tax return for

the year of change, the taxpayer will provide a copy of the completed Form 3115 to any

regulatory body having jurisdiction over the public utility property subject to the change.

(4) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such adjustment and a single positive § 481(a)

adjustment for all the changes that are included in that Form 3115 generating such

adjustment.

(b) A taxpayer making both this change and a change to a UNICAP

method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for all such

changes and must enter the designated automatic accounting method change numbers

for the changes on the appropriate line on the Form 3115. See section 6.03(1)(b) of

Rev. Proc. 2015-13 for information on making concurrent changes. For example, a

qualified small taxpayer must include on the single Form 3115 the information required

by section 6.11(3)(a) of this revenue procedure for this change and the information

required by the lines on Form 3115 applicable to the UNICAP method change, including

Part II line 14 and 15, Part IV, and Schedule D, and must include a separate response

to each line on Form 3115 that is applicable to both changes (such as Part II lines 6b, 7,
 71

8b, 14, and, as applicable for this change, Part IV) for which the taxpayer’s response is

different for this change and the change to a UNICAP method.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to a method of

accounting under this section 6.11 is “199.”

(6) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.12 Permissible to permissible method of accounting for depreciation of MACRS

property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-

41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of

accounting for depreciation that is specified in section 6.12(3) of this revenue procedure

for an asset:

(i) to which § 168 applies (MACRS property);

(ii) for which the present and proposed methods of accounting are

permissible methods of accounting under § 1.168(i)-1, § 1.168(i)-7, or § 1.168(i)-8, as

applicable; and

(iii) that is owned by the taxpayer at the beginning of the year of

change.

(b) Inapplicability. This change does not apply to any property that is not

depreciated under § 168 under the taxpayer’s present and proposed methods of

accounting.
 72

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this

change.

(3) Changes covered. This section 6.12 only applies to the following

changes in methods of accounting for depreciation of MACRS property:

(a) For the items of MACRS property not subject to a general asset

account election under § 168(i)(4) and the regulations thereunder—

(i) a change from single asset accounts (or item accounts) for

specific items of MACRS property to multiple asset accounts (or pools) for the same

assets, or vice versa, in accordance with § 1.168(i)-7;

(ii) a change from grouping specific items of MACRS property in

multiple asset accounts to a different grouping of the same assets in multiple asset

accounts in accordance with § 1.168(i)-7(c);

(iii) a change in the method of identifying which assets in multiple

asset accounts or which portions of assets have been disposed of by the taxpayer from

the specific identification method under § 1.168(i)-8(g)(1) to the first-in, first-out (FIFO)

method of accounting under § 1.168(i)-8(g)(2)(i) or the modified FIFO method of

accounting under § 1.168(i)-8(g)(2)(ii);

(iv) a change in the method of identifying which assets in multiple

asset accounts or which portions of assets have been disposed of by the taxpayer from

the FIFO method of accounting under § 1.168(i)-8(g)(2)(i) or the modified FIFO method

of accounting under § 1.168(i)-8(g)(2)(ii) to the specific identification method under

§ 1.168(i)-8(g)(1);
 73

(v) a change in the method of identifying which assets in multiple

asset accounts or which portions of assets have been disposed of by the taxpayer from

the FIFO method of accounting under § 1.168(i)-8(g)(2)(i) to the modified FIFO method

of accounting under § 1.168(i)-8(g)(2)(ii), or vice versa;

(vi) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass

assets have been disposed of by the taxpayer from the specific identification method

under § 1.168(i)-8(g)(1) to a mortality dispersion table in accordance with § 1.168(i)-

8(g)(2)(iii);

(vii) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass

assets have been disposed of by the taxpayer from the FIFO method of accounting

under § 1.168(i)-8(g)(2)(i) or the modified FIFO method of accounting under § 1.168(i)-

8(g)(2)(ii) to a mortality dispersion table in accordance with § 1.168(i)-8(g)(2)(iii);

(viii) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-8(b)(3)) in multiple asset accounts or which portions of mass

assets have been disposed of by the taxpayer from a mortality dispersion table in

accordance with § 1.168(i)-8(g)(2)(iii) to the specific identification method under

§ 1.168(i)-8(g)(1), the FIFO method of accounting under § 1.168(i)-8(g)(2)(i), or the

modified FIFO method of accounting under § 1.168(i)-8(g)(2)(ii);

(ix) if § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple

asset account) and it is impracticable from the taxpayer’s records to determine the

unadjusted depreciable basis of the asset disposed of, a change in the method of
 74

determining the unadjusted depreciable basis of all assets in the same multiple asset

account from one reasonable method to another reasonable method; or

(x) if § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset)

and it is impracticable from the taxpayer’s records to determine the unadjusted

depreciable basis of the disposed portion of the asset, a change in the method of

determining the unadjusted depreciable basis of all disposed portions of the asset from

one reasonable method to another reasonable method; and

(b) For the items of MACRS property subject to a general asset account

election under § 168(i)(4) and the regulations thereunder—

(i) a change from grouping specific items of MACRS property in

general asset accounts to a different grouping of the same assets in general asset

accounts in accordance with § 1.168(i)-1(c);

(ii) a change in the method of identifying which assets or which

portions of assets have been disposed of by the taxpayer from the specific identification

method under § 1.168(i)-1(j)(2)(i)(A) to the FIFO method of accounting under § 1.168(i)-

1(j)(2)(i)(B) or the modified FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(C);

(iii) a change in the method of identifying which assets or which

portions of assets have been disposed of by the taxpayer from the FIFO method of

accounting under § 1.168(i)-1(j)(2)(i)(B) or the modified FIFO method of accounting

under § 1.168(i)-1(j)(2)(i)(C) to the specific identification method under § 1.168(i)-

1(j)(2)(i)(A);

(iv) a change in the method of identifying which assets or which

portions of assets have been disposed of by the taxpayer from the FIFO method of
 75

accounting under § 1.168(i)-1(j)(2)(i)(B) to the modified FIFO method of accounting

under § 1.168(i)-1(j)(2)(i)(C), or vice versa;

(v) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-1(b)(6)) or which portions of mass assets that are in a separate

general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of

by the taxpayer from the specific identification method under § 1.168(i)-1(j)(2)(i)(A) to a

mortality dispersion table in accordance with § 1.168(i)-1(j)(2)(i)(D);

(vi) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-1(b)(6)) or which portions of mass assets that are in a separate

general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of

by the taxpayer from the FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(B) or the

modified FIFO method of accounting under § 1.168(i)-1(j)(2)(i)(C) to a mortality

dispersion table in accordance with § 1.168(i)-1(j)(2)(i)(D);

(vii) a change in the method of identifying which mass assets (as

defined in § 1.168(i)-1(b)(6)), or which portions of mass assets that are in a separate

general asset account in accordance with § 1.168-1(c)(2)(ii)(H), have been disposed of

by the taxpayer from a mortality dispersion table in accordance with § 1.168(i)-

1(j)(2)(i)(D) to the specific identification method under § 1.168(i)-1(j)(2)(i)(A), the FIFO

method of accounting under § 1.168(i)-1(j)(2)(i)(B), or the modified FIFO method of

accounting under § 1.168(i)-1(j)(2)(i)(C); or

(viii) if § 1.168(i)-1(j)(3) applies (basis of a disposed asset or a

disposed portion of an asset in a general asset account) and it is impracticable from the

taxpayer’s records to determine the unadjusted depreciable basis of the disposed asset

or the disposed portion of the asset, a change in the method of determining the
 76

unadjusted depreciable basis of all assets in the same general asset account from one

reasonable method to another reasonable method.

(4) Manner of making change.

(a) The changes in methods of accounting specified in section

6.12(3)(a)(i) and (ii) and section 6.12(3)(b)(i) of this revenue procedure are made using

a modified cut-off method under which the unadjusted depreciable basis and the

depreciation reserve of the asset as of the beginning of the year of change are

accounted for using the proposed method of accounting.

(i) If the change specified in section 6.12(3)(a)(i) of this revenue

procedure is a change to a single asset account, the new single asset account must

include a beginning balance for both the unadjusted depreciable basis and the

depreciation reserve of the asset included in that single asset account.

(ii) If the change specified in section 6.12(3)(a)(i) or (ii) of this

revenue procedure is a change to a multiple asset account (either a new one or a

different grouping), the multiple asset account must include a beginning balance for

both the unadjusted depreciable basis and the depreciation reserve. The beginning

balance for the unadjusted depreciable basis of each multiple asset account is equal to

the sum of the unadjusted depreciable bases as of the beginning of the year of change

for all assets included in that multiple asset account. The beginning balance of the

depreciation reserve of each multiple asset account is equal to the sum of the greater of

the depreciation allowed or allowable as of the beginning of the year of change for all

assets included in that multiple asset account.

(iii) The change specified in section 6.12(3)(b)(i) of this revenue

procedure requires the general asset account to include a beginning balance for both
 77

the unadjusted depreciable basis and the depreciation reserve. The beginning balance

for the unadjusted depreciable basis of each general asset account is equal to the sum

of the unadjusted depreciable bases as of the beginning of the year of change for all

assets included in that general asset account. The beginning balance of the

depreciation reserve of each general asset account is equal to the sum of the greater of

the depreciation allowed or allowable as of the beginning of the year of change for all

assets included in that general asset account.

(b) The changes in methods of accounting specified in section

6.12(3)(a)(iii), (vi), (ix), and (x) and section 6.12(3)(b)(ii), (v), and (viii) of this revenue

procedure are made using a cut-off method and apply to dispositions occurring on or

after the beginning of the year of change.

(c) Even though the changes in methods of accounting specified in

section 6.12(3)(a)(iv), (v), (vii), and (viii) and section 6.12(3)(b)(iii), (iv), (vi), and (vii) of

this revenue procedure are changes from one permissible method of accounting to

another permissible method of accounting, these changes are made with a § 481(a)

adjustment. However, see section 6.12(4)(f) of this revenue procedure for an exception.

For the changes in methods of accounting specified in section 6.12(3)(b)(iii), (iv), (vi),

and (vii) of this revenue procedure, the § 481(a) adjustment should be zero unless

§ 1.168(i)-1(e)(3) applies to the asset subject to the change.

(d) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

 78

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the

qualified small taxpayer is not making a change in method of accounting specified in

section 6.12(3)(a)(ix) and (x) and section 6.12(3)(b)(viii) of this revenue procedure;

(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the

qualified small taxpayer is making a change in method of accounting specified in section

6.12(3)(a)(ix) or (x) or section 6.12(3)(b)(viii) of this revenue procedure;

(vi) Part IV; and

(vii) Schedule E.

(e) If any asset subject to this change is public utility property within the

meaning of § 168(i)(10), a taxpayer (including a qualified small taxpayer) making this

change must attach to its Form 3115 a statement providing that the taxpayer agrees to

the following additional terms and conditions:

(i) A normalization method of accounting (within the meaning of

§ 168(i)(9)) will be used for the public utility property subject to the change;

(ii) As of the beginning of the year of change, the taxpayer will adjust

its deferred tax reserve account or similar account in the taxpayer’s regulatory books of

account by the amount of the deferral of federal income tax liability associated with the

§ 481(a) adjustment applicable to a change in method of accounting specified in section

6.12(3)(a)(iv), (v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue

procedure made for the public utility property subject to the change; and

(iii) Within 30 calendar days of filing the federal income tax return for

the year of change, the taxpayer will provide a copy of the completed Form 3115 to any

regulatory body having jurisdiction over the public utility property subject to the change.
 79

(f) A taxpayer that met the scope requirements of section 4 of Rev. Proc.

2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section

6.37(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of Rev. Proc. 2015-14 (which is now section

6.12(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of this revenue procedure) by following section 5

of Rev. Proc. 2015-20 is required to calculate a § 481(a) adjustment as of the first day

of the year of change that takes into account only dispositions in taxable years

beginning on or after January 1, 2014.

(5) No audit protection. A taxpayer calculating a § 481(a) adjustment under

section 6.12(4)(f) of this revenue procedure that takes into account only dispositions in

taxable years beginning on or after January 1, 2014, does not receive audit protection

under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under

section 6.12(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) of this revenue procedure in taxable

years beginning before January 1, 2014. See section 5.03 of Rev. Proc. 2015-20.

(6) Concurrent change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets. If the change for

more than one asset included in that Form 3115 is specified in section 6.12(3)(a)(iv),

(v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue procedure, the

single Form 3115 also should provide a single net § 481(a) adjustment for all such

changes. If one or more changes specified in section 6.12(3)(a)(iv), (v), (vii), or (viii) or

section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue procedure in that single Form

3115 generate a negative § 481(a) adjustment and other changes specified in section

6.12(3)(a)(iv), (v), (vii), or (viii) or section 6.12(3)(b)(iii), (iv), (vi), or (vii) of this revenue

procedure in that same Form 3115 generate a positive § 481(a) adjustment, the
 80

taxpayer may provide a single negative § 481(a) adjustment for all such changes that

are included in that Form 3115 generating such negative adjustment and a single

positive § 481(a) adjustment for all such changes that are included in that Form 3115

generating such positive adjustment.

(b) A taxpayer making this change and any change listed in section

6.12(6)(b)(i)-(iv) of this revenue procedure for the same year of change should file a

single Form 3115 for all such changes and must enter the designated automatic

accounting method change numbers for the changes on the appropriate line on the

Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes. For example, a qualified small taxpayer must include on the single

Form 3115 the information required to be completed on Form 3115 by a qualified small

taxpayer under this revenue procedure for each change in method of accounting

included on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this revenue procedure;

(ii) A change under section 6.13 of this revenue procedure;

(iii) A change under section 6.14 of this revenue procedure;

(iv) A change under section 6.15 of this revenue procedure; and

(v) A change under section 11.07(3)(c) of this revenue procedure.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to a method of

accounting under this section 6.12 is “200.”

(8) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.13 Disposition of a building or structural component (§ 168; § 1.168(i)-8).

 81

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-

41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of

accounting that is specified in section 6.13(3) of this revenue procedure for disposing of

a building or a structural component or disposing of a portion of a building (including its

structural components) to which the partial disposition rule in § 1.168(i)-8(d)(1) applies.

These specified changes are consistent with §§ 1.168(i)-8(b)(2), 1.168(i)-8(c)(4)(ii)(A),

(B), and (D), 1.168(i)-8(f), and 1.168(i)-8(g), as applicable. This change also affects the

determination of gain or loss from disposing of the building, the structural component, or

the portion of the building (including its structural components) and may affect whether

the taxpayer must capitalize amounts paid to restore a unit of property (as determined

under § 1.263(a)-3(e) or (f)) under § 1.263(a)-3(k).

(b) Inapplicability. This change does not apply to the following:

(i) Any asset (as determined under § 1.168(i)-8(c)(4)) that is not

depreciated under § 168 under the taxpayer’s present method of accounting and, if

applicable, under the taxpayer’s proposed method of accounting;

(ii) Any asset subject to a general asset account election under

§ 168(i)(4) and the regulations thereunder (but see section 6.15 of this revenue

procedure for making a change in method of accounting for dispositions of tangible

depreciable assets subject to a general asset account election);

(iii) Any multiple buildings, condominium units, or cooperative units

that are treated as a single building under the taxpayer’s present method of accounting,

or will be treated as a single building under the taxpayer’s proposed method of

accounting, pursuant to § 1.1250-1(a)(2)(ii);

 82

(iv) Any disposition of a portion of an asset in a transaction described

in the last sentence in § 1.168(i)-8(d)(1) for which the taxpayer did not make a partial

disposition election in accordance with § 1.168(i)-8(d)(2)(ii), (iii), or (iv), as applicable

(but see section 6.10 of this revenue procedure for making a partial disposition election

pursuant to § 1.168(i)-8(d)(2)(iii)); or

(v) Any demolition of a structure to which § 280B and § 1.280B-1

apply.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this

change.

(3) Covered changes. This section 6.13 only applies to the following

changes in methods of accounting for a building (including its structural components),

condominium unit (including its structural components), cooperative unit (including its

structural components), or an improvement or addition (including its structural

components) thereto:

(a) For purposes of applying § 1.168(i)-8(c)(4) (determination of asset

disposed of), a change to the appropriate asset as determined under § 1.168(i)-

8(c)(4)(ii)(A), (B), or (D), as applicable;

(b) If the taxpayer makes the change specified in section 6.13(3)(a) of

this revenue procedure, and if the taxpayer disposed of the asset as determined under

section 6.13(3)(a) of this revenue procedure in a taxable year prior to the year of

change but under its present method of accounting continues to deduct depreciation for

such disposed asset, a change from depreciating the disposed asset to recognizing

gain or loss upon disposition or, if § 280B and § 1.280B-1 apply to the disposition,
 83

change from depreciating such disposed asset to capitalizing the loss sustained on

account of the demolition to the land on which the demolished structure was located;

(c) If the taxpayer makes the change specified in section 6.13(3)(a) of

this revenue procedure, and if the taxpayer disposed of a portion of the asset as

determined under section 6.13(3)(a) of this revenue procedure in a transaction

described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of

change but under its present method of accounting continues to deduct depreciation for

such disposed portion, a change from depreciating the disposed portion to recognizing

gain or loss upon disposition or, if § 280B and § 1.280B-1 apply to the disposition,

change from depreciating such disposed portion to capitalizing the loss sustained on

account of the demolition to the land on which the demolished structure was located;

(d) If the taxpayer’s present method of accounting for its buildings

(including their structural components), condominium units (including their structural

components), cooperative units (including their structural components), and

improvements or additions (including its structural components) thereto that are

depreciated under § 168 is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), and (D), and if the

taxpayer disposed of an asset as determined under § 1.168(i)-8(c)(4)(ii)(A), (B), or (D),

as applicable, in a taxable year prior to the year of change but under its present method

of accounting continues to deduct depreciation for such disposed asset, a change from

depreciating the disposed asset to recognizing gain or loss upon disposition or, if §

280B and § 1.280B-1 apply to the disposition, change from depreciating such disposed

asset to capitalizing the loss sustained on account of the demolition to the land on which

the demolished structure was located;

 84

(e) If the taxpayer’s present method of accounting for its buildings

(including their structural components), condominium units (including their structural

components), cooperative units (including their structural components), and

164improvements or additions (including its structural components) thereto that are

depreciated under § 168 is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), and (D), and if the

taxpayer disposed of a portion of an asset as determined under § 1.168(i)-8(c)(4)(ii)(A),

(B), or (D), as applicable, in a transaction described in the first sentence in § 1.168(i)-

8(d)(1) in a taxable year prior to the year of change but under its present method of

accounting continues to deduct depreciation for such disposed portion, a change from

depreciating the disposed portion to recognizing gain or loss upon disposition or, if §

280B and § 1.280B-1 apply to the disposition, change from depreciating such disposed

portion to capitalizing the loss sustained on account of the demolition to the land on

which the demolished structure was located;

(f) A change in the method of identifying which assets in multiple asset

accounts or which portions of assets have been disposed of from a method of

accounting not specified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or (iii) (for example, the last-in,

first-out (LIFO) method of accounting) to a method of accounting specified in § 1.168(i)-

8(g)(1) or (2)(i), (ii), or (iii), as applicable;

(g) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset

account) and it is practicable from the taxpayer’s records to determine the unadjusted

depreciable basis of the disposed asset, a change in the method of determining the

unadjusted depreciable basis of the disposed asset from a method of not using the

taxpayer’s records to a method of using the taxpayer’s records;

 85

(h) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset

account) and it is impracticable from the taxpayer’s records to determine the unadjusted

depreciable basis of the disposed asset, a change in the method of determining the

unadjusted depreciable basis of all assets in the same multiple asset account from an

unreasonable method (for example, discounting the cost of the replacement asset to its

placed-in-service year cost using the Consumer Price Index) to a reasonable method;

(i) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it

is practicable from the taxpayer’s records to determine the unadjusted depreciable basis

of the disposed portion of the asset, a change in the method of determining the

unadjusted depreciable basis of the disposed portion of the asset from a method of not

using the taxpayer’s records to a method of using the taxpayer’s records;

(j) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it

is impracticable from the taxpayer’s records to determine the unadjusted depreciable

basis of the disposed portion of the asset, a change in the method of determining the

unadjusted depreciable basis of the disposed portion of the asset from an unreasonable

method (for example, discounting the cost of the replacement portion of the asset to its

placed-in-service year cost using the Consumer Price Index) to a reasonable method; or

(k) A change from recognizing gain or loss under § 1.168(i)-8T upon the

disposition of an asset (as determined under § 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as

applicable) included in a general asset account to recognizing gain or loss upon the

disposition of the same asset under § 1.168(i)-8 if: (A) the taxpayer made the change

specified in section 6.11 of Rev. Proc. 2016-29, 2016-21 I.R.B. 880, section 6.34 of

Rev. Proc. 2015-14, 2015-5 I.R.B. 450, or section 6.34 of the APPENDIX to Rev. Proc.

2011-14, 2011-4 I.R.B. 330, as clarified and modified by Rev. Proc. 2012-39, 2012-41
 86

I.R.B. 470, Rev. Proc. 2014-17, 2014-12 I.R.B. 661, and Rev. Proc. 2014-54, 2014-41

I.R.B. 675 (revocation of a general asset account election); (B) the taxpayer made a

qualifying disposition election under § 1.168(i)-1T(e)(3)(iii) in a taxable year prior to the

year of change for the disposition of such asset; (C) the taxpayer’s present method of

accounting for such asset is in accord with § 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as

applicable; and (D) the taxpayer recognized a gain or loss under § 1.168(i)-8T upon the

disposition of such asset in a taxable year prior to the year of change.

(4) Examples. The following examples illustrate the covered changes

specified in section 6.13(3) of this revenue procedure.

(a) Example 1. X, a calendar-year taxpayer, acquired and placed in

service a building and its structural components in 2000. In 2005, X constructed and
placed in service an addition to this building. X depreciates the building, the addition,
and their structural components under § 168. A change by X to treat the original
building (including its structural components) as an asset and the addition to the
building (including the structural components of such addition) as a separate asset for
disposition purposes is a change described in section 6.13(3)(a) of this revenue
procedure solely for purposes of § 1.168(i)-8(c)(4).

(b) Example 2. Y, a calendar year taxpayer, acquired and placed in

service a building and its structural components in 1990. Y depreciates this building
and its structural components under § 168. In 2000, a tornado damaged the roof and,
as a result, Y replaced the entire roof of the building. Y did not recognize a loss on the
retirement of the original roof and continues to depreciate the original roof. Y also
capitalized the cost of the replacement roof and has been depreciating this roof under
§ 168 since 2000. Because the original roof was disposed of as a result of a casualty
event described in § 165, a change by Y from depreciating the original roof to
recognizing a loss upon its retirement is a covered change described in section
6.13(3)(e) of this revenue procedure solely for purposes of § 1.168(i)-8.

(c) Example 3. The facts are the same as in Example 2, except a

tornado did not occur, but Y still replaced the entire roof of the building in 2000.
Because the original roof was not disposed of as a result of any of the events described
in the first sentence in § 1.168(i)-8(d)(1) that require a partial disposition, a partial
disposition election must be made to change from depreciating the original roof to
recognizing a loss upon its retirement. Pursuant to section 6.13(1)(b)(iv) of this revenue
procedure, section 6.13 does not apply to the disposition of the original roof in 2000.

(5) Manner of making change.

 87

(a) A taxpayer (including a qualified small taxpayer as defined in section

6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115

a statement with the following:

(i) A description of the assets to which this change applies;

(ii) If the taxpayer is making a change specified in section 6.13(3)(a)

of this revenue procedure, a description of the assets for disposition purposes under the

taxpayer’s present and proposed methods of accounting;

(iii) If the taxpayer is making the change specified in section

6.13(3)(f) of this revenue procedure, a description of the methods of identifying which

assets have been disposed of under the taxpayer’s present and proposed methods of

accounting;

(iv) If the taxpayer is making the change specified in section

6.13(3)(h) or (j) of this revenue procedure, a description of the methods of determining

the unadjusted depreciable basis of the disposed asset or disposed portion of the asset,

as applicable, under the taxpayer’s present and proposed methods of accounting; and

(v) If any asset is public utility property within the meaning of

§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional

terms and conditions:

(A) A normalization method of accounting (within the meaning of

§ 168(i)(9)) will be used for the public utility property subject to the application;

(B) As of the beginning of the year of change, the taxpayer will

adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory

books of account by the amount of the deferral of federal income tax liability associated
 88

with the § 481(a) adjustment applicable to the public utility property subject to the

application; and

(C) Within 30 calendar days of filing the federal income tax return

for the year of change, the taxpayer will provide a copy of the completed application to

any regulatory body having jurisdiction over the public utility property subject to the

application.

(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the

qualified small taxpayer is not making a change in method of accounting specified in

section 6.13(3)(h) and (j) of this revenue procedure;

(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the

qualified small taxpayer is making a change in method of accounting specified in section

6.13(3)(h) or (j) of this revenue procedure;

(vi) Part IV, all lines except line 25; and

(vii) Schedule E.

(6) No ruling on asset. The consent granted under section 9 of Rev. Proc.

2015-13 for a change specified in section 6.13(3)(a) of this revenue procedure is not a

determination by the Commissioner that the taxpayer is using the appropriate asset

under § 1.168(i)-8(c)(4) for determining what asset is disposed of by the taxpayer and
 89

does not create any presumption that the proposed asset is permissible under

§ 1.168(i)-8(c)(4). The director will ascertain whether the taxpayer’s determination of its

asset under § 1.168(i)-8(c)(4) is permissible.

(7) Section 481(a) adjustment.

(a) A taxpayer changing its method of accounting under this section 6.13

may use statistical sampling in determining the § 481(a) adjustment by following the

guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B. 318.

(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.

2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section

6.38 of Rev. Proc. 2015-14 (which is now this section 6.13) by following section 5 of

Rev. Proc. 2015-20 is required to calculate a section § 481(a) adjustment as of the first

day of the year of change that takes into account only dispositions in taxable years

beginning on or after January 1, 2014.

(8) Section 481(a) adjustment period.

(a) A taxpayer must take the entire amount of the § 481(a) adjustment

into account in computing taxable income for the year of change:

(i) If the taxpayer is making the change specified in section

6.13(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under

§ 1.168(i)-8T on the disposition of the asset (or if applicable, a portion thereof) in a

taxable year prior to the year of change;

(ii) If the taxpayer is making the change specified in section

6.13(3)(k) of this revenue procedure; or

(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01

of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and that is within the scope of section 3 of
 90

Rev. Proc. 2015-56, and is making the change specified in section 5.02(5)(b) of Rev.

Proc. 2015-56 on or before the first taxable year that the qualified taxpayer uses the

remodel-refresh safe harbor provided in section 5.02 of Rev. Proc. 2015-56.

(b) If section 6.13(8)(a) of this revenue procedure does not apply, see

section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.

(c) Example. (i) Y, a fiscal year taxpayer with a taxable year beginning
December 1 and ending November 30, acquired and placed in service a building and its
structural components in 2000. Y depreciates this building and its structural
components under § 168. The roof is a structural component of the building. Y
replaced the entire roof in June 2010. On its federal tax return for the taxable year
ended November 30, 2010, Y did not recognize a loss on the retirement of the original
roof and continues to depreciate the original roof. Y also capitalized the cost of the
replacement roof and has been depreciating this roof under § 168 since June 2010.
The adjusted depreciable basis of the original roof at the time of its retirement in 2010
(taking into account the applicable convention) is $11,000, and Y claimed depreciation
of $1,000 for such roof after its retirement (taking into account the applicable
convention) and before the taxable year ended November 30, 2013 (2012 taxable year).
Also the 12-month allowable depreciation deduction for the original roof is $500 for the
2012 taxable year, $500 for the taxable year ended November 30, 2014 (2013 taxable
year), and $500 for the taxable year ended November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-8T(c)(4)(ii)(A) and (B) and section

6.29(3)(a) and (b) of the APPENDIX to Rev. Proc. 2011-14, as modified by Rev. Proc.
2012-20, 2012-14 I.R.B. 700, Y filed with its federal income tax return for the taxable
year ended November 30, 2013, a Form 3115 to treat the building as an asset and each
structural component of the building as a separate asset for disposition purposes and
also to change from depreciating the original roof to recognizing a loss upon its
retirement. The amount of the net negative § 481(a) adjustment on this Form 3115 is
$10,000 (adjusted depreciable basis of $11,000 for the original roof at the time of its
retirement (taking into account the applicable convention) less depreciation of $1,000
claimed for such roof after its retirement (taking into account the applicable convention)
and before the 2012 taxable year).

(iii) Y complies with § 1.168(i)-8 beginning with its taxable year

ended November 30, 2016 (2015 taxable year). For Y’s 2015 taxable year, the late
partial disposition election under section 6.10 of Rev. Proc. 2016-29 does not apply. Y
also decides not to file a private letter ruling requesting an extension of time under §
301.9100-3 of the Procedure and Administration Regulations to make a partial
disposition election for the original roof. In accordance with section 6.13(3)(a) of this
revenue procedure, Y files a Form 3115 with its federal income tax return for the 2015
taxable year to change to treating the original building (including its original roof and
other original structural components) as an asset and the replacement roof as a
 91

separate asset for disposition purposes. Because the late partial disposition election
under section 6.10 of Rev. Proc. 2016-29 does not apply for Y’s 2015 taxable year and
Y did not receive a private letter ruling granting an extension of time under § 301.9100-3
to make a partial disposition election for the original roof, Y does not recognize the net
loss of $10,000 upon the retirement of the original roof under § 1.168(i)-8 and Y will
continue to depreciate the original roof. Thus, the net positive § 481(a) adjustment for
this change is $8,500 (net loss of $10,000 claimed on the 2012 return for the retirement
of the original roof less depreciation of $1,500 for the original roof for the 2012, 2013,
and 2014 taxable years) and is included in Y’s taxable income for the 2015 taxable
year.

(9) No audit protection. A taxpayer calculating a § 481(a) adjustment under

section 6.13(7)(b) of this revenue procedure that takes into account only dispositions in

taxable years beginning on or after January 1, 2014, does not receive audit protection

under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under this

section 6.13 in taxable years beginning before January 1, 2014. See section 5.04 of

Rev. Proc. 2015-20.

(10) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such negative adjustment and a single positive

§ 481(a) adjustment for all the changes that are included in that Form 3115 generating

such positive adjustment.

(b) A taxpayer making this change and any change listed in section

6.13(10)(b)(i)-(iv) of this revenue procedure for the same year of change should file a
 92

single Form 3115 for all of such changes and must enter the designated automatic

accounting method change numbers for the changes on the appropriate line on the

Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes. For example, a qualified small taxpayer must include on the single

Form 3115 the information required to be completed on Form 3115 by a qualified small

taxpayer under this revenue procedure for each change in method of accounting

included on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this revenue procedure;

(ii) A change under section 6.12 of this revenue procedure;

(iii) A change under section 6.14 of this revenue procedure; and

(iv) A change under section 6.15 of this revenue procedure.

(11) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.13 is “205.”

(12) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.14 Dispositions of tangible depreciable assets (other than a building or its

structural components) (§ 168; § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-

41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of

accounting that is specified in section 6.14(3) of this revenue procedure for disposing of

§ 1245 property or a depreciable land improvement or disposing of a portion of § 1245

property or a depreciable land improvement to which the partial disposition rule in

 93

§ 1.168(i)-8(d)(1) applies. These specified changes are consistent with §§ 1.168(i)-

8(c)(4)(i), 1.168(i)-8(c)(4)(ii)(C) and (D), 1.168(i)-8(f), and 1.168(i)-8(g), as applicable.

This change also affects the determination of gain or loss from disposing of the § 1245

property, the depreciable land improvement, or a portion of the § 1245 property or

depreciable land improvement, and may affect whether the taxpayer must capitalize

amounts paid to restore a unit of property (as determined under § 1.263(a)-3(e) or (f))

under § 1.263(a)-3(k).

(b) Inapplicability. This change does not apply to the following:

(i) Any asset (as determined under § 1.168(i)-8(c)(4)) that is not

depreciated under § 168 under the taxpayer’s present method of accounting and, if

applicable, under the taxpayer’s proposed method of accounting;

(ii) Any building (including its structural components), condominium

unit (including its structural components), cooperative unit (including its structural

components), or an improvement or addition (including its structural components)

thereto (but see section 6.13 of this revenue procedure for making this change);

(iii) Any asset subject to a general asset account election under

§ 168(i)(4) and the regulations thereunder (but see section 6.15 of this revenue

procedure for making a change for dispositions of tangible depreciable assets subject to

a general asset account election); or

(iv) Any disposition of a portion of an asset in a transaction described

in the last sentence in § 1.168(i)-8(d)(1) for which the taxpayer did not make a partial

disposition election in accordance with § 1.168(i)-8(d)(2)(ii), (iii), or (iv), as applicable

(but see section 6.10 of this revenue procedure for making a partial disposition election

pursuant to § 1.168(i)-8(d)(2)(iii)).
 94

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this

change.

(3) Covered changes. This section 6.14 only applies to the following

changes in methods of accounting for a § 1245 property, a depreciable land

improvement, or an improvement or addition thereto:

(a) For purposes of applying § 1.168(i)-8(c)(4) (determination of asset

disposed of), a change to the appropriate asset as determined under § 1.168(i)-

8(c)(4)(i), (ii)(C), or (ii)(D), as applicable;

(b) If the taxpayer makes the change specified in section 6.14(3)(a) of

this revenue procedure, and if the taxpayer disposed of the asset as determined under

section 6.14(3)(a) of this revenue procedure in a taxable year prior to the year of

change but continues to deduct depreciation for such disposed asset under the

taxpayer’s present method of accounting, a change from depreciating the disposed

asset to recognizing gain or loss upon disposition;

(c) If the taxpayer makes the change specified in section 6.14(3)(a) of

this revenue procedure, and if the taxpayer disposed of a portion of the asset as

determined under section 6.14(3)(a) of this revenue procedure in a transaction

described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of

change but under its present method of accounting continues to deduct depreciation for

such disposed portion, a change from depreciating the disposed portion to recognizing

gain or loss upon disposition;

(d) If the taxpayer’s present method of accounting for its § 1245 property,

depreciable land improvements, or improvements or additions thereto is in accord with

 95

§ 1.168(i)-8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of an asset as

determined under § 1.168(i)-8(c)(4)(i) or (ii), as applicable, in a taxable year prior to the

year of change but under its present method of accounting continues to deduct

depreciation for this disposed asset, a change from depreciating the disposed asset to

recognizing gain or loss upon disposition;

(e) If the taxpayer’s present method of accounting for its § 1245 property,

depreciable land improvements, or improvements or additions thereto is in accord with

§ 1.168(i)-8(c)(4)(i) or (ii), as applicable, and if the taxpayer disposed of a portion of an

asset as determined under § 1.168(i)-8(c)(4)(i) or (ii), as applicable, in a transaction

described in the first sentence in § 1.168(i)-8(d)(1) in a taxable year prior to the year of

change but under its present method of accounting continues to deduct depreciation for

such disposed portion, a change from depreciating the disposed portion to recognizing

gain or loss upon disposition;

(f) A change in the method of identifying which assets in multiple asset

accounts or which portions of assets have been disposed of from a method of

accounting not specified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or (iii) (for example, the last-in,

first-out (LIFO) method of accounting) to a method of accounting specified in § 1.168(i)-

8(g)(1) or (2)(i), (ii), or (iii), as applicable;

(g) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset

account) and it is practicable from the taxpayer’s records to determine the unadjusted

depreciable basis of the disposed asset, a change in the method of determining the

unadjusted depreciable basis of the disposed asset from a method of not using the

taxpayer’s records to a method of using the taxpayer’s records;

 96

(h) If § 1.168(i)-8(f)(2) applies (disposition of an asset in a multiple asset

account) and it is impracticable from the taxpayer’s records to determine the unadjusted

depreciable basis of the disposed asset, a change in the method of determining the

unadjusted depreciable basis of all assets in the same multiple asset account from an

unreasonable method (for example, discounting the cost of the replacement asset to its

placed-in-service year cost using the Consumer Price Index) to a reasonable method;

(i) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it

is practicable from the taxpayer’s records to determine the unadjusted depreciable basis

of the disposed portion of the asset, a change in the method of determining the

unadjusted depreciable basis of the disposed portion of the asset from a method of not

using the taxpayer’s records to a method of using the taxpayer’s records;

(j) If § 1.168(i)-8(f)(3) applies (disposition of a portion of an asset) and it

is impracticable from the taxpayer’s records to determine the unadjusted depreciable

basis of the disposed portion of the asset, a change in the method of determining the

unadjusted depreciable basis of the disposed portion of the asset from an unreasonable

method (for example, discounting the cost of the replacement portion of the asset to its

placed-in-service year cost using the Consumer Price Index) to a reasonable method; or

(k) A change from recognizing gain or loss under § 1.168(i)-8T upon the

disposition of a section 1245 property, depreciable land improvement, or improvement

or addition thereto included in a general asset account to recognizing gain or loss upon

the disposition of the same asset under § 1.168(i)-8 if: (A) the taxpayer made the

change specified in section 6.11 of Rev. Proc. 2016-29, section 6.34 of Rev. Proc.

2015-14, or section 6.34 of the APPENDIX to Rev. Proc. 2011-14 (revocation of a

general asset account election); (B) the taxpayer made a qualifying disposition election
 97

under § 1.168(i)-1T(e)(3)(iii) in a taxable year prior to the year of change for the

disposition of such asset; (C) the taxpayer’s present method of accounting for such

asset is in accord with § 1.168(i)-8(c)(4)(i) or (ii), as applicable; and (D) the taxpayer

recognized a gain or loss under § 1.168(i)-8T on the disposition of such asset in a

taxable year prior to the year of change.

(4) Manner of making change.

(a) A taxpayer (including a qualified small taxpayer as defined in section

6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115

a statement with the following:

(i) A description of the assets to which this change applies;

(ii) If the taxpayer is making a change specified in section 6.14(3)(a)

of this revenue procedure, a description of the assets for disposition purposes under the

taxpayer’s present and proposed methods of accounting;

(iii) If the taxpayer is making the change specified in section

6.14(3)(f) of this revenue procedure, a description of the methods of identifying which

assets have been disposed of under the taxpayer’s present and proposed methods of

accounting;

(iv) If the taxpayer is making the change specified in section

6.14(3)(h) or (j) of this revenue procedure, a description of the methods of determining

the unadjusted depreciable basis of the disposed asset or disposed portion of the asset,

as applicable, under the taxpayer’s present and proposed methods of accounting; and

(v) If any asset is public utility property within the meaning of

§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional

terms and conditions:

 98

(A) A normalization method of accounting (within the meaning of

§ 168(i)(9)) will be used for the public utility property subject to the application;

(B) As of the beginning of the year of change, the taxpayer will

adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory

books of account by the amount of the deferral of federal income tax liability associated

with the § 481(a) adjustment applicable to the public utility property subject to the

application; and

(C) Within 30 calendar days of filing the federal income tax return

for the year of change, the taxpayer will provide a copy of the completed application to

any regulatory body having jurisdiction over the public utility property subject to the

application.

(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the

qualified small taxpayer is not making a change in method of accounting specified in

section 6.14(3)(h) and (j) of this revenue procedure;

(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the

qualified small taxpayer is making a change in method of accounting specified in section

6.14(3)(h) or (j) of this revenue procedure;

(vi) Part IV, all lines except line 25; and

 99

(vii) Schedule E.

(5) No ruling on asset. The consent granted under section 9 of Rev. Proc.

2015-13 for a change specified in section 6.14(3)(a) of this revenue procedure is not a

determination by the Commissioner that the taxpayer is using the appropriate asset

under § 1.168(i)-8(c)(4) for determining what asset is disposed of by the taxpayer and

does not create any presumption that the proposed asset is permissible under

§ 1.168(i)-8(c)(4). The director will ascertain whether the taxpayer’s determination of its

asset under § 1.168(i)-8(c)(4) is permissible.

(6) Section 481(a) adjustment.

(a) A taxpayer changing its method of accounting under section 6.14 of

the revenue procedure may use statistical sampling in determining the § 481(a)

adjustment by following the guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B.

318.

(b) A taxpayer that met the scope requirements of section 4 of Rev. Proc.

2015-20, 2015-9 I.R.B. 694, and that changed its method of accounting under section

6.39 of Rev. Proc. 2015-14 (which is now this section 6.14) by following section 5 of

Rev. Proc. 2015-20 is required to calculate a section § 481(a) adjustment as of the first

day of the year of change that takes into account only dispositions in taxable years

beginning on or after January 1, 2014.

(7) Section 481(a) adjustment period.

(a) A taxpayer must take the entire amount of the § 481(a) adjustment

into account in computing taxable income for the year of change:

(i) If the taxpayer is making the change specified in section

6.14(3)(a) of this revenue procedure and if the taxpayer recognized a gain or loss under
 100

§ 1.168(i)-8T on the disposition of the § 1245 property, depreciable land improvement,

or improvement or addition thereto (or if applicable, a portion of such asset) in a taxable

year prior to the year of change; or

(ii) If the taxpayer is making the change specified in section

6.14(3)(k) of this revenue procedure.

(b) If section 6.14(7)(a) of this revenue procedure does not apply, see

section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.

(8) No audit protection. A taxpayer calculating a § 481(a) adjustment under

section 6.14(6)(b) of this revenue procedure that takes into account only dispositions in

taxable years beginning on or after January 1, 2014, does not receive audit protection

under section 8.01 of Rev. Proc. 2015-13 for dispositions subject to a change under this

section 6.14 in taxable years beginning before January 1, 2014. See section 5.05 of

Rev. Proc. 2015-20.

(9) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such negative adjustment and a single positive

§ 481(a) adjustment for all the changes that are included in that Form 3115 generating

such positive adjustment.

 101

(b) A taxpayer making this change and any change listed in section

6.14(9)(b)(i)-(iv) of this revenue procedure for the same year of change should file a

single Form 3115 for all of such changes and must enter the designated automatic

accounting method change numbers for the changes on the appropriate line on the

Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes. For example, a qualified small taxpayer must include on the single

Form 3115 the information required to be completed on Form 3115 by a qualified small

taxpayer under this revenue procedure for each change in method of accounting

included on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this revenue procedure;

(ii) A change under section 6.12 of this revenue procedure;

(iii) A change under section 6.13 of this revenue procedure; and

(iv) A change under section 6.15 of this revenue procedure.

(10) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.14 is “206.”

(11) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.15 Dispositions of tangible depreciable assets in a general asset account

(§ 168(i)(4); § 1.168(i)-1).

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-54, 2014-

41 I.R.B. 675, applies to a taxpayer that wants to make a change in method of

accounting that is specified in section 6.15(3) of this revenue procedure for disposing of
 102

an asset subject to a general asset account election under § 168(i)(4) and the

regulations thereunder. These specified changes are consistent with §§ 1.168(i)-

1(e)(1), 1.168(i)-1(e)(2)(viii), and 1.168(i)-1(j), as applicable. This change also may

affect the determination of gain or loss from disposing of the asset and may affect

whether the taxpayer must capitalize amounts paid to restore a unit of property (as

determined under § 1.263(a)-3(e) or (f)) under § 1.263(a)-3(k).

(b) Inapplicability. This change does not apply to the following:

(i) Any asset (as determined under § 1.168(i)-1(e)(2)(viii)) that is not

depreciated under § 168 under the taxpayer’s present method of accounting and, if

applicable, proposed method of accounting; or

(ii) Any asset not subject to a general asset account election under

§ 168(i)(4) and the regulations thereunder (but see sections 6.13 and 6.14 of this

revenue procedure for making a change for dispositions of tangible depreciable assets

not subject to a general asset account election).

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this

change.

(3) Covered changes. This section 6.15 only applies to the following

changes in methods of accounting for an asset subject to a general asset account

election under § 168(i)(4) and the regulations thereunder:

(a) For purposes of applying § 1.168(i)-1(e)(2)(viii) (determination of

asset disposed of), a change to the appropriate asset as determined under § 1.168(i)-

1(e)(2)(viii)(A) or (B), as applicable;

 103

(b) A change in the method of identifying which assets or which portions

of assets have been disposed of from a method of accounting not specified in

§ 1.168(i)-1(j)(2)(i)(A), (B), (C), or (D) (for example, the last-in, first-out (LIFO) method of

accounting) to a method of accounting specified in § 1.168(i)-1(j)(2)(i)(A), (B), (C), or

(D), as applicable;

(c) If § 1.168(i)-1(j)(3) applies (basis of disposed asset or disposed

portion of an asset) and it is practicable from the taxpayer’s records to determine the

unadjusted depreciable basis of the disposed asset or the disposed portion of an asset,

as applicable, a change in the method of determining the unadjusted depreciable basis

of the disposed asset or the disposed portion of an asset, as applicable, from a method

of not using the taxpayer’s records to a method of using the taxpayer’s records; or

(d) If § 1.168(i)-1(j)(3) applies (basis of disposed asset or disposed

portion of an asset) and it is impracticable from the taxpayer’s records to determine the

unadjusted depreciable basis of the disposed asset or the disposed portion of an asset,

as applicable, a change in the method of determining the unadjusted depreciable basis

of all assets in the same general asset account from an unreasonable method (for

example, discounting the cost of the replacement asset to its placed-in-service year cost

using the Consumer Price Index) to a reasonable method.

(4) Manner of making change.

(a) A taxpayer (including a qualified small taxpayer as defined in section

6.01(4)(b) of this revenue procedure) making this change must attach to its Form 3115

a statement with the following:

(i) A description of the assets to which this change applies;

 104

(ii) If the taxpayer is making the change specified in section

6.15(3)(a) of this revenue procedure, a description of the assets for disposition

purposes under the taxpayer’s present and proposed methods of accounting;

(iii) If the taxpayer is making the change specified in section

6.15(3)(b) of this revenue procedure, a description of the methods of identifying which

assets have been disposed of under the taxpayer’s present and proposed methods of

accounting;

(iv) If the taxpayer is making the change specified in section

6.15(3)(d) of this revenue procedure, a description of the methods of determining the

unadjusted depreciable basis of the disposed asset or disposed portion of the asset, as

applicable, under the taxpayer’s present and proposed methods of accounting; and

(v) If any asset is public utility property within the meaning of

§ 168(i)(10), a statement providing that the taxpayer agrees to the following additional

terms and conditions:

(A) A normalization method of accounting (within the meaning of

§ 168(i)(9)) will be used for the public utility property subject to the application;

(B) As of the beginning of the year of change, the taxpayer will

adjust its deferred tax reserve account or similar account in the taxpayer’s regulatory

books of account by the amount of the deferral of federal income tax liability associated

with the § 481(a) adjustment applicable to the public utility property subject to the

application; and

(C) Within 30 calendar days of filing the federal income tax return

for the year of change, the taxpayer will provide a copy of the completed application to
 105

any regulatory body having jurisdiction over the public utility property subject to the

application.

(b) A qualified small taxpayer, as defined in section 6.01(4)(b) of this

revenue procedure, is required to complete only the following information on Form 3115

(Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19 if the

qualified small taxpayer is not making a change in method of accounting specified in

section 6.15(3)(a) and (d) of this revenue procedure;

(v) Part II, all lines except lines 13, 15b, 16c, 17, and 19 if the

qualified small taxpayer is making a change in method of accounting specified in section

6.15(3)(a) or (d) of this revenue procedure;

(vi) Part IV, all lines except line 25; and

(vii) Schedule E.

(5) No ruling on asset. The consent granted under section 9 of Rev. Proc.

2015-13 for a change specified in section 6.15(3)(a) of this revenue procedure is not a

determination by the Commissioner that the taxpayer is using the appropriate asset

under § 1.168(i)-1(e)(2)(viii) for determining what asset is disposed of by the taxpayer

and does not create any presumption that the proposed asset is permissible under

§ 1.168(i)-1(e)(2)(viii). The director will ascertain whether the taxpayer’s determination

of its asset under § 1.168(i)-1(e)(2)(viii) is permissible.

(6) Section 481(a) adjustment period.

 106

(a) A taxpayer must take the entire amount of the § 481(a) adjustment

into account in computing taxable income for the year of change:

(i) If the taxpayer makes the change specified in section 6.15(3)(a) of

this revenue procedure and if the taxpayer recognized a gain or loss under § 1.168(i)-1T

or § 1.168(i)-8T, as applicable, on the disposition of a portion of the asset in a taxable

year prior to the year of change; or

(iii) If the taxpayer is a qualified taxpayer as defined in section 4.01

of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and that is within the scope of section 3 of

Rev. Proc. 2015-56, and is making the change specified in section 5.02(5)(b) of Rev.

Proc. 2015-56 on or before the first taxable year that the qualified taxpayer uses the

remodel-refresh safe harbor provided in section 5.02 of Rev. Proc. 2015-56.

(b) If section 6.15(6)(a) of this revenue procedure does not apply, see

section 7.03 of Rev. Proc. 2015-13 for the § 481(a) adjustment period.

(c) Example. (i) X, a fiscal year taxpayer with a taxable year beginning
December 1 and ending November 30, acquired and placed in service a building and its
structural components in 2000. X depreciates this building and its structural
components under § 168. The roof is a structural component of the building. X
replaced the entire roof in June 2010. On its federal tax return for the taxable year
ended November 30, 2010, X did not recognize a loss on the retirement of the original
roof and continues to depreciate the original roof. X also capitalized the cost of the
replacement roof and has been depreciating this roof under § 168 since June 2010.
The adjusted depreciable basis of the original roof at the time of its retirement in 2010
(taking into account the applicable convention) is $11,000, and X claimed depreciation
of $1,000 for such roof after its retirement (taking into account the applicable
convention) and before the taxable year ended November 30, 2013 (2012 taxable year).
Also the 12-month allowable depreciation deduction for the original roof is $500 for the
2012 taxable year, $500 for the taxable year ended November 30, 2014 (2013 taxable
year), and $500 for the taxable year ended November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-1T and section 6.32(1)(a) of the

APPENDIX to Rev. Proc. 2011-14, as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, X filed with its federal tax return for the taxable year ended November 30, 2013, a
Form 3115 to: (1) make a late general asset account election to include the building
(including its structural components) placed in service in 2000 in one general asset
 107

account and the replacement roof in a separate general asset account; and (2) make a
late qualifying disposition election for the retirement of the original roof in 2010. As a
result, X removed the original roof from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of $10,000 (adjusted depreciable basis
of $11,000 for the original roof at the time of its retirement (taking into account the
applicable convention) less depreciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable convention) and before the 2012 taxable
year).

(iii) X complies with § 1.168(i)-1 beginning with its taxable year

ended November 30, 2016 (2015 taxable year). In accordance with section 6.15(3)(a)
of this revenue procedure, X files a Form 3115 with its federal income tax return for the
2015 taxable year to change to treating the building (including its original roof and other
original structural components) placed in service in 2000 as an asset and the
replacement roof as a separate asset for disposition purposes. As a result, X must
include the original roof that X retired in 2010 in the general asset account. Thus, the
net positive § 481(a) adjustment for this change is $8,500 (net loss of $10,000 claimed
on the 2012 return for the retirement of the original roof less depreciation of $1,500 for
the original roof for the 2012, 2013, and 2014 taxable years) and is included in X’s
taxable income for the 2015 taxable year.

(7) Concurrent automatic change.

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115. If one or more

of the changes in that single Form 3115 generate a negative § 481(a) adjustment and

other changes in that same Form 3115 generate a positive § 481(a) adjustment, the

taxpayer may provide a single negative § 481(a) adjustment for all the changes that are

included in that Form 3115 generating such negative adjustment and a single positive

§ 481(a) adjustment for all the changes that are included in that Form 3115 generating

such positive adjustment.

(b) A taxpayer making this change and any change listed in section

6.15(7)(b)(i)-(iv) of this revenue procedure for the same year of change should file a

single Form 3115 for all of such changes and must enter the designated automatic
 108

accounting method change numbers for the changes on the appropriate line on the

Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes. For example, a qualified small taxpayer must include on the single

Form 3115 the information required to be completed on Form 3115 by a qualified small

taxpayer under this revenue procedure for each change in method of accounting

included on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this revenue procedure;

(ii) A change under section 6.12 of this revenue procedure;

(iii) A change under section 6.13 of this revenue procedure; and

(iv) A change under section 6.14 of this revenue procedure.

(8) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.15 is “207.”

(9) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.16 Summary of certain changes in methods of accounting related to dispositions

of MACRS property.

(1) Final regulations. The following chart summarizes the changes in

methods of accounting under § 1.167(a)-4, § 1.168(i)-1, § 1.168(i)-7, and § 1.168(i)-8

that a taxpayer may make under this revenue procedure.

 109

Depreciation of leasehold improvements

DESIGNATED
SECTION # in REV. CHANGE
FINAL REGULATION SECTION
PROC. 2022-14 NUMBER
(DCN)
§ 1.167(a)-4, Depreciation of
6.11 199
leasehold improvements
 110

General Asset Accounts:

SECTION # DESIGNATED
in REV. CHANGE
FINAL REGULATION SECTION
PROC. NUMBER
2022-14 (DCN)
a. § 1.168(i)-1(c), Change in grouping assets 6.12 200
b. § 1.168(i)-1(e)(2)(viii), Change in determining
6.15 207
asset disposed of
c. § 1.168(i)-1(j)(2), Change in method of
identifying which assets or portions of assets
6.12 200
have been disposed of from one method to
another method specified in § 1.168(i)-1(j)(2)
d. § 1.168(i)-1(j)(2), Change in method of
identifying which assets or portions of assets
have been disposed of from a method not 6.15 207
specified in § 1.168(i)-1(j)(2) to a method
specified in § 1.168(i)-1(j)(2)
e. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from one
reasonable method to another reasonable
6.12 200
method when it is impracticable from the
taxpayer’s records to determine the unadjusted
depreciable basis of disposed asset or disposed
portion of asset
f. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from not using to
using the taxpayer’s records when it is 6.15 207
practicable from the taxpayer’s records to
determine the unadjusted depreciable basis of
disposed asset or disposed portion of asset
g. § 1.168(i)-1(j)(3), Change in determining
unadjusted depreciable basis of disposed asset
or disposed portion of an asset from an
unreasonable method to a reasonable method
6.15 207
when it is impracticable from the taxpayer’s
records to determine the unadjusted depreciable
basis of disposed asset or disposed portion of
asset
 111

Single Asset Accounts or Multiple Asset Accounts for MACRS Property:

DESIGNATED
SECTION # in
CHANGE
FINAL REGULATION SECTION REV. PROC. 2022-
NUMBER
14
(DCN)
a. § 1.168(i)-7, Change from single asset
accounts to multiple asset accounts, or 6.12 200
vice versa
b. § 1.168(i)-7(c), Change in grouping
6.12 200
assets in multiple asset accounts
 112

Dispositions of MACRS Property (not in a general asset account):

 113

DESIGNATED
SECTION # in
CHANGE
FINAL REGULATION SECTION REV. PROC.
NUMBER
2022-14
(DCN)
6.13 (Building or
structural
205
component)
a. § 1.168(i)-8(c)(4), Change in determining
6.14 (Property
asset disposed of
other than a
building or
206
structural
component)

b. § 1.168(i)-8(f)(2) or (3), Change in

determining unadjusted depreciable basis of
disposed asset in a multiple asset account or
disposed portion of an asset from one
reasonable method to another reasonable 6.12 200
method when it is impracticable from the
taxpayer’s records to determine the
unadjusted depreciable basis of disposed
asset or disposed portion of asset

6.13 (Building or
c. § 1.168(i)-8(f)(2) or (3), Change in
structural
determining unadjusted depreciable basis of 205
component)
disposed asset in a multiple asset account or
disposed portion of an asset from not using to
6.14 (Property
using the taxpayer’s records when it is
other than a
practicable from the taxpayer’s records to
building or
determine the unadjusted depreciable basis of 206
structural
disposed asset or disposed portion of asset
component)

d. § 1.168(i)-8(f)(2) or (3), Change in 6.13 (Building or

determining unadjusted depreciable basis of structural
205
disposed asset in a multiple asset account or component)
disposed portion of an asset from an
unreasonable method to a reasonable method 6.14 (Property
when it is impracticable from the taxpayer’s other than a
records to determine the unadjusted building or
206
depreciable basis of disposed asset or structural
disposed portion of asset component)
 114

e. § 1.168(i)-8(g), Change in method of

identifying which assets in a multiple asset
account or portions of assets have been 6.12 200
disposed of from one method to another
method specified in § 1.168(i)-8(g)(1) or (2)
6.13 (Building or
structural
f. § 1.168(i)-8(g), Change in method of 205
component)
identifying which assets in a multiple asset
account or portions of assets have been
6.14 (Property
disposed of from a method not specified in
other than a
§ 1.168(i)-8(g)(1) or (2) to a method specified
building or
in § 1.168(i)-8(g)(1) or (2) 206
structural
component)
6.13 (Building or
g. § 1.168(i)-8(h)(1), Change from structural
205
depreciating a disposed asset or disposed component)
portion of an asset to recognizing gain or loss
upon disposition when a taxpayer continues to 6.14 (Property
depreciate the asset or portion that the other than a
taxpayer disposed of prior to the year of building or
206
change structural
component)
h. § 1.168(i)-8(d)(2)(iii), Partial disposition
election for the disposition of a portion of an 6.10 198
asset to which the IRS’s adjustment pertains

.17 Depreciation of fiber optic transfer node and fiber optic cable used by a cable

system operator (§§ 167 and 168).

(1) Description of change.

(a) Applicability. This change applies to a cable system operator that is

within the scope of Rev. Proc. 2015-12, 2015-2 I.R.B. 266, and wants to change to the

safe harbor method of accounting provided in section 8.03 of Rev. Proc. 2015-12 for

determining depreciation under §§ 167 and 168 of a fiber optic transfer node and trunk

line consisting of fiber optic cable used in a cable distribution network providing one-way

and two-way communication services. The safe harbor method provided by section

8.03 of Rev. Proc. 2015-12 determines the asset for purposes of §§ 167 and 168.
 115

(b) Inapplicability. This change does not apply to the following:

(i) any property that is not depreciated under § 168 under the

taxpayer’s present and proposed methods of accounting; or

(ii) any property that is not owned by the taxpayer at the beginning of

the year of change.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13 does not apply to a taxpayer that makes this change.

(3) Concurrent automatic change.

(a) A taxpayer that wants to make this change for more than one asset

for the same year of change should file a single Form 3115 for all such assets and

provide a single net § 481(a) adjustment for all the changes included in that Form 3115.

If one or more of the changes in that single Form 3115 generate a negative § 481(a)

adjustment and other changes in that same Form 3115 generate a positive § 481(a)

adjustment, the taxpayer may provide a single negative § 481(a) adjustment for all the

changes that are included in that Form 3115 generating such adjustment and a single

positive § 481(a) adjustment for all the changes that are included in that Form 3115

generating such adjustment.

(b) A taxpayer that wants to make both this change and a change to a

UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure,

as applicable, for the same year of change should file a single Form 3115 for all such

changes and must enter the designated automatic accounting method change numbers

for the changes on the appropriate line on the Form 3115. See section 6.03(1)(b) of

Rev. Proc. 2015-13 for information on making concurrent changes.

 116

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.17 is “210.”

(5) Contact information. For further information regarding a change under

this section, contact Charles Magee at (202) 317-7005 (not a toll-free number).

.18 Late elections or revocation of elections under § 168(k)(5), (7), and (10).

(1) Description of Change.

(a) Applicability. This change applies to a taxpayer within the scope of

Rev. Proc. 2019-33, 2019-34 I.R.B. 662, that wants to make a late election, or to revoke

an election, provided in sections 4, 5, and 6 of Rev. Proc. 2019-33 under § 168(k)(5),

(7), or (10).

(b) Inapplicability. The IRS will treat the making of a late election, or the

revocation of an election, provided in sections 4, 5, and 6 of Rev. Proc. 2019-33 under §

168(k)(5), (7), and (10) as a change in method of accounting with a § 481(a) adjustment

only for the taxable years specified in section 6.18(2) of this revenue procedure. This

treatment does not apply to a taxpayer that makes these late elections or revocations

before or after the time specified in section 6.18(2) of this revenue procedure, and any

such late election or revocation is not a change in method of accounting pursuant to §

1.446-1(e)(2)(ii)(d)(3)(iii).

(2) Time for making the change. The change under this section 6.18 must be

made for the taxpayer’s first, second, or third taxable year succeeding the taxpayer’s

taxable year beginning in 2016 and ending on or after September 28, 2017 (2016

taxable year) or beginning in 2017 and ending on or after September 28, 2017 (2017

taxable year).
 117

(3) Certain eligibility rules inapplicable. The eligibility rules in section

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change

for the taxpayer’s first, second, or third taxable year succeeding the taxpayer’s 2016

taxable year or 2017 taxable year.

(4) Concurrent automatic change.

(a) A taxpayer making this change for more than one specified plant

under section 4 of Rev. Proc. 2019-33 for the same year of change should file a single

Form 3115 for all such specified plants. The single Form 3115 must provide a single

net § 481(a) adjustment for all such changes.

(b) A taxpayer making this change for more than one class of property

under section 5 of Rev. Proc. 2019-33 for the same year of change should file a single

Form 3115 for all such classes of property. The single Form 3115 must provide a single

net § 481(a) adjustment for all such changes.

(c) A taxpayer making this change for all qualified property under section

6 of Rev. Proc. 2019-33 should provide a single net § 481(a) adjustment for all assets

that are qualified property.

(d) A taxpayer making a late election, or revoking an election, under

more than one section of Rev. Proc. 2019-33 (for example, under sections 4 and 6 of

Rev. Proc. 2019-33) for the same year of change should file a single Form 3115 for all

such changes. The single Form 3115 must provide a single net § 481(a) adjustment for

all such changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.18 is “241.”

 118

(6) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.19 Qualified improvement property placed in service after December 31, 2017 (§

168).

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from an impermissible to a permissible method of accounting for depreciation of any

item of qualified improvement property, as defined in § 168(e)(6):

(i) that is placed in service by the taxpayer after December 31, 2017;

(ii) for which the taxpayer used the impermissible method of

accounting in at least two taxable years immediately preceding the year of change (but

see section 6.19(1)(b) of this revenue procedure for qualified improvement property

placed in service in the taxable year immediately preceding the year of change); and

(iii) that is owned by the taxpayer at the beginning of the year of

change (but see section 6.07 of this revenue procedure for property disposed of before

the year of change).

(b) Taxpayer has not adopted a method of accounting for the qualified

improvement property. If a taxpayer does not satisfy section 6.19(1)(a)(ii) of this

revenue procedure for an item of qualified improvement property because the item of

qualified improvement property is placed in service by the taxpayer in the taxable year

immediately preceding the year of change (1-year QIP), the taxpayer may change from

the impermissible method of determining depreciation to the permissible method of

determining depreciation for the 1-year QIP by filing a Form 3115 for this change,

provided the § 481(a) adjustment reported on the Form 3115 includes the amount that
 119

is attributable to all property (including the 1-year QIP) subject to the Form 3115.

Alternatively, the taxpayer may change from the impermissible method of determining

depreciation to the permissible method of determining depreciation for the 1-year QIP

by filing an amended federal income tax return, or an administrative adjustment request

under § 6227 (AAR), as applicable, for the property’s placed-in-service year prior to the

date the taxpayer files its federal income tax return for the taxable year succeeding the

placed-in-service year. In addition, if the 1-year QIP is within the scope of section 3 of

Rev. Proc. 2020-25, 2020-19 I.R.B. 785, the taxpayer may change from the

impermissible method of determining depreciation to the permissible method of

determining depreciation for the 1-year QIP by filing an amended federal income tax

return, or AAR, as applicable, in accordance with section 3.02(3)(a) of Rev. Proc. 2020-

25.

(c) Inapplicability. This change does not apply to:

(i) any qualified improvement property placed in service by a

taxpayer that made a late election, or withdrew an election, under § 163(j)(7)(B)

(electing real property trade or business) or § 163(j)(7)(C) (electing farming business)

for the taxable year in which the qualified improvement property is placed in service by

the taxpayer, in accordance with Rev. Proc. 2020-22, 2020-18 I.R.B. 745. Any changes

to depreciation for such qualified improvement property, or other depreciable property,

affected by the late election or withdrawn election under § 163(j)(7)(B) or (C) are made

in accordance with sections 4.02 and 4.03, or 5.02 of Rev. Proc. 2020-22, as applicable;

(ii) any qualified improvement property for which the taxpayer is

changing from deducting the cost or other basis as an expense to capitalizing and

depreciating the cost or other basis, or vice versa;

 120

(iii) any qualified improvement property for which the taxpayer is

changing its method of accounting for depreciation to the method of accounting for

depreciation provided in § 1.168(i)-4, which applies when there is a change in use of the

property (but see section 6.04 or 6.05 of this revenue procedure for making this

change); or

(iv) any change in method of accounting to which section 6.21 of this

revenue procedure applies.

(2) Certain eligibility rules temporarily inapplicable. For an item of qualified

improvement property placed in service by the taxpayer after December 31, 2017, in its

taxable year ending in 2018, 2019, or 2020, the eligibility rules in section 5.01(1)(d) and

(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change for the

taxpayer’s first or second taxable year succeeding the taxable year in which the item of

qualified improvement property is placed in service by the taxpayer.

(3) Reduced filing requirement. A taxpayer making a change under this

section 6.19 is required to complete only the following information on Form 3115 (Rev.

December 2018):

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;

(e) Part IV, all lines; and

(f) Schedule E, all lines except lines 1, 4b, 5, and 6.

(4) Concurrent automatic change.

 121

(a) A taxpayer making this change for more than one asset for the same

year of change should file a single Form 3115 for all such assets and provide a single

net § 481(a) adjustment for all the changes included in that Form 3115.

(b) A taxpayer making this change and the change in section 6.01 or

6.20 of this revenue procedure for the same year of change should file a single Form

3115 for all such changes and must enter the designated automatic accounting method

change numbers on the appropriate line of the Form 3115. See section 6.03(1)(b) of

Rev. Proc. 2015-13 for information on making concurrent changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.19 is “244.”

(6) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.20 Certain late elections under §§ 168 and 1502 or revocation of certain

elections under § 168 (§ 168(g)(7), (k)(5), (k)(7), and (k)(10); §§ 1.168(k)-2 and 1.1502-

68).

(1) Description of change.

(a) Applicability. This change applies to:

(i) A taxpayer within the scope of section 4 of Rev. Proc. 2020-25,

2020-19 I.R.B. 785, as modified by section 8 of Rev. Proc. 2020-50, 2020-48 I.R.B.

1122, that wants to make a late election provided in section 4.02(2) of Rev. Proc. 2020-

25 under § 168(g)(7), (k)(5), (k)(7), or (k)(10). This change also applies to a taxpayer

within the scope of section 5 of Rev. Proc. 2020-25 that wants to revoke an election
 122

provided in section 5.02(2)(b) of Rev Proc. 2020-25 under § 168(k)(5), (k)(7), or (k)(10);

or

(ii) A taxpayer within the scope of section 5 of Rev. Proc. 2020-50,

2020-48 I.R.B. 1122, that wants to make a late election under § 168(k)(5), (7), or (10), §

1.168(k)-2(c) (component election), § 1.1502-68(c)(4) (designated transaction election),

or proposed § 1.168(k)-2(c) (proposed component election) as provided in section

5.02(2) of Rev. Proc. 2020-50. This change also applies to a taxpayer within the scope

of section 6 of Rev. Proc. 2020-50 that wants to revoke an election under § 168(k)(5),

(k)(7), or (k)(10), or a proposed component election as provided in section 6.02(2)(b) of

Rev. Proc. 2020-50.

(b) Inapplicability.

(i) The IRS will treat the making of a late election provided in section

4 of Rev. Proc. 2020-25 under § 168(g)(7), (k)(5), (k)(7), and (k)(10), or the revocation

of an election provided in section 5 of Rev. Proc. 2020-25 under § 168(k)(5), (k)(7), and

(k)(10), as a change in method of accounting with a § 481(a) adjustment only for the

taxable years specified in section 6.20(2)(a) of this revenue procedure. This treatment

does not apply to a taxpayer that makes these late elections or revocations before or

after the time specified in section 6.20(2)(a) of this revenue procedure, and any such

late election or revocation is not a change in method of accounting pursuant to § 1.446-

1(e)(2)(ii)(d)(3)(iii).

(ii) The IRS will treat the making of a late election under § 168(k)(5),

(7), or (10), a late component election, a late designated transaction election, or a late

proposed component election as provided in section 5 of Rev. Proc. 2020-50, or the

revocation of an election under § 168(k)(5), (k)(7), or (k)(10), or a proposed component

 123

election as provided in section 6 of Rev. Proc. 2020-50, as a change in method of

accounting with a § 481(a) adjustment only for the taxable years specified in section

6.20(2)(b) of this revenue procedure. This treatment does not apply to a taxpayer that

makes these late elections or revocations before or after the time specified in section

6.20(2)(b) of this revenue procedure, and any such late election or revocation is not a

change in method of accounting pursuant to § 1.446-1(e)(2)(ii)(d)(3)(iii).

(2) Time for making the change.

(a) The change under section 6.20(1)(a)(i) and (b)(i) of this revenue

procedure must be made for the taxpayer’s first or second taxable year succeeding the

taxable year in which the taxpayer placed in service the property affected by the late

election under § 168(g)(7), (k)(5), (k)(7), or (k)(10), as applicable, or revocation of the

election under § 168(k)(5), (k)(7), or (k)(10), as applicable.

(b) The change under section 6.20(1)(a)(ii) and (b)(ii) of this revenue

procedure must be made for the taxpayer’s first or second taxable year succeeding the

taxable year in which the taxpayer (A) placed in service the property affected by the late

election under § 168(k)(7) or (10), the late component election, the late designated

transaction election, or the late proposed component election, as applicable, or by the

revocation of the election under § 168(k)(7) or (k)(10), or the proposed component

election, as applicable, or (B) planted or grafted the specified plant to which the late §

168(k)(5) election applies or to which the revocation of the election under § 168(k)(5)

applies.

(3) Certain eligibility rules inapplicable.

(a) The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, do not apply to the change under section 6.20(1)(a)(i) and (b)(i) of
 124

this revenue procedure for the taxpayer’s first or second taxable year succeeding the

taxable year in which the taxpayer placed in service the property affected by the late

election under § 168(g)(7), (k)(5), (k)(7), or (k)(10), as applicable, or revocation of the

election under § 168(k)(5), (k)(7), or (k)(10), as applicable.

(b) The eligibility rules in section 5.01(1)(d) and (f) of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, do not apply to the change under section 6.20(1)(a)(ii) and (b)(ii) of

this revenue procedure for the taxpayer’s first or second taxable year succeeding the

taxable year in which the taxpayer (A) placed in service the property affected by the late

election under § 168(k)(7) or (10), the late component election, the late designated

transaction election, or the late proposed component election, as applicable, or by the

revocation of the election under § 168(k)(7) or (k)(10), or the proposed component

election, as applicable, or (B) planted or grafted the specified plant to which the late §

168(k)(5) election applies or to which the revocation of the election under § 168(k)(5)

applies.

(4) Reduced filing requirement. A taxpayer making a change under this

section 6.20 is required to complete only the following information on Form 3115 (Rev.

December 2018):

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;

(e) Part IV, all lines; and

(f) Schedule E, all lines except lines 1, 4b, 5, and 6.

(5) Concurrent automatic change.

 125

(a) A taxpayer making one or more late elections, and/or revoking one or

more elections, under sections 4 and 5 of Rev. Proc. 2020-25, or under sections 5 and

6 of Rev. Proc. 2020-50, for the same year of change must file a single Form 3115 for

all such changes. The single Form 3115 must provide a single net § 481(a) adjustment

for all such changes for all assets placed in service, and all specified plants planted or

grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(b) A taxpayer making one or more changes under this section 6.20 and

the change in section 6.01, 6.19, or 6.21 of this revenue procedure for the same year of

change must file a single Form 3115 for all such changes and must enter the

designated automatic accounting method change numbers on the appropriate line on

the Form 3115. The single Form 3115 must provide a single net § 481(a) adjustment

for all such changes for all assets placed in service, and all specified plants planted or

grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 6.20 is “245.”

(7) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.21 Change in depreciation as a result of applying the additional first year

depreciation regulations (§ 168(k); §§ 1.168(k)-2 and 1.1502-68).

(1) Description of Change.

 126

(a) Applicability. This change applies to a taxpayer within the scope of

section 4 of Rev. Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to change its method

of accounting for depreciation under § 168 to comply with the Final Regulations (as

defined in section 2.02(6) of Rev. Proc. 2020-50), the 2019 final regulations (as defined

in section 2.02(2) of Rev. Proc. 2020-50), or both the 2019 final regulations and the

2019 proposed regulations (as defined in section 1 of Rev. Proc. 2020-50), as

applicable, for depreciable property and specified plants within the scope of section 4 of

Rev. Proc. 2020-50. A change under this section 6.21 applies to (i) a taxpayer that is

changing from an impermissible method of accounting to a permissible method of

accounting under section 4.03(4)(b) of Rev. Proc. 2020-50 and section 6.21(3) of this

revenue procedure, and (ii) a taxpayer that is changing from one permissible method of

accounting to another permissible method of accounting under section 4.04 of Rev.

Proc. 2020-50 and section 6.21(4) of this revenue procedure. For purposes of this

section 6.21, a taxpayer is deemed to change from an impermissible method of

accounting to a permissible method of accounting when, for the first time, the taxpayer

changes its method of accounting for depreciation under this section 6.21 for

depreciable property and specified plants described in section 4.02(1) of Rev. Proc.

2020-50 to comply with the Final Regulations, the 2019 final regulations, or both the

2019 final regulations and the 2019 proposed regulations. Further, any subsequent

time the taxpayer changes its method of accounting for depreciation for depreciable

property and specified plants described in section 4.02(1) of Rev. Proc. 2020-50 to

comply with the Final Regulations, the 2019 final regulations, or both the 2019 final

regulations and the 2019 proposed regulations, is a change from a permissible method
 127

of accounting to another permissible method of accounting under this section 6.21. See

section 4.02(2) of Rev. Proc. 2020-50.

(b) Inapplicability. This change does not apply to any property for which

the taxpayer is changing its method of accounting for depreciation to the method of

accounting for depreciation provided in § 1.168(i)-4, which applies when there is a

change in use of the property (but see section 6.04 or 6.05 of this revenue procedure for

making this change).

(2) Certain eligibility rules inapplicable.

(a) In general. The eligibility rule in section 5.01(1)(d) of Rev. Proc.

2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the

property and specified plant within the scope of section 4 of Rev. Proc. 2020-50, as

modified by section 6.21(1)(b) of this revenue procedure.

(b) Special rule. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the property

and specified plant within the scope of section 4 of Rev. Proc. 2020-50, as modified by

section 6.21(1)(b) of this revenue procedure, for the taxpayer’s first or second taxable

year succeeding the taxable year in which the taxpayer placed in service such property,

or planted or grafted such specified plant, as applicable.

(3) Impermissible to permissible method of determining the depreciation

deduction allowable.

(a) A taxpayer may change from an impermissible method of accounting

to a permissible method of accounting under section 4.03 of Rev. Proc. 2020-50 for the

property and specified plant within the scope of section 4.03 of Rev. Proc. 2020-50, as

modified by section 6.21(1)(b) of this revenue procedure, for which the taxpayer used
 128

the impermissible method of accounting in at least two taxable years immediately

preceding the year of change (but see section 6.21(3)(b) of this revenue procedure for

property placed in service or a specified plant planted or grafted in the taxable year

immediately preceding the year of change).

(b) If a taxpayer does not satisfy section 6.21(3)(a) of this revenue

procedure for depreciable property that is within the scope of section 4.03 of Rev. Proc.

2020-50, as modified by section 6.21(1)(b) of this revenue procedure, because the

depreciable property is placed in service by the taxpayer in the taxable year

immediately preceding the year of change (1-year Property), the taxpayer may change

from the impermissible method of determining depreciation to the permissible method of

determining depreciation for the 1-year Property by filing a Form 3115 for this change in

accordance with this section 6.21(3), provided the § 481(a) adjustment reported on the

Form 3115 includes the amount of any adjustment attributable to all property, including

the 1-year Property, subject to the Form 3115. Similarly, for a specified plant that is

within the scope of section 4.03 of Rev. Proc. 2020-50, as modified by section

6.21(1)(b) of this revenue procedure, and is planted or grafted by the taxpayer in the

taxable year immediately preceding the year of change (1-year Plant), the taxpayer may

change from the impermissible method of determining depreciation to the permissible

method of determining depreciation under this section 6.21(3) for the 1-year Plant by

filing a Form 3115 for this change in accordance with this section 6.21(3), provided the

§ 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment

attributable to all property, including the 1-year Plant, subject to the Form 3115.

Alternatively, the taxpayer may change from the impermissible method of determining

depreciation to the permissible method of determining depreciation for the 1-year

 129

Property or 1-year Plant by filing an amended federal income tax return, or an

administrative adjustment request under § 6227 (AAR), as applicable, for the 1-year

Property’s placed-in-service year or 1-year Plant’s planting or grafting year, as

applicable, prior to the date the taxpayer files its federal income tax return for the

taxable year succeeding the placed-in-service year or planting or grafting year, as

applicable. In addition, if the 1-year Property or 1-year Plant is within the scope of

section 4.03 of Rev. Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue

procedure, the taxpayer may change from the impermissible method of determining

depreciation to the permissible method of determining depreciation for the 1-year

Property or 1-year Plant by filing an amended federal income tax return, or AAR, as

applicable, in accordance with section 4.03(4)(a) of Rev. Proc. 2020-50.

(c) A change under section 4.03(4)(b) of Rev. Proc. 2020-50 and this

section 6.21(3) is made with a § 481(a) adjustment. However, consent to make a

change in method of accounting under this section 6.21 will be granted by the

Commissioner only if the taxpayer satisfies section 4.02 of Rev. Proc. 2020-50, to the

extent relevant. Further, if a taxpayer that has a trade or business with floor plan

financing indebtedness is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations, §

1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of

the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations

for depreciable property placed in service by the taxpayer in its 2018, 2019, or 2020

taxable year, consent to make a change in method of accounting under this section 6.21

will be granted by the Commissioner only if the amount of the § 481(a) adjustment is

adjusted to account for the proper amount of interest expense, taking into account the
 130

business interest limitation under § 163(j) and the regulations thereunder, as of the

beginning of the year of change.

(4) Permissible to another permissible method of determining the

depreciation deduction allowable.

(a) A taxpayer may change from one permissible method of accounting

to another permissible method of accounting under section 4.04 of Rev. Proc. 2020-50

for the property and specified plant within the scope of section 4.04 of Rev. Proc. 2020-

50, as modified by section 6.21(1)(b) of this revenue procedure.

(b) A change under section 4.04 of Rev. Proc. 2020-50 and this section

6.21(4) is made on a cut-off basis. Accordingly, neither the modified cut-off method, as

described in § 1.446-1(e)(2)(ii)(d)(5)(iii), nor a § 481(a) adjustment is permitted or

required.

(5) Additional requirement. A taxpayer making a change under this section

6.21 also must comply with section 4.02 of Rev. Proc. 2020-50, to the extent relevant.

Once a taxpayer applies § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the

Final Regulations, in their entirety, for a taxable year, the taxpayer must continue to

apply § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in

their entirety, for the taxpayer’s subsequent taxable years. See §§ 1.168(k)-2(h)(3)(iii)

and 1.1502-68(e)(2)(iii) of the Final Regulations and section 4.02(1) of Rev. Proc. 2020-

50.

(6) Reduced filing requirement. A taxpayer making a change under this

section 6.21 is required to complete only the following information on Form 3115 (Rev.

December 2018):

(a) The identification section of page 1 (above Part I);

 131

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19;

(e) Part IV, all lines; and

(f) Schedule E, all lines except lines 1, 4b, 5, and 6.

(7) Concurrent automatic change.

(a) A taxpayer making this change must file a single Form 3115 for all

assets placed in service, and all specified plants planted or grafted, by the taxpayer

during the same taxable year and must provide a single net § 481(a) adjustment for all

the changes included in that Form 3115.

(b) A taxpayer making one or more changes under section 6.21(3) of this

revenue procedure and the change in section 6.01, 6.19, or 6.20 of this revenue

procedure for the same year of change must file a single Form 3115 for all such

changes and must enter the designated automatic accounting method change numbers

on the appropriate line on the Form 3115. The single Form 3115 must provide a single

net § 481(a) adjustment for all such changes for all assets placed in service, and all

specified plants planted or grafted, by the taxpayer during the same taxable year. See

section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(8) Designated automatic accounting method change numbers. The

designated automatic accounting method change number for (a) a change under

section 6.21(3) of this revenue procedure is “246”, and (b) a change under section

6.21(4) of this revenue procedure is “247.”

(9) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).
 132

.22 Depreciation of tangible property under § 168(g) by controlled foreign

corporations.

(1) Description of change. This change is applicable to a controlled foreign

corporation (as defined in § 957(a)) (CFC) that seeks to change its method of

accounting for depreciation for an item of property that is described in § 168(g)(1)(A)

(except for property excluded from the application of § 168 as a result of § 168(f)) and

owned by the CFC at the beginning of the year of change to the permissible

depreciation method, convention, and recovery period prescribed under the alternative

depreciation system (ADS) in § 168(g) for such property in determining the CFC’s gross

and taxable income under § 1.952-2 as well as its earnings and profits (“E&P”) under §§

964 and 986(b) and the regulations thereunder. This change applies regardless of

whether the method of accounting for depreciation that the CFC wants to change

pursuant to this section 6.22 is impermissible or permissible under the Internal Revenue

Code and the regulations thereunder.

(2) CFC has not adopted a method of accounting for the item of property. If

a CFC placed in service an item of property described in section 6.22(1) of this revenue

procedure in the taxable year immediately preceding the year of change (1-year

property), the CFC may change its method of determining depreciation for the 1-year

property to ADS if the designated shareholder files a Form 3115 for this change,

provided the § 481(a) adjustment attributable to the 1-year property is included on the

Form 3115. Alternatively, the CFC may change its impermissible method of

determining depreciation for the 1-year property to ADS if each U.S. shareholder of the

CFC (or the agent described in § 1.1502-77(a), if applicable) files an amended federal

income tax return for the taxable year in which or with which the property’s placed-in-
 133

service year ends prior to the date the shareholder files its federal income tax return for

the taxable year in which or with which the CFC’s taxable year succeeding the placed-

in-service year ends.

(3) Applicability. This change is effective for a Form 3115 filed on or after

May 11, 2021, for a taxable year of a CFC ending before January 1, 2024.

(4) Limited period to convert a Form 3115 filed under the non-automatic

change procedures in Rev. Proc. 2015-13.

(a) Eligibility. The designated shareholder may convert a Form 3115 that

was properly filed on behalf of a CFC 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 this section 6.22 if:

(i) the CFC is otherwise eligible to use the automatic change

procedures in this section 6.22 and Rev. Proc. 2015-13 (to the extent the eligibility

requirements in Rev. Proc. 2015-13 are not waived by this section 6.22), and

(ii) the Form 3115 was filed before May 11, 2021, and is pending

with the national office on May 11, 2021.

(b) Notification procedures. The designated shareholder must notify the

national office contact person for the Form 3115 (if contact person is unknown, fax the

notification to 855-576-2341 or send the notification to the address specified in section

9.08(6) of Rev. Proc. 2022-1, 2022-1 I.R.B. 1 (or its successor)) of the CFC’s intent to

make the change in method of accounting under the automatic change procedures in

this section 6.22 and Rev. Proc. 2015-13 before the later of (i) June 10, 2021, or (ii) the

issuance of a letter ruling granting or denying consent for the change. The notification

must indicate that the designated shareholder chooses on behalf of the CFC to convert
 134

the Form 3115 to the automatic change procedures in this section 6.22 and Rev. Proc.

2015-13. If the national office is timely and properly notified in accordance with the

requirements in this paragraph, the national office will send a letter to the designated

shareholder acknowledging its request and will return the user fee submitted with the

Form 3115.

(c) Resubmission procedures. A designated shareholder converting a

Form 3115 to the automatic change procedures in this section 6.22 and Rev. Proc.

2015-13 for a change in method of accounting described in this section 6.22 must

resubmit a Form 3115 that conforms to the automatic change procedures, with a copy

of the national office letter sent acknowledging the request to convert attached, by the

earlier of (i) the 30th calendar day after the date of the national office’s letter

acknowledging the request to convert, or (ii) the date the designated shareholder is

required to file the original Form 3115 under section 6.03(1)(a) of Rev. Proc. 2015-13.

See section 6.03(3) of Rev. Proc. 2015-13 regarding additional required copies of Form

3115.

For purposes of the eligibility rules in section 5 of Rev. Proc. 2015-13, the

duplicate copy of the timely resubmitted Form 3115 will be considered filed as of the

date the designated shareholder originally filed the converted Form 3115 under the non-

automatic change procedures in Rev. Proc. 2015-13. This paragraph (4) does not

extend the date the designated shareholder must file the original (converted) Form 3115

under section 6.03(1)(a) of Rev. Proc. 2015-13.

(d) Agent treated as designated shareholder. For purposes of this

section 6.22, in the case of a designated shareholder that is a member of a

consolidated group, a reference to a designated shareholder refers to the agent

 135

described in § 1.1502-77(a) with respect to the consolidated group of which the

designated shareholder is a member.

(5) Section 481(a) adjustment. A § 481(a) adjustment is required with

respect to a change made under this section 6.22 for any CFC.

(6) Certain eligibility rules inapplicable. The eligibility rules in section

5.01(1)(c), (d), (e), and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this

change.

(7) Short Form 3115 in lieu of a standard Form 3115. In accordance with

§ 1.446-1(e)(3)(ii), the requirement in § 1.446-1(e)(3)(i) to file a standard Form 3115 is

waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized with respect to any CFC making a change under this section 6.22. The short

Form 3115 (Rev. December 2018) must include the following information:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 10, 13, 16, and 19;

(e) Part IV; and

(f) Schedule E.

(8) Concurrent automatic changes. A designated shareholder making an

accounting method change on behalf of a CFC under this section 6.22 with respect to

more than one asset for the same year of change may file a single short Form 3115 for

all such changes. If any § 481(a) adjustment (or any component of a § 481(a)

adjustment) from a change that is included in that Form 3115 shares all of the same

characteristics as any other § 481(a) adjustment (or component) from a change that is
 136

included in that Form 3115, those § 481(a) adjustments (or components) must be

provided as a single § 481(a) adjustment, with the characteristics identified, in the Form

3115. Any § 481(a) adjustment (or component of a § 481(a) adjustment) from a change

that is included in that Form 3115 that does not share all of the same characteristics as

any other § 481(a) adjustment (or component) from a change that is included in that

Form 3115 must be provided as a separate § 481(a) adjustment, with the characteristics

identified, in the Form 3115. A § 481(a) adjustment (or any component of a § 481(a)

adjustment) shares all of the same characteristics as another § 481(a) adjustment (or

component) if:

(i) The § 481(a) adjustments (or components) relate to the same

qualified business unit (QBU), as defined in § 989(a) and § 1.989(a)-1(b);

(ii) If applicable, the § 481(a) adjustments (or components) relate to the

same tested unit, as defined in § 1.951A-2(c)(7)(iv);

(iii) The § 481(a) adjustments (or components) are either all positive or

all negative, as applicable (for this purpose a negative component of an overall positive

adjustment will be treated as positive and a positive component of an overall negative

adjustment will be treated as negative); and

(iv) The § 481(a) adjustments (or components) have the same source,

separate limitation classification, character, and treatment under section 7.07(2) of Rev.

Proc. 2015-13, as modified by section 4 of Rev. Proc. 2021-26, 2021-22 I.R.B. 1163,

1167-68.

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 6.22 is “248.”

 137

(10) Contact information. For further information regarding a change under

this section, contact Natalie Punchak at (202) 317-6934 (not a toll-free number).

SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)

.01 Changes to a different method or different amortization period.

(1) Description of change.

(a) This change applies to a taxpayer that wants to change the treatment

of expenditures that qualify as research and experimental expenditures under § 174.

Unless otherwise stated, references to § 174 in this section 7.01 refer to § 174 as in

effect prior to amendment by § 13206 of Public Law 115-97, 131 Stat. 2054 (Dec. 22,

2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA).

(b) Section 174 and the regulations thereunder provide the specific rules

for changing a method of accounting under § 174 for research and experimental

expenditures. Under § 174, a taxpayer may treat research and experimental

expenditures that are paid or incurred by the taxpayer during the taxable year in

connection with the taxpayer’s trade or business as expenses under § 174(a) or as

deferred expenses amortizable ratably over a period of not less than 60 months under

§ 174(b). Pursuant to § 1.174-1, research and experimental expenditures that are not

treated as expenses or deferred expenses under § 174 must be treated as a charge to

capital account. Further, § 1.174-1 provides that the expenditures to which § 174

applies may relate either to a general research program or to a particular project.

Finally, §§ 1.174-3(a) and 1.174-4(a)(5) provide that in no event will a taxpayer be

permitted to apply one method as to part of the expenditures relative to a particular

project and apply a different method to the balance of the expenditures relating to the

same project for the same taxable year.

 138

(c) If a taxpayer has not treated research and experimental expenditures

as expenses under § 174(a), § 174(a)(2)(B) and § 1.174-3(b)(2) provide that the

taxpayer may, with consent, adopt the expense method at any time.

(d) If a taxpayer has treated research and experimental expenditures as

expenses under § 174(a), § 174(a)(3) and § 1.174-3(b)(3) provide that the taxpayer

may, with consent, change to a different method of treating research and experimental

expenditures.

(e) If a taxpayer has treated research and experimental expenditures as

deferred expenses under § 174(b), § 174(b)(2) and § 1.174-4(b)(2) provide that the

taxpayer may, with consent, change to a different method of treating research or

experimental expenditures or to a different period of amortization for deferred expenses.

(2) Applicability.

(a) In general. This change applies to any taxpayer that is changing:

(i) from treating research and experimental expenditures for a

particular project or projects as expenses under § 174(a) to treating such expenditures

as deferred expenses under § 174(b), or vice versa;

(ii) to a different period of amortization for research and experimental

expenditures for a particular project or projects that are being treated as deferred

expenses under § 174(b);

(iii) from treating research and experimental expenditures for a

particular project or projects as expenses under § 174(a) or deferred expenses under

§ 174(b) to treating such expenditures as a charge to capital account, or vice versa; or

 139

(iv) from treating research and experimental expenditures under any

provision of the Code other than § 174 to treating such expenditures under § 174 and

the regulations thereunder.

(b) Inapplicability. This change does not apply to:

(i) a change in the treatment of computer software costs under Rev.

Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16, 2007-1 C.B. 358

(but see section 9 of this revenue procedure for making that change);

(ii) a change in the treatment of Year 2000 costs under Rev. Proc.

97-50, 1997-2 C.B. 525; or

(iii) any amount paid or incurred in any taxable year for which § 174

as amended by § 13206 of the TCJA is in effect.

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, is not applicable to this change.

(4) Manner of making change.

(a) This change is made on a cut-off basis and applies to all research

and experimental expenditures paid or incurred for a particular project or projects on or

after the beginning of the year of change. See § 174(b)(2), and §§ 1.174-3(a), 1.174-

3(b)(2), and 1.174-4(a)(5) for more information regarding a cut-off basis. Accordingly, a

§ 481(a) adjustment is neither permitted nor required.

(b) The requirement under §§ 1.174-3(b)(2), 1.174-3(b)(3), and 1.174-

4(b)(2) to file an application (that is, a Form 3115) no later than the end of the first

taxable year in which the different method or different amortization period is to be used

is waived for this change. However, see section 6.03 of Rev. Proc. 2015-13 for filing

requirements applicable to a change under this section 7.01.

 140

(c) The consent granted under section 9 of Rev. Proc. 2015-13 satisfies

the consent required under §§ 174(a)(2)(B), 174(a)(3), and 174(b)(2), and §§ 1.174-

3(b)(2), 1.174-3(b)(3), and 1.174-4(b)(2).

(5) Additional requirement. A taxpayer must attach to its Form 3115 a written

statement providing:

(a) the information required in § 1.174-3(b)(2) if the taxpayer is changing

to treating research and experimental expenditures as expenses under § 174(a);

(b) the information required in § 1.174-3(b)(3) if the taxpayer is changing

from treating research and experimental expenditures as expenses under § 174(a); or

(c) the information required in § 1.174-4(b)(2) if the taxpayer is changing

from treating research and experimental expenditures as deferred expenses under

§ 174(b) or is changing to a different period of amortization for research and

experimental expenditures being treated as deferred expenses under § 174(b).

(6) No audit protection. A taxpayer does not receive audit protection under

section 8.01 of Rev. Proc. 2015-13 in connection with this change. See section 8.02(2)

of Rev. Proc. 2015-13.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 7.01 is “17.”

(8) Contact information. For further information regarding a change under

this section, contact Martha M. Garcia or John M. Deininger at (202) 317-6853 (not a

toll-free number).

SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)

.01 Deduction for Energy Efficient Commercial Buildings (§ 179D).
 141

(1) Description of change. This change, as described in Rev. Proc. 2012-39,

2012-41 I.R.B. 470, applies to a taxpayer that wants to change its method of accounting

to deduct under § 179D amounts paid or incurred for the installation of energy efficient

commercial building property, as defined in § 179D(c)(1). The deduction for energy

efficient commercial building property is subject to the limits of § 179D(b) and must be

claimed in the taxable year in which the property is placed in service. The basis of the

energy efficient commercial building property is reduced by the amount of the § 179D

deduction taken and the remaining basis of the energy efficient commercial building

property is depreciated over its recovery period.

(2) Applicability. This change applies to a taxpayer that places in service

property for which a deduction is allowed under § 179D(a).

(3) Inapplicability. This change does not apply to a designer to whom the

owner of a government building allocates the § 179D deduction.

(4) Manner of making change. A taxpayer making this change must attach to

its Form 3115 (the original, the duplicate copy filed with the IRS in Ogden, UT, and any

additional copies) a statement with a detailed description of the tax treatment of the

property under the taxpayer’s present and proposed methods of accounting.

(5) Certification requirement. In addition to the statement required by section

8.01(4) of this revenue procedure, a taxpayer making this change must attach to its

Form 3115 a certification as required by section 4 of Notice 2006-52, 2006-1 C.B. 1175,

or section 5 of Notice 2008-40, 2008-1 C.B. 725, to demonstrate that the energy

efficient commercial building property has achieved the reduction in energy and power

costs or in lighting power density necessary to qualify for the § 179D deduction.
 142

(6) No ruling on qualification. The consent granted under section 9 of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, for a change provided in this section 8.01 is not a

determination by the Commissioner that the taxpayer qualifies for a deduction under

section 179D. The director will ascertain whether the taxpayer qualifies for a deduction

under section 179D (including a review of the required certifications). See section 12 of

Rev. Proc. 2015-13.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 8.01 is “152.”

(8) Contact information. For further information regarding a change under

this section, contact Charles Hyde at (202) 317-5214 (not a toll-free number).

SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197)

.01 Computer software expenditures.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for the costs of computer software to a method

described in Rev. Proc. 2000-50, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16,

2007-1 C.B. 358. Section 5 of Rev. Proc. 2000-50 describes the methods applicable to

the costs of developing computer software. Section 6 of Rev. Proc. 2000-50 describes

the method applicable to the costs of acquired computer software. Section 7 of Rev.

Proc. 2000-50 describes the method applicable to leased or licensed computer

software. Section 13206 of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017),

commonly referred to as the Tax Cuts and Jobs Act (TCJA), amended § 174 to treat the

costs of software development as research or experimental expenditures, effective for

amounts paid or incurred in taxable years beginning after December 31, 2021. In
 143

accordance, section 5 of Rev. Proc. 2000-50 (costs of developing computer software)

does not apply to any amount paid or incurred in any taxable year for which § 174 as

amended by § 13206 of the TCJA is in effect.

(2) Scope. This change applies to all costs of computer software as defined

in section 2 of Rev. Proc. 2000-50. However, this change does not apply to any

computer software that is subject to amortization as an “amortizable section 197

intangible” as defined in § 197(c) and the regulations thereunder, or to costs that a

taxpayer has treated as research and experimentation expenditures under § 174.

(3) Inapplicability. This change does not apply to costs of developing

computer software that are paid or incurred in taxable years for which § 174 as

amended by § 13206 of the TCJA is in effect.

(4) Statement required. If a taxpayer is changing to the method described in

section 5.01(2) of Rev. Proc. 2000-50, the taxpayer must attach to its Form 3115 a

statement providing the information required in section 8.02(2) of Rev. Proc. 2000-50.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 9.01 is “18.”

(6) Contact information. For further information regarding a change under

this section, contact Bruce Chang at (202) 317-7005 (not a toll-free number).

SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§§ 195,

248, AND 709)
.01 Start-up expenditures.

(1) Description of change and scope.

 144

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting under § 195 to change:

(i) the characterization of an item as a start-up expenditure;

(ii) the determination of the taxable year in which the taxpayer begins

the active trade or business to which the start-up expenditures relate; or

(iii) the amortization period of a start-up expenditure to 180 months.

(b) Inapplicability. This change does not apply to:

(i) start-up expenditures paid or incurred before October 23, 2004; or

(ii) start-up expenditures paid or incurred after October 22, 2004, and

before August 17, 2011, if the period of limitations on assessment of tax for the taxable

year the election under § 1.195-1(b) is deemed made has expired.

(2) No rulings.

(a) Characterization of item. The consent granted under section 9 of

Rev. Proc. 2015-13 for a change specified in section 10.01(1)(a)(i) of this revenue

procedure is not a determination by the Commissioner that the taxpayer has properly

characterized an item as a start-up expenditure and does not create any presumption

that the proposed characterization of an item as a start-up expenditure is permissible

under § 195(c)(1). The director will ascertain whether the taxpayer’s characterization of

an item as a start-up expenditure is permissible.

(b) When active trade or business begins. The consent granted under

section 9 of Rev. Proc. 2015-13 for a change specified in section 10.01(1)(a)(ii) of this

revenue procedure is not a determination by the Commissioner that the taxpayer has

properly determined the taxable year in which the taxpayer begins the active trade or

business to which the start-up expenditures relate and does not create any presumption
 145

that the proposed taxable year in which the taxpayer begins the active trade or business

to which the start-up expenditures relate is permissible under § 195(c)(2). The director

will ascertain whether the taxpayer’s determination of the taxable year in which the

taxpayer begins the active trade or business to which the start-up expenditures relate is

permissible.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to a method of

accounting under this section 10.01 is “223.”

(4) Contact information. For further information regarding a change under

this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).

.02 Organizational expenditures under § 248.

(1) Description of change and scope.

(a) Applicability. This change applies to a corporation that wants to

change its method of accounting under § 248 to change:

(i) the characterization of an item as an organizational expenditure;

(ii) the determination of the taxable year in which the corporation

begins business to which the organizational expenditures relate; or

(iii) the amortization period of an organizational expenditure to 180

months.

(b) Inapplicability. This change does not apply to:

(i) organizational expenditures paid or incurred before October 23,

2004; or
 146

(ii) organizational expenditures paid or incurred after October 22,

2004, and before August 17, 2011, if the period of limitations on assessment of tax for

the taxable year the election under § 1.248-1(c) is deemed made has expired.

(2) No rulings.

(a) Characterization of items. The consent granted under section 9 of

Rev. Proc. 2015-13 for a change specified in section 10.02(1)(a)(i) of this revenue

procedure is not a determination by the Commissioner that the corporation has properly

characterized an item as an organizational expenditure and does not create any

presumption that the proposed characterization of an item as an organizational

expenditure is permissible under § 248(b) and § 1.248-1(b). The director will ascertain

whether the corporation’s characterization of an item as an organizational expenditure is

permissible.

(b) When the corporation begins business. The consent granted under

section 9 of Rev. Proc. 2015-13 for a change specified in section 10.02(1)(a)(ii) of this

revenue procedure is not a determination by the Commissioner that the corporation has

properly determined the taxable year in which the corporation begins business to which

the organizational expenditures relate and does not create any presumption that the

proposed taxable year in which the corporation begins business to which the

organizational expenditures relate is permissible under §1.248-1(d). The director will

ascertain whether the corporation’s determination of the taxable year in which the

corporation begins business to which the organizational expenditures relate is

permissible.
 147

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 10.02 is “228.”

(4) Contact information. For further information regarding a change under

this section, contact Sharon Horn at (202) 317-7003 (not a toll-free number).

.03 Organization fees under § 709.

(1) Description of change and scope.

(a) Applicability. This change applies to a partnership that wants to

change its method of accounting under § 709 to change:

(i) the characterization of an item as an organizational expense;

(ii) the determination of the taxable year in which the partnership

begins business to which the organizational expenses relate; or

(iii) the amortization period of an organizational expense to 180

months.

(b) Inapplicability. This change does not apply to:

(i) organizational expenses paid or incurred before October 23,

2004; or

(ii) organizational expenses paid or incurred after October 22,

2004, and before August 17, 2011, if the period of limitations on assessment of tax for

the taxable year the election under § 1.709-1(b) is deemed made has expired.

(2) No rulings.

(a) Characterization of items. The consent granted under section 9 of

Rev. Proc. 2015-13 for a change specified in section 10.03(1)(a)(i) of this revenue

procedure is not a determination by the Commissioner that the partnership has properly
 148

characterized an item as an organizational expense and does not create any

presumption that the proposed characterization of an item as an organizational expense

is permissible under § 709(b)(3). The director will ascertain whether the partnership’s

characterization of an item as an organizational expense is permissible.

(b) When the partnership begins business. The consent granted under

section 9 of Rev. Proc. 2015-13 for a change specified in section 10.03(1)(a)(ii) of this

revenue procedure is not a determination by the Commissioner that the partnership has

properly determined the taxable year in which the partnership begins business to which

the organizational expenses relate and does not create any presumption that the

proposed taxable year in which the partnership begins business to which the

organizational expenses relate is permissible under §1.709-2(c). The director will

ascertain whether the partnership’s determination of the taxable year in which the

partnership begins business to which the organizational expenses relate is permissible.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 10.03 is “229.”

(4) Contact information. For further information regarding a change under

this section, contact Meghan Howard at (202) 317-5055 (not a toll-free number).

SECTION 11. CAPITAL EXPENDITURES (§ 263)

.01 Package design costs.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting for package design costs that are within the scope of Rev.

Proc. 97-35, 1997-2 C.B. 448, as modified by Rev. Proc. 98-39, 1998-1 C.B. 1320, to
 149

one of the three alternative methods of accounting for package design costs described

in section 5 of Rev. Proc. 97-35, which are: (i) the capitalization method, (ii) the design-

by-design capitalization and 60-month amortization method, and (iii) the pool-of-cost

capitalization and 48-month amortization method.

(b) Inapplicability. This change does not apply to a taxpayer that wants

to change to the capitalization method for costs of developing or modifying any package

design that has an ascertainable useful life.

(2) Additional requirements. If a taxpayer is changing its method of

accounting for package design costs to the capitalization method or the design-by-

design capitalization and 60-month amortization method, the taxpayer must attach a

statement to its timely filed Form 3115. The statement must provide a description of

each package design, the date on which each was placed in service, and the cost basis

of each (as determined under sections 5.01(2) or 5.02(2) of Rev. Proc. 97-35).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.01 is “19.”

(4) Contact information. For further information regarding a change under

this section, contact Alexa Dubert at (202) 317-7003 (not a toll-free number).

.02 Line pack gas or cushion gas.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for line pack gas or cushion gas to a method

consistent with the holding in Rev. Rul. 97-54, 1997-2 C.B. 23. Rev. Rul. 97-54 holds

that the cost of line pack gas or cushion gas is a capital expenditure under § 263, the

cost of recoverable line pack gas or recoverable cushion gas is not depreciable, and the
 150

cost of unrecoverable line pack gas or unrecoverable cushion gas is depreciable under

§§ 167 and 168.

(2) Additional requirements. A taxpayer that changes its method of

accounting for unrecoverable line pack gas or unrecoverable cushion gas under this

section 11.02 must change to a permissible method of accounting for depreciation for

the cost of that gas as part of this change.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.02 is “20.”

(4) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

.03 Removal costs.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting for certain costs in the retirement and removal of a depreciable

asset to conform with Rev. Rul. 2000-7, 2000-1 C.B. 712, as modified by this revenue

procedure, or for removal costs in disposal of a depreciable asset, including a partial

disposition, as described under § 1.263(a)-3(g)(2)(i).

(b) Inapplicability. This change does not apply to a taxpayer that wants

to change its method of accounting for removal costs in the disposal of a component of

a unit of property where the disposal of the component is not a disposition for federal

tax purposes. To make that change, see section 11.08 of this revenue procedure.
 151

(c) Manner of making change. A qualified small taxpayer, as defined in

section 6.01(4)(b) of this revenue procedure, is required to complete only the following

information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 13, 15, 16, 17, and 19, if the

change is not to depreciating property;

(v) Part II, all lines except lines 13, 15b, 16, 17, and 19, if the

change is to depreciating property;

(vi) Part IV, lines 26 and 27; and

(vii) Schedule E, if applicable.

(2) Additional requirements.

(a) Except for assets for which depreciation is determined in accordance

with § 1.167(a)-11 (ADR), the taxpayer’s proposed method of treating removal costs for

assets accounted for in a multiple asset account must be consistent with the taxpayer’s

method of treating salvage proceeds. See Rev. Rul. 74-455, 1974-2 C.B. 63. (See

section 6.02 of this revenue procedure for changing a taxpayer’s present method of

treating salvage proceeds.)

(b) If this change involves assets that are public utility property within the

meaning of § 168(i)(10) or former § 167(l)(3)(A), the taxpayer must comply with the

terms and conditions in section 6.01(3)(b)(v) of this revenue procedure.

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.
 152

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.03 is “21.”

(5) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

.04 Distributor commissions.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from currently deducting distributor commissions (as defined by section 2 of Rev. Proc.

2000-38, 2002-2 C.B. 310, as modified by Rev. Proc. 2007-16, 2007-1 C.B. 358) to a

method of capitalizing and amortizing distributor commissions using the distribution fee

period method, the 5-year method, or the useful life method (all described in Rev. Proc.

2000-38).

(b) Inapplicability. This change does not apply to an amortizable section

197 intangible (including any property for which a timely election under § 13261(g)(2) of

the Revenue Reconciliation Act of 1993, 1993-3 C.B. 1, 128, was made).

(2) Manner of making change. This change is made on a cut-off basis and

applies only to distributor commissions paid or incurred on or after the beginning of the

year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.04 is “47.”

(4) Contact information. For further information regarding a change under

this section, contact Alexa Dubert at (202) 317-7003 (not a toll-free number).
 153

.05 Intangibles.

(1) Description of change. This change applies to a taxpayer that wants to

change its treatment of an item to a method of accounting permitted by §§ 1.263(a)-4,

1.263(a)-5, and 1.167(a)-3(b). See Rev. Proc. 2006-12, 2006-1 C.B. 310, as modified

by Rev. Proc. 2006-37, 2006-2 C.B. 499, for the specific requirements, information, and

documentation required for this change.

(2) Section 481(a) adjustment. In computing the § 481(a) adjustment for this

change, the taxpayer takes into account only amounts paid or incurred in taxable years

ending on or after January 24, 2002. See section 5 of Rev. Proc. 2006-12 for detailed

rules for computing the § 481(a) adjustment and reporting it on Form 3115.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.05 is “78.”

(4) Contact information. For further information regarding a change under

this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).

.06 Rotable spare parts safe harbor method.

(1) Description of change. This change applies to a taxpayer that maintains

a pool or pools of rotable spare parts that are primarily used to repair customer-owned

(or customer-leased) equipment under warranty or maintenance agreements, and wants

to change its method of accounting for the rotable spare parts to the safe harbor method

of accounting provided in Rev. Proc. 2007-48, 2007-2 C.B. 110. The taxpayer must

meet the requirements in section 4.01 of Rev. Proc. 2007-48 to use this safe harbor

method of accounting.
 154

(2) Change from safe harbor method. A taxpayer that is required to change

its method of accounting from the safe harbor method under section 5.06 of Rev. Proc.

2007-48, must make the change under section 21.09 of this revenue procedure.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.06 is “109.”

(4) Contact information. For further information regarding a change under

this section, contact Stephen Rothandler at (202) 317-7003 (not a toll-free number).

.07 Repairable and reusable spare parts.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting to treat repairable and reusable spare parts as depreciable

property to conform with the holdings in Rev. Rul. 69-200, 1969-1 C.B. 60, and Rev.

Rul. 69-201, 1969-1 C.B. 60. This change applies to repairable and reusable spare

parts that: are owned by the taxpayer at the beginning of the year of change; are used

to repair equipment owned by the taxpayer; are acquired by the taxpayer for a specific

type of equipment at the time that the related equipment is acquired; usually have the

same useful life as the related equipment; and have been placed in service by the

taxpayer after 1986. A taxpayer making a change in method of accounting under this

section 11.07 may treat its repairable and reusable spare parts as tangible property for

which depreciation is allowable at the time that the related equipment is placed in

service by the taxpayer. The method of computing depreciation for the repairable and

reusable spare parts is the same method of computing depreciation for the related

equipment.
 155

(b) Inapplicability. This change does not apply to:

(i) A taxpayer that is currently capitalizing and depreciating the cost

of its repairable and reusable spare parts, or that is currently capitalizing the cost of its

repairable and reusable spare parts and treating these parts as nondepreciable property

(but see section 6.01 of this revenue procedure for making a change from an

impermissible to a permissible method of accounting for depreciation);

(ii) A taxpayer that is using an impermissible method of accounting

for depreciation for the related equipment for which the repairable and reusable spare

parts are acquired, unless the taxpayer concurrently changes its method to use a

permissible method of accounting for depreciation under section 6 of this revenue

procedure;

(iii) A repairable and reusable spare part that meets the definition of

rotable spare parts, temporary spare parts, or standby emergency spare parts in

§ 1.162-3(c)(2) or (3), for which the cost was paid or incurred by the taxpayer in a

taxable year beginning on or after January 1, 2014 (or in a taxable year beginning on or

after January 1, 2012, if the taxpayer chooses to apply § 1.162-3 to amounts paid or

incurred in those taxable years), and for which the taxpayer did not make the election

under § 1.162-3(d) to capitalize and depreciate such repairable and reusable spare part;

or

(iv) a taxpayer that chooses to apply § 1.162-3T to a repairable and

reusable spare part that meets the definition of rotable spare parts or temporary spare

parts in § 1.162-3T(c)(2), for which the cost was paid or incurred by the taxpayer in a

taxable year beginning on or after January 1, 2012, and before January 1, 2014, and for
 156

which the taxpayer did not make the election under § 1.162-3T(d) to capitalize and

depreciate such repairable and reusable spare part.

(2) Additional requirements.

(a) To change a method of accounting under this section 11.07, a

taxpayer (including a qualified small taxpayer as defined in section 6.01(4)(b) of this

revenue procedure) must complete Schedule E of Form 3115 for the repairable and

reusable spare parts and also attach the following information to the completed Form

3115:

(i) A description of the repairable and reusable spare parts;

(ii) A list of related equipment for which the repairable and reusable

spare parts are acquired; and

(iii) A complete description of the method of computing depreciation (for

example, depreciation method, recovery period, convention, and applicable asset class

under Rev. Proc. 87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22,

1988-1 C.B. 785) that the taxpayer uses for the related equipment for which the

repairable and reusable spare parts are acquired.

(b) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 15b, 16, 17, and 19; and

(v) Part IV, all lines except line 25.

 157

(3) Concurrent automatic change.

(a) A taxpayer making both this change and a change to a UNICAP

method under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on

making concurrent changes. For example, a qualified small taxpayer, as defined in

section 6.01(4)(b) of this revenue procedure, must include on the single Form 3115 the

information required by section 11.07(2)(b) of this revenue procedure and the

information required by the lines on Form 3115, applicable to the UNICAP method

change, including Part II line 14 and 15, Part IV, and Schedule D, and must include a

separate response to each line on Form 3115 that is applicable to both changes (such

as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV) for which the

taxpayer’s response is different for this change and the change to a UNICAP method.

(b) A taxpayer making both this change and a change to a permissible

method of accounting for depreciation for repairable and reusable spare parts, or for the

related equipment for which the repairable and reusable spare parts are acquired, under

section 6 of this revenue procedure (as applicable) for the same year of change should

file a single Form 3115 for both changes, in which case the taxpayer must enter the

designated automatic accounting method change numbers for both changes on the

appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes. For example, a qualified small taxpayer

must include on the single Form 3115 the information required to be completed on Form
 158

3115 by a qualified small taxpayer under this revenue procedure for each change in

method of accounting included on that Form 3115.

(c) A taxpayer making this change also may establish pools for the

repairable and reusable spare parts or may identify disposed repairable and reusable

spare parts in accordance with section 6.12 of this revenue procedure. A taxpayer

making both this change and the change under section 6.12 of this revenue procedure

for the same year of change should file a single Form 3115 for both changes, in which

case the taxpayer must enter the designated automatic accounting method change

numbers for both changes on the appropriate line on that Form 3115. See section

6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes. For

example, a qualified small taxpayer must include on the single Form 3115 the

information required to be completed on Form 3115 by a qualified small taxpayer under

this revenue procedure for each change in method of accounting included on that Form

3115.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.07 is “121”.

(5) Contact information. For further information regarding a change under

this section, contact Stephen Rothandler at (202) 317-7003 (not a toll-free number).

.08 Tangible property.

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-

9 I.R.B. 606, applies to a taxpayer that wants to make a change to a method of

accounting specified in section 11.08(2) of this revenue procedure and permitted under:
 159

(i) Section 1.162-3, § 1.162-4, § 1.263(a)-1, § 1.263(a)-2, or

§ 1.263(a)-3 (the final tangible property regulations) for taxable years beginning on or

after January 1, 2012; or

(ii) Section 1.446-1(e)(2)(ii)(d)(2) if the property for which the

taxpayer is otherwise changing its method of accounting under this section is

depreciable under either the present or the proposed method of accounting.

(b) Inapplicability. This change does not apply to:

(i) A taxpayer that wants to change its method of accounting for

dispositions of depreciable property, including a change in the asset disposed of (but

see sections 6.10, 6.13, 6.14, and 6.15 of this revenue procedure);

(ii) Amounts paid or incurred for certain materials and supplies that

the taxpayer has elected to capitalize and depreciate under § 1.162-3(d);

(iii) Amounts paid or incurred to which the taxpayer has elected to

apply the de minimis safe harbor under § 1.263(a)-1(f);

(iv) Amounts paid or incurred for employee compensation or

overhead that the taxpayer has elected to capitalize under § 1.263(a)-2(f)(2)(iv)(B);

(v) Amounts paid or incurred to which the taxpayer has elected to

apply the safe harbor for small taxpayers under § 1.263(a)-3(h);

(vi) Amounts paid or incurred for repair and maintenance costs that

the taxpayer has elected to capitalize under § 1.263(a)-3(n);

(vii) Amounts paid or incurred to facilitate the acquisition or

disposition of assets that constitute a trade or business (but see section 10.05 of this

revenue procedure); or
 160

(viii) Amounts paid or incurred for repair and maintenance costs that

the taxpayer is changing from capitalizing to deducting and for which the taxpayer has

(A) claimed a federal income tax credit, (B) elected to apply § 168(k)(4) (as in effect on

the day before the date of enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22,

2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA)), or (C) received a

payment for specified energy property in lieu of tax credits under section 1603 of the

American Recovery and Reinvestment Tax Act of 2009, Div. B of Pub. L. No. 111-5, 123

Stat. 115 (February 17, 2009), as amended by section 707 of the Tax Relief,

Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No.

111-312, 124 Stat. 3296 (December 17, 2010).

(2) Covered changes. This section 11.08 only applies to the following

changes in methods of accounting:

(a) A change to deducting amounts paid or incurred to acquire or

produce non-incidental materials and supplies in the taxable year in which they are first

used in the taxpayer’s operations or consumed in the taxpayer’s operations in

accordance with §§ 1.162-3(a)(1) and 1.162-3(c)(1);

(b) A change to deducting amounts to acquire or produce incidental

materials and supplies in the taxable year in which paid or incurred in accordance with

§§ 1.162-3(a)(2) and 1.162-3(c)(1);

(c) A change to deducting amounts paid or incurred to acquire or

produce non-incidental rotable and temporary spare parts in the taxable year which the

taxpayer disposes of the parts in accordance with §§ 1.162-3(a)(3) and 1.162-3(c)(2);

(d) A change to the optional method of accounting for rotable and

temporary spare parts in accordance with § 1.162-3(e);

 161

(e) A change to deducting amounts paid or incurred for repair and

maintenance in accordance with § 1.162-4, including a change, if any, in identifying the

unit of property under § 1.263(a)-3(e) or, in the case of a building, identifying the

building structure or building systems under § 1.263(a)-3(e)(2) for purposes of making

the change to deducting the amounts;

(f) A change to capitalizing amounts paid or incurred for improvements to

tangible property in accordance with § 1.263(a)-3 and, if depreciable, to depreciating

such property under § 167 or § 168, including a change, if any, in identifying the unit of

property under § 1.263(a)-3(e) or, in the case of a building, identifying the building

structure or building systems under § 1.263(a)-3(e)(2) for purposes of making the

change to capitalizing the amounts;

(g) A change by a dealer in property to deduct amounts paid or incurred

for commissions and other costs that facilitate the sale of property in accordance with

§ 1.263(a)-1(e)(2);

(h) A change by a non-dealer in property to capitalizing amounts paid or

incurred for commissions and other costs that facilitate the sale of property in

accordance with § 1.263(a)-1(e);

(i) A change to capitalizing amounts paid or incurred to acquire or

produce property in accordance with § 1.263(a)-2, and if depreciable, to depreciating

such property under § 167 or § 168;

(j) A change to deducting amounts paid or incurred in the process of

investigating or otherwise pursuing the acquisition of real property if the amounts meet

the requirements of § 1.263(a)-2(f)(2)(iii); and

 162

(k) A change to the optional regulatory accounting method in accordance

with § 1.263(a)-3(m) to determine whether amounts paid or incurred to repair, maintain,

or improve tangible property are treated as deductible expenses or capital expenditures.

(3) Manner of making change.

(a) Form 3115. In addition to the other information required on line 14 of

Form 3115, the taxpayer must include the following:

(i) The citation to the paragraph of the final tangible property

regulations that provides for the proposed method, or methods, of accounting to which

the taxpayer is changing (for example, § 1.162-3(a), § 1.263(a)-3(i), § 1.263(a)-3(k));

and

(ii) If the taxpayer is changing any unit(s) of property under

§ 1.263(a)-3(e) or, in the case of a building, is changing the identification of any building

structure(s) or building system(s) under § 1.263-3(e)(2) for purposes of determining

whether amounts are deducted as repair and maintenance costs under section § 1.162-

4 or capitalized as improvement costs under § 1.263(a)-3, the taxpayer must include a

detailed description of the unit(s) of property, building structure(s), or buildings

system(s) used under its present method of accounting and a detailed description of the

unit(s) of property, building structure(s), and building system(s) under its proposed

method of accounting, together with a citation to the paragraph of the final tangible

property regulations under which the unit of property is permitted.

(iii) A taxpayer changing its method of accounting under this section

11.08 to capitalizing amounts paid or incurred and to depreciating such property under

§ 167 or § 168, as applicable, must complete Schedule E of Form 3115.

 163

(b) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, is required to

complete only the following information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 13, 15, 16, 17, and 19, if the

change is to not depreciating property;

(v) Part II, all lines except line 13, line 15b, 16, 17, and 19, if the

change is to depreciating property;

(vi) Part IV, lines 26 and 27; and

(vii) Schedule E, if applicable.

(4) Concurrent automatic change.

(a) A taxpayer making two or more changes in method of accounting

pursuant to this section 11.08 should file a single Form 3115 for all of these changes

and must enter the designated automatic accounting method change numbers for all of

these changes on the appropriate line on the Form 3115.

(b) A taxpayer making both one or more changes in method of

accounting pursuant to this section 11.08 and a change to a UNICAP method under

section 12 of this revenue procedure (as applicable) for the same year of change should

file a single Form 3115 that includes all of these changes and must enter the designated

automatic accounting method change numbers for all of these changes on the

appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes. For example, a qualified small taxpayer, as

 164

defined in section 6.01(4)(b) of this revenue procedure, must include on the single Form

3115 the information required by section 11.08(3)(b) of this revenue procedure for this

change and the information required by the lines on Form 3115, applicable to the

UNICAP method change, including Part II lines 14 and 15, Part IV, and Schedule D, and

must include a separate response to each line on Form 3115 that is applicable to both

changes (such as Part II lines 6b, 7, 8b, 14, and, as applicable for this change, Part IV)

for which the taxpayer’s response is different for this change and the change to a

UNICAP method.

(5) Section 481(a) adjustment.

(a) In general. Except as provided in section 11.08(5)(b) of this revenue

procedure, a taxpayer changing to a method of accounting provided in this section

11.08 must apply § 481(a) and take into account any applicable § 481(a) adjustment in

the manner provided in section 7.03 of Rev. Proc. 2015-13.

(b) Limited adjustment for certain changes.

(i) Final tangible property regulations. A taxpayer changing to a

method of accounting under § 1.162-3 (except § 1.162-3(e)), § 1.263(a)-2(f)(2)(iii),

§ 1.263(a)-2(f)(3)(ii), § 1.263(a)-3(m), § 1.263A-1(e)(2)(i)(A), and § 1.263A-1(e)(3)(ii)(E)

is required to calculate a § 481(a) adjustment as of the first day of the taxpayer’s

taxable year of change that takes into account only amounts paid or incurred in taxable

years beginning on or after January 1, 2014. Optionally, a taxpayer may take into

account amounts paid or incurred in taxable years beginning on or after January 1,

2012.

(ii) Small business exception. A taxpayer that met the scope

requirements of section 4 of Rev. Proc. 2015-20, 2015-9 I.R.B. 694, and that changed
 165

its method of accounting under section 10.11(3)(a) of Rev. Proc. 2015-14 (which is now

section 11.08(2) of this revenue procedure) by following section 5 of Rev. Proc. 2015-20

is required to calculate a § 481(a) adjustment as of the first day of the year of change

that takes into account only amounts paid or incurred in taxable years beginning on or

after January 1, 2014.

(c) Itemized listing on Form 3115. A taxpayer changing to a method of

accounting provided in this section 11.08 must include on Form 3115 (Rev. December

2018), Part IV, line 26, the total § 481(a) adjustment for each change in method of

accounting being made. If the taxpayer is making more than one change in method of

accounting under the final tangible property regulations, the taxpayer (including a

qualified small taxpayer) must include on an attachment to Form 3115:

(i) The information required by Part IV, line 26 of Form 3115 (Rev.

December 2018) for each change in method of accounting (including the amount of the

§ 481(a) adjustment for each change in method of accounting, which includes the

portion of the § 481(a) adjustment attributable to UNICAP);

(ii) The information required by Part II, line 14 of Form 3115 (Rev.

December 2018) for each change; and

(iii) The citation to the paragraph of the final tangible property

regulations that provides for each proposed method of accounting.

(d) Repair allowance property. A taxpayer changing to a method of

accounting provided by § 1.263(a)-3 under this section 11.08 must not include in the

§ 481(a) adjustment any amount attributable to property for which the taxpayer elected

to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable year in which the

repair allowance election was made.

 166

(e) Statistical Sampling. Except for any change in accounting method for

which a taxpayer is required to compute a § 481(a) adjustment under section

11.08(5)(b) of this revenue procedure, a taxpayer changing its method of accounting

under this section 11.08 may use statistical sampling in determining the § 481(a)

adjustment by following the guidance provided in Rev. Proc. 2011-42, 2011-37 I.R.B.

318.

(6) No audit protection. A taxpayer calculating a § 481(a) adjustment under

section 11.08(5)(b)(ii) of this revenue procedure that takes into account only amounts

paid or incurred in taxable years beginning on or after January 1, 2014, does not

receive audit protection under section 8.01 of Rev. Proc. 2015-13 for amounts subject to

a change under this section 11.08 that are paid or incurred in taxable years beginning

before January 1, 2014. See section 5.02 of Rev. Proc. 2015-20.

(7) Designated automatic accounting method change number. See the

following table for the designated automatic accounting method change numbers (DCN)

for the changes in method of accounting under this section 11.08.

 167

(a) Changes under the final tangible property regulations.

Description of Change DCN Citation

A change to deducting amounts paid or incurred for
repair and maintenance or a change to capitalizing
amounts paid or incurred for improvements to tangible
property and, if depreciable, to depreciating such
property under § 167 or § 168. Includes a change, if 184 §§ 1.162-4, 1.263(a)-3
any, in the method of identifying the unit of property,
or in the case of a building, identifying the building
structure or building systems for the purpose of
making this change.

Change to the regulatory accounting method. 185 § 1.263(a)-3(m)

Change to deducting non-incidental materials and

186 § 1.162-3(a)(1), (c)(1)
supplies when used or consumed.

Change to deducting incidental materials and supplies

187 § 1.162-3(a)(2), (c)(1)
when paid or incurred.

Change to deducting non-incidental rotable and

188 § 1.162-3(a)(3), (c)(2)
temporary spare parts when disposed of.

Change to the optional method for rotable and

189 § 1.162-3(e)
temporary spare parts.

Change by a dealer in property to deduct

commissions and other costs that facilitate the sale of 190 § 1.263(a)-1(e)(2)
property.

Change by a non-dealer in property to capitalizing

commissions and other costs that facilitate the sale of 191 § 1.263(a)-1(e)(1)
property.

Change to capitalizing acquisition or production costs

and, if depreciable, to depreciating such property 192 § 1.263(a)-2
under § 167 or § 168.

Change to deducting certain costs for investigating or

pursuing the acquisition of real property (whether and 193 § 1.263(a)-2(f)(2)(iii)
which).

(8) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

.09 Railroad track structure expenditures.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for railroad track structures to:

 168

(a) the safe harbor method provided in Rev. Proc. 2002-65, 2002-2 C.B.

700; or

(b) the safe harbor method provided in Rev. Proc. 2001-46, 2001-2 C.B.

263.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 11.09 is “213.”

(3) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

.10 Remodel-refresh safe harbor method.

(1) Description of change.

(a) Applicability. This change applies to a qualified taxpayer as defined in

section 4.01 of Rev. Proc. 2015-56, 2015-49 I.R.B. 827, and within the scope of Rev.

Proc. 2015-56 that wants to change to the remodel-refresh safe harbor method of

accounting provided in section 5.02 of Rev. Proc. 2015-56, as modified by Rev. Proc.

2020-25, 2020-19 I.R.B. 785, for its qualified costs, including the making of a late

general asset account election as provided under section 5.02(6)(d) of Rev. Proc. 2015-

56.

(b) Inapplicability. This change does not apply to the following:

(i) The revocation of a partial disposition election that is made pursuant to

section 5.02(4)(b)(ii)(B) of Rev. Proc. 2015-56;

(ii) A change in determination of the asset disposed of described in section

5.02(5) of Rev. Proc. 2015-56 (which is made under section 6.13(3)(a) or 6.15(3)(a) of

this revenue procedure, as applicable). See section 11.10(5)(b) of this revenue

 169

procedure for making the change under section 6.13(3)(a) or 6.15(3)(a) of this revenue

procedure as a concurrent change;

(iii) The making of a late general asset account election not provided under

section 5.02(6)(d) of Rev. Proc. 2015-56;

(iv) If section 5.02(4)(c) of Rev. Proc. 2015-56 applies to a qualified building

(partial disposition election made in a prior year and the qualified taxpayer did not

revoke such election within the time and in the manner provided in section 5.02(4)(b)(ii)

of Rev. Proc. 2015-56), any qualified costs paid for that qualified building prior to the

year of change for a Form 3115 filed to make the change to the remodel-refresh safe

harbor method of accounting under this section 11.10; or

(v) If section 5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified building

(recognized gain or loss under § 1.168(i)-1 or § 1.168(i)-8, or in a taxable year

beginning before January 1, 2012, for disposition of a component of a qualified building)

and the qualified taxpayer did not make the required change in method of accounting to

be in accord with § 1.168(i)-1(e)(2)(viii) or § 1.168-8(c)(4), as applicable, on or before

the first taxable year that the qualified taxpayer uses the remodel-refresh safe harbor

and takes the entire amount of the § 481(a) adjustment into account in computing the

qualified taxpayer’s taxable income for that year of change, any qualified costs paid for

that qualified building prior to the first taxable year that the qualified taxpayer or the IRS

makes the change specified in section 6.13(3)(a) or 6.15(3)(a) of this revenue

procedure, as applicable, for that qualified building and takes into account the entire

amount of the § 481(a) adjustment in computing taxable income for the year of change.

(2) No audit protection. If section 5.02(4)(c) or 5.02(5)(b) of Rev. Proc. 2015-

56 applies to a qualified building (and, in the case of section 5.02(5)(b), the qualified
 170

taxpayer does not make the required change on or before the first taxable year that the

qualified taxpayer uses the remodel-refresh safe harbor), the qualified taxpayer does

not receive audit protection under section 8.01 of Rev. Proc. 2015-13 in connection with

this change for that qualified building. See section 8.02(2) of Rev. Proc. 2015-13.

(3) Manner of making change.

(a) Reduced filing requirement for qualified small taxpayers. A qualified

small taxpayer, as defined in section 6.01(4)(b) of this revenue procedure, may

complete only the following information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 5, 13, 15, 16, 17, and 19;

(v) Part IV, lines 25, 26, and 27;

(vi) Schedule E; and

(vii) If applicable, the election statement described in section 11.10(3)(b)(ii).

(b) Late general asset account election.

(i) In general. If under section 5.02(6)(d) of Rev. Proc. 2015-56 the

qualified taxpayer is required to make a late general asset account election, the late

general asset account election change is made using a modified cut-off method under

which the unadjusted depreciable basis and the depreciation reserve of the asset as of

the beginning of the year of change are accounted for using the new method of

accounting. The late general asset account election change requires the general asset

account to include a beginning balance for both the unadjusted depreciable basis and

the depreciation reserve. The beginning balance for the unadjusted depreciable basis
 171

of each general asset account is equal to the sum of the unadjusted depreciable bases

as of the beginning of the year of change for all assets included in that general asset

account. The beginning balance of the depreciation reserve of each general asset

account is equal to the sum of the greater of the depreciation allowed or allowable as of

the beginning of the year of change for all assets included in that general asset account.

(ii) Election statement. The qualified taxpayer (including a qualified small

taxpayer) must attach to its Form 3115 a statement providing that the qualified taxpayer

agrees to the following additional terms and conditions:

(A) The qualified taxpayer consents to, and agrees to apply, all of the

provisions of § 1.168(i)-1 to the assets that are subject to the election specified in

section 5.02(6)(d) of Rev. Proc. 2015-56; and

(B) Except as provided in § 1.168(i)-1(c)(1)(ii)(A), (e)(3), (g), or (h), the

election made by the qualified taxpayer under section 5.02(6)(d) of Rev. Proc. 2015-56

is irrevocable and will be binding on the qualified taxpayer for computing taxable income

for the year of change and for all subsequent taxable years with respect to the assets

that are subject to this election.

(c) Cut-off method required for certain changes.

(i) If section 5.02(4)(c) of Rev. Proc. 2015-56 applies to a qualified building,

the change to the remodel-refresh safe harbor method of accounting for that qualified

building, and any improvements to that qualified building, is made using a cut-off

method and applies only to qualified costs paid or incurred for that qualified building,

and any improvements to that qualified building, beginning in the year of change for the

change made to the remodel-refresh safe harbor method of accounting.

 172

(ii) If section 5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified building

and the qualified taxpayer does not change its present method of accounting to be in

accord with § 1.168(i)-1(e)(2)(viii) or § 1.168(i)-8(c)(4), as applicable, on or before the

first taxable year that the qualified taxpayer used the remodel-refresh safe harbor and

take the entire amount of the § 481(a) adjustment into account in computing the

qualified taxpayer’s taxable income for that year of change, the change to the remodel-

refresh safe harbor method of accounting for that qualified building, and any

improvements to that qualified building, is made using a cut-off method and applies only

to qualified costs paid or incurred for that qualified building, and any improvements to

that qualified building, beginning in the year of change for the change made to comply

with § 1.168(i)-1(e)(2)(viii) or § 1.168(i)-8(c)(4), as applicable. See section 6.13(3)(a)

and section 6.15(3)(a) of this revenue procedure, as applicable.

(4) Section 481(a) adjustment.

(a) In general. A qualified taxpayer changing its method of accounting under

this section 11.10 must apply § 481(a) and take into account any applicable § 481(a)

adjustment in the manner provided in section 7.03 of Rev. Proc. 2015-13. However, a

§ 481(a) adjustment is neither required nor permitted for the late general asset account

election under section 5.02(6)(d) of Rev. Proc. 2015-56 or, if section 5.02(4)(c) or

5.02(5)(b) of Rev. Proc. 2015-56 applies to a qualified building, and an improvement to

a qualified building (and, in the case of section 5.02(5)(b) of Rev. Proc. 2015-56, the

qualified taxpayer did not make the required change on or before the first taxable year

that the qualified taxpayer uses the remodel-refresh safe harbor), for the change to the

remodel-refresh safe harbor method of accounting for that qualified building and an

improvement to that qualified building.

 173

(b) Repair allowance property. A qualified taxpayer changing to the method

of accounting provided under this section 11.10 must not include in the § 481(a)

adjustment any amount attributable to property for which the qualified taxpayer elected

to apply the repair allowance under § 1.167(a)-11(d)(2) for any taxable year in which the

repair allowance election was made.

(c) Statistical sampling. A qualified taxpayer changing its method of

accounting under this section 11.10 may use statistical sampling in determining the

§ 481(a) adjustment only by following the sampling procedures provided in Rev. Proc.

2011-42, 2011-37 I.R.B. 318.

(5) Concurrent automatic change.

(a) A qualified taxpayer making this change for more than one asset for the

same year of change should file a single Form 3115 for all such assets. The single

Form 3115 must provide a single net § 481(a) adjustment for all such changes.

(b) A qualified taxpayer making this change, a change under section

6.13(3)(a) of this revenue procedure, and any change listed in section 6.12(3)(b) or

section 6.15 of this revenue procedure for the same year of change should file a single

Form 3115 for all such changes and must enter the designated automatic accounting

method change numbers for the changes on the appropriate line on the Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes.

(6) Designated automatic accounting method change number. The designated

automatic accounting method change number for a change to the method of accounting

under this section 11.10 is “222.”

 174

(7) Contact information. For further information regarding a change under this

section, contact Merrill Feldstein at (202) 317-5100 (not a toll-free number).

SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)

.01 Certain uniform capitalization (UNICAP) methods used by resellers and

reseller-producers.

(1) Description of change.

(a) Applicability. This change applies to:

(i) a reseller that is a former small business taxpayer, or a reseller-

producer that is a former small business taxpayer, that wants to change from a

permissible non-UNICAP inventory capitalization method to a permissible UNICAP

method specifically described in the regulations in the first taxable year that it does not

qualify as a small business taxpayer;

(ii) a reseller-producer that wants to change from a permissible

UNICAP method for both its production and resale activities to a permissible simplified

resale method described in § 1.263A-3(d)(3) in any taxable year that it qualifies to use a

simplified resale method for both its production and resale activities under § 1.263A-

3(a)(4) (resellers with de minimis production activities);

(iii) a reseller-producer that wants to change from a permissible

simplified resale method described in § 1.263A-3(d)(3) for both its production and resale

activities to a permissible UNICAP method specifically described in the regulations for

both its production and resale activities in the first taxable year that it does not qualify to

use a simplified resale method for both its production and resale activities under

§ 1.263A-3(a)(4);
 175

(iv) a reseller that wants to change its permissible UNICAP method

to include a special reseller cost allocation rule;

(v) a reseller or reseller-producer that wants to change to a UNICAP

method (or methods) specifically described in the regulations, including any necessary

changes in the identification of costs subject to § 263A that will be accounted for using

the proposed method, in any taxable year other than the first taxable year that it does

not qualify as a small business taxpayer; or

(vi) a reseller or reseller-producer that wants to change from not

capitalizing a cost subject to § 263A to capitalizing that cost under a UNICAP method

(or methods) specifically described in the regulations that the reseller or reseller-

producer is already using.

(b) Inapplicability.

(i) Self constructed assets. This change does not apply to a

taxpayer that wants to use either the simplified service cost method, the simplified

production method, or the modified simplified production method for self-constructed

assets under §§ 1.263A-1(h)(2)(i)(D), 1.263A-2(b)(2)(i)(D), and 1.263A-2(c)(2),

respectively.

(ii) Election or revocation of election to use a historic absorption ratio.

This change does not apply to a taxpayer that (1) wants to make a historic absorption

ratio election with the simplified production method, the modified simplified production

method, or the simplified resale method under §§ 1.263A-2(b)(4), 1.263A-2(c)(4), or

1.263A-3(d)(4), respectively; or (2) wants to revoke an election to use a historic

absorption ratio with the simplified production method, the modified simplified
 176

production method, or the simplified resale method (see §§ 1.263A-2(b)(4)(iii)(B),

1.263A-2(c)(4), or 1.263A-3(d)(4)(iii)(B), respectively).

(iii) Interest capitalization. This change does not apply to a change

in method of accounting for interest capitalization (but see section 12.14 of this revenue

procedure).

(iv) Recharacterizing costs under the simplified resale method,

simplified production method, or modified simplified production method. This change

does not include a change to recharacterize section 471 costs, as defined in § 1.263A-

1(d)(2), as additional section 263A costs, as defined in § 1.263A-1(d)(3) (or vice versa)

for a taxpayer that uses or is changing to the simplified resale method, the simplified

production method, or the modified simplified production method. See section 12.17 of

this revenue procedure for certain changes to recharacterize section 471 costs as

additional section 263A costs (or vice versa).

(v) Revocation of election under § 263A(d)(3). This change does not

apply to a taxpayer that wants to revoke its election under § 263A(d)(3) not to have

§ 263A apply to certain plants produced by the taxpayer in a farming business. But see

Rev. Proc. 2020-13, 2020-11 I.R.B. 515, for the procedures to revoke an election under

§ 263A(d)(3).

(2) Eligibility rule temporarily inapplicable.

(a) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of

Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to the change described in

section 12.01(1)(a)(i) of this revenue procedure.

(b) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to the changes described in section
 177

12.01(1)(a)(ii)-(vi) of this revenue procedure for the taxpayer’s first, second or third

taxable year ending on or after November 20, 2018.

(c) Eligibility rule temporarily inapplicable for certain changes related to

cost offset method. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does

not apply to a method change under this section 12.01 if:

(i) the taxpayer made or requested to make a change during any of

the five taxable years ending with the year of change to recover inventory costs in a

taxable year prior to the taxable year in which ownership of the inventory is transferred

to the customer to offset inclusions under § 451(b) and/or 451(c), as applicable;

(ii) in the case of a taxpayer with an applicable financial statement

(AFS), as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer concurrently changes its method of accounting for advance

payments from the sale of inventory under section 16.10(2)(b)(ii) of this revenue

procedure; and

(iii) the taxpayer makes the change under this section 12.01 for its

early application year, as defined in section 16.10(4)(c)(i) of this revenue procedure, or

if a taxpayer does not apply § 1.451-3 and/or § 1.451-8 for a taxable year beginning

before January 1, 2021, for the taxpayer’s first taxable year beginning on or after

January 1, 2021.

(3) Definitions.
 178

(a) “Reseller” means a taxpayer that acquires real or personal property

described in § 1221(a)(1) for resale.

(b) “Producer” means a taxpayer that produces real or tangible personal

property.

(c) “Reseller-producer” means a taxpayer that is both a producer and a

reseller.

(d) “Permissible UNICAP method” means a method of capitalizing costs

that is permissible under § 263A.

(e) "A UNICAP method specifically described in the regulations" does not

include any other reasonable allocation method within the meaning of § 1.263A-1(f)(4).

However, a "UNICAP method specifically described in the regulations" includes:

(i) the 90-10 de minimis rule to allocate a mixed service department's

costs to resale activities (§ 1.263A-1(g)(4)(ii));

(ii) the 1/3 - 2/3 rule to allocate labor costs of personnel to

purchasing activities (§ 1.263A-3(c)(3)(ii)(A));

(iii) the 90-10 de minimis rule to allocate a dual-function storage

facility's costs to property acquired for resale (§ 1.263A-3(c)(5)(iii)(C));

(iv) the specific identification method (§ 1.263A-1(f)(2));

(v) the burden rate method (§ 1.263A-1(f)(3)(i));

(vi) the standard cost method (§ 1.263A-1(f)(3)(ii));

(vii) the direct reallocation method (§ 1.263A-1(g)(4)(iii)(A));

(viii) the step-allocation method (§ 1.263A-1(g)(4)(iii)(B));

(ix) the simplified service cost method (§ 1.263A-1(h)) (with either a

labor-based allocation ratio or a production cost allocation ratio);

 179

(x) the simplified resale method without a historic absorption ratio

election (§ 1.263A-3(d));

(xi) the alternative method to determine amounts of section 471

costs by using a taxpayer's financial statement (§ 1.263A-1(d)(2)(iii));

(xii) the method to determine amounts of section 471 costs by using

the amounts incurred in the taxable year for federal income tax purposes (§ 1.263A-

1(d)(2)(i));

(xiii) the safe harbor method for certain variances and under- or over-

applied burdens (§ 1.263A-1(d)(2)(v));

(xiv) the removal of one or more costs from section 471 costs as

required in § 1.263A-1(d)(2)(vi);

(xv) the removal of one or more costs from section 471 costs using

negative adjustments to additional section 263A costs as permitted in § 1.263A-

1(d)(3)(ii)(B);

(xvi) the de minimis rule for certain direct labor costs (§ 1.263A-

1(d)(2)(iv)(B));

(xvii) the de minimis rule for certain direct material costs (§ 1.263A-

1(d)(2)(iv)(C));

(xviii) the simplified production method without a historic absorption

ratio election (§ 1.263A-2(b));

(xix) the modified simplified production method without a historic

absorption ratio election (§ 1.263A-2(c));

 180

(xx) the direct material costs or pre-production labor costs allocation

methods for capitalizable mixed service costs under the modified simplified production

method (§ 1.263A-2(c)(3)(iii)(B)); and

(xxi) the 90-10 de minimis rule to allocate capitalizable mixed service

costs under the modified simplified production method (§ 1.263A-2(c)(3)(iii)(C)).

(f) “Special reseller cost allocation rule” means the 90-10 de minimis rule

to allocate a mixed service department’s costs to property acquired for resale

(§ 1.263A-1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate labor costs of personnel to

purchasing activities (§ 1.263A-3(c)(3)(ii)(A)), and the 90-10 de minimis rule to allocate

a dual-function storage facility’s costs to property acquired for resale (§ 1.263A-

3(c)(5)(iii)(C)).

(g) “Permissible non-UNICAP inventory capitalization method” means a

method of capitalizing inventory costs that is permissible under § 471.

(h) “Small business taxpayer” means a taxpayer, other than a tax shelter

under § 448(d)(3), proposed § 1.448-2(b)(2), or § 1.448-2(b)(2), as applicable, that

meets the § 448(c) gross receipts test as provided in § 448(c), proposed § 1.263A-1(j),

or § 1.263A-1(j), as applicable. The § 448(c) gross receipts test is met if a taxpayer has

average annual gross receipts for the three prior taxable years of $25,000,000 or less

(adjusted for inflation), as described in § 448(c), proposed §§ 1.448-2(c), or § 1.448-

2(c), as applicable. For taxable years beginning in 2019, 2020 and 2021, the inflation-

adjusted amount is $26,000,000. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev.

Proc. 2019-44, 2019-47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as

applicable. For a taxable year beginning in 2022, the inflation-adjusted amount is

$27,000,000. See Rev. Proc. 2021-45, 2021-48 I.R.B. 764.

 181

(i) “Former small business taxpayer” means a taxpayer that no longer

qualifies as a small business taxpayer. A former small business taxpayer includes a

taxpayer that no longer qualifies as a small business taxpayer for the year of change

because it is a tax shelter under § 448(d)(3), proposed § 1.448-2(b)(2), or § 1.448-

2(b)(2), as applicable.

(4) Section 481(a) adjustment period. Except as otherwise provided in this

section 12.01(4), beginning with the year of change, a taxpayer changing its method of

accounting for costs under section 12.01(1)(a)(ii) or 12.01(1)(a)(iii) of this revenue

procedure generally must take any applicable net positive § 481(a) adjustment for such

change into account ratably over the same number of taxable years, not to exceed four,

that the taxpayer used its former method of accounting. A taxpayer changing its

method of accounting for costs under section 12.01(1)(a)(i), 12.01(1)(a)(iv),

12.01(1)(a)(v), or 12.01(1)(a)(vi) of this revenue procedure must take any applicable net

positive § 481(a) adjustment for such change into account as provided in section 7.03 of

Rev. Proc. 2015-13.

(5) Multiple changes. A taxpayer making both this change and another

change in method of accounting for the same year of change must comply with the

ordering rules of § 1.263A-7(b)(2).

(6) Under examination – certain audit protection exception temporarily

inapplicable. For a taxpayer’s first, second, or third taxable year ending on or after

November 20, 2018, the audit protection rule in section 8.02(1) of Rev. Proc. 2015-13

does not apply to a change in method of accounting made under this section 12.01.

However, section 8.02(1) of Rev. Proc. 2015-13 continues to apply for purposes of
 182

determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided

in section 7.03(3)(b) of Rev. Proc. 2015-13.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.01 is “22.”

(8) Example. The following example illustrates the principles of this section

12.01 and 12.16 for small business taxpayers and former small business taxpayers.

X is a C corporation incorporated on January 2, 2017, that adopted a taxable year

ending December 31 and an overall accrual method of accounting. X is a reseller of
personal property. To determine whether X is a small business taxpayer, as provided in
section 12.01(3)(h) of this revenue procedure, X calculated its average annual gross
receipts for the three taxable years (or fewer, if applicable) immediately preceding the
taxable year being analyzed as shown in the table below, in accordance with § 1.263A-
1(j):

Example – Average AGR Calculation

Current Taxable Year Average Annual Gross

Receipts for the Three Taxable
Years Immediately Preceding
the Current Taxable Year
2017 0
2018 24,000,000
2019 27,000,000
2020 27,000,000
2021 25,000,000

Furthermore, X adopted the dollar-value LIFO inventory method and has the
following LIFO inventory balances determined without considering the effects of the
UNICAP method:
Title

Example – Inventory Balance Calculation

 183

Year Beginning Ending

2017 $10,000,000 $11,000,000
2018 11,000,000 12,000,000
2019 12,000,000 13,000,000
2020 13,000,000 14,000,000
2021 14,000,000 15,000,000

X was not required to use the UNICAP method for 2017 and 2018 because its
average annual gross receipts for such years made X a small reseller, as described in
section 12.01(3)(b) of Rev. Proc. 2019-43, prior to modification by Rev. Proc. 2022-9,
2022-2 I.R.B. 310 for 2017, and a small business taxpayer, as described in section
12.01(3)(h) of this revenue procedure, for 2018. X was required by § 263A to change to
the UNICAP method for 2019 because its average annual gross receipts for the three
taxable years immediately preceding 2019 were $27,000,000, which exceeded the
$26,000,000 threshold permitted by the small business taxpayer exemption under
§ 263A(i). Assume that X was required to capitalize $800,000 of “additional § 263A
costs” to the cost of its 2019 beginning inventory because of this change in inventory
method. In addition, X was required to include one-fourth of the § 481(a) adjustment
when computing taxable income for each of the four taxable years beginning with 2019.
Thus, X was required to include a $200,000 positive § 481(a) adjustment in its 2019
taxable income.

X elected to use the simplified resale method without a historic absorption ratio
election under § 1.263A-3(d)(3) for determining the amount of additional § 263A costs to
be capitalized to each LIFO layer. Assume that X was required to add $100,000 of
additional § 263A costs to the cost of its 2019 ending inventory because of the
$1,000,000 increment for 2019.

X’s 2019 Ending Inventory:

Description Amount
Beginning Inventory (Without UNICAP costs) $12,000,000
2019 Increment 1,000,000
Additional § 263A Costs in Beginning Inventory 800,000
Additional § 263A Costs in 2019 Increment 100,000
Total 2019 Ending Inventory $13,900,000

X’s Unamortized 2019 § 481(a) Adjustment:

Description Amount
2019 § 481(a) Adjustment $800,000
 184

Amount included in 2019 Taxable Income <200,000>

Unamortized 2019 § 481(a) Adjustment—12/31/19 600,000

Because X’s average annual gross receipts of $27,000,000 for the three taxable
years immediately preceding 2020 exceeded the $26,000,000 threshold, X failed to
qualify for the small business taxpayer exemption for 2020 and was required to continue
using the UNICAP method for its inventory costs. Furthermore, X was required to
include $200,000 of the unamortized 2019 positive § 481(a) adjustment in its 2020
taxable income. Assume that X was required to add $100,000 of additional § 263A
costs to the cost of its 2020 ending inventory because of the $1,000,000 increment for
2020.

X’s 2020 Ending Inventory:

Beginning Inventory (With UNICAP costs) $13,900,000

2020 Increment 1,000,000
Additional § 263A Costs in 2020 Increment 100,000
Total 2020 Ending Inventory $15,000,000

X’s Unamortized 2019 § 481(a) Adjustment:

Description Amount
Unamortized 2019 § 481(a) Adjustment—12/31/19 $600,000
Amount Included in 2020 Taxable Income <200,000>
Unamortized 2019 § 481(a) Adjustment—12/31/20 $400,000

Because X’s average annual gross receipts of $25,000,000 for the three taxable
years immediately preceding 2021 did not exceed the $26,000,000 threshold, X
satisfied the small business taxpayer exemption under section 263A(i) for 2021 and
may change voluntarily from the UNICAP method to a method that no longer capitalizes
costs under § 263A for 2021, as provided in section 12.16 of this revenue procedure.
To reflect the removal of the additional § 263A costs from the cost of its 2021 beginning
inventory, X must compute a corresponding § 481(a) adjustment, which is a negative
$1,000,000 ($14,000,000 - $15,000,000). The entire amount of this negative § 481(a)
adjustment is included in X’s taxable income for 2021. In addition, X must take the
$400,000 remaining portion of the unamortized 2019 § 481(a) adjustment into account
in its taxable income for 2021, as provided in section 12.16(5) of this revenue
procedure.
 185

X’s 2021 Ending Inventory:

Description Amount
Inventory (With UNICAP costs) Beginning $15,000,000
2021 Increment 1,000,000
2021 § 481(a) Adjustment <Negative> <1,000,000>
Total 2021 Ending Inventory $15,000,000

X’s Unamortized 2019 § 481(a) Adjustment:

Description Amount
Unamortized 2019 § 481(a) Adjustment—12/31/20 $400,000
Amount included in 2021 Taxable Income <400,000>
Unamortized 2019 § 481(a) Adjustment—12/31/21 $ 0

X’s Unamortized 2021 § 481(a) Adjustment:

Amount Description
2021 § 481(a) Adjustment <Negative> $<1,000,000>
Amount included in 2021 Taxable Income 1,000,000
Unamortized 2021 § 481(a) Adjustment—12/31/21 $ 0

(9) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.02 Certain uniform capitalization (UNICAP) methods used by producers and

reseller-producers.

(1) Description of change.

(a) Applicability. This change applies to:

(i) a producer as defined in section 12.01(3)(b) of this revenue

procedure or a reseller-producer as defined in section 12.01(3)(c) of this revenue

 186

procedure that wants to change to a UNICAP method (or methods) specifically

described in the regulations, including any necessary changes in the identification of

costs subject to § 263A that will be accounted for using the proposed method, in any

taxable year other than the first taxable year that it does not qualify as a small business

taxpayer as defined in section 12.01(3)(h) of this revenue procedure. This change

includes a change from not capitalizing a cost subject to § 263A to capitalizing that cost

for a producer or a reseller-producer under a UNICAP method (or methods) specifically

described in the regulations that the producer or reseller-producer is already using; or

(ii) a producer or reseller-producer that is a former small business

taxpayer, as defined in section 12.01(3)(i) of this revenue procedure, that wants to

change from not capitalizing costs under § 263A(i) to capitalizing costs under a UNICAP

method (or methods) specifically described in the regulations in the first taxable year

that the taxpayer does not qualify as a small business taxpayer as defined in section

12.01(3)(h) of this revenue procedure.

(b) Inapplicability.

(i) Self-constructed assets. This change does not apply to a

taxpayer that wants to use either the simplified service cost method, the simplified

production method, or the modified simplified production method for self-constructed

assets under §§ 1.263A-1(h)(2)(i)(D), 1.263A-2(b)(2)(i)(D), and 1.263A-2(c)(2),

respectively.

(ii) Election or revocation of election to use a historic absorption

ratio. This change does not apply to a taxpayer that (1) wants to make a historic

absorption ratio election with the simplified production method or the modified simplified

production method under §§ 1.263A-2(b)(4) or 1.263A-2(c)(4), respectively; or (2) wants

 187

to revoke an election to use a historic absorption ratio with the simplified production

method or the modified simplified production method (see §§ 1.263A-2(b)(4)(iii)(B) or

1.263A-2(c)(4), respectively).

(iii) Interest capitalization. This change does not apply to a change

in method of accounting for interest capitalization (but see section 12.14 of this revenue

procedure).

(iv) Recharacterizing costs under the simplified production method or

modified simplified production method. This change does not include a change to

recharacterize section 471 costs, as defined in § 1.263A-1(d)(2), as additional section

263A costs, as defined in § 1.263A-1(d)(3), (or vice versa) for a taxpayer that uses or is

changing to the simplified production method or the modified simplified production

method. See section 12.17 of this revenue procedure for certain changes to

recharacterize section 471 costs as additional section 263A costs (or vice versa).

(v) Reseller-producer using the simplified resale method. This

change does not apply to a reseller-producer that uses or is changing to the simplified

resale method under § 1.263A-3(d) (but see section 12.01(1) of this revenue procedure

for certain changes that may be made by a reseller-producer).

(2) Definition. A "UNICAP method specifically described in the regulations"

does not include the simplified resale method under § 1.263A-3(d)(4) or any other

reasonable allocation method within the meaning of § 1.263A-1(f)(4). However, a

"UNICAP method specifically described in the regulations" includes:

(a) the 90-10 de minimis rule to allocate a mixed service department's

costs to production or resale activities (§ 1.263A-1(g)(4)(ii));

 188

(b) the 1/3 - 2/3 rule to allocate labor costs of personnel to purchasing

activities (§ 1.263A-3(c)(3)(ii)(A));

(c) the 90-10 de minimis rule to allocate a dual-function storage facility's

costs to property acquired for resale (§ 1.263A-3(c)(5)(iii)(C));

(d) the specific identification method (§ 1.263A-1(f)(2));

(e) the burden rate method (§ 1.263A-1(f)(3)(i));

(f) the standard cost method (§ 1.263A-1(f)(3)(ii));

(g) the direct reallocation method (§ 1.263A-1(g)(4)(iii)(A));

(h) the step-allocation method (§ 1.263A-1(g)(4)(iii)(B));

(i) the simplified service cost method (§ 1.263A-1(h)) (with either a labor-

based allocation ratio or a production cost allocation ratio);

(j) the simplified production method without a historic absorption ratio

election (§ 1.263A-2(b));

(k) the alternative method to determine amounts of section 471 costs by

using a taxpayer's financial statement (§ 1.263A-1(d)(2)(iii));

(l) the method to determine amounts of section 471 costs by using the

amounts incurred in the taxable year for federal income tax purposes (§ 1.263A-

1(d)(2)(i));

(m) the safe harbor method for certain variances and under- or over-

applied burdens (§ 1.263A-1(d)(2)(v));

(n) the removal of one or more costs from section 471 costs as required

in § 1.263A-1(d)(2)(vi);
 189

(o) the removal of one or more costs from section 471 costs using

negative adjustments to additional section 263A costs as permitted in § 1.263A-

1(d)(3)(ii)(B);

(p) the de minimis rule for certain direct labor costs (§ 1.263A-

1(d)(2)(iv)(B));

(q) the de minimis rule for certain direct material costs (§ 1.263A-

1(d)(2)(iv)(C));

(r) the modified simplified production method without a historic

absorption ratio election (§ 1.263A-2(c)(3));

(s) the direct material costs or pre-production labor costs allocation

methods for capitalizable mixed service costs under the modified simplified production

method (§ 1.263A-2(c)(3)(iii)(B)); and

(t) the 90-10 de minimis rule to allocate capitalizable mixed service costs

under the modified simplified production method (§ 1.263A-2(c)(3)(iii)(C)).

(3) Multiple changes. A taxpayer making both this change and another

change in method of accounting in the same year of change must comply with the

ordering rules of § 1.263A-7(b)(2).

(4) Eligibility rule temporarily inapplicable.

(a) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of

Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change described in section

12.02(1)(a)(ii) of this revenue procedure.

(b) In general. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419, does not apply to the changes described in this section 12.02 for

the taxpayer's first, second, or third taxable year ending on or after November 20, 2018.
 190

(c) Eligibility rule temporarily inapplicable for certain changes related to

cost offset method. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does

not apply to a method change under this section 12.02 if:

(i) the taxpayer made or requested to make a change during any of

the five taxable years ending with the year of change to recover inventory costs in a

taxable year prior to the taxable year in which ownership of the inventory is transferred

to the customer to offset inclusions under § 451(b) and/or 451(c), as applicable;

(ii) in the case of a taxpayer with an applicable financial statement

(AFS) as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer concurrently changes its method of accounting for advance

payments from the sale of inventory under section 16.10(2)(b)(ii) of this revenue

procedure; and

(iii) the taxpayer makes the change under this section 12.02 for its

early application year, as defined in section 16.10(4)(c)(i) of this revenue procedure, or

if a taxpayer does not apply § 1.451-3 and/or § 1.451-8, as applicable, for a taxable

year beginning before January 1, 2021, for the taxpayer’s first taxable year beginning on

or after January 1, 2021.

(5) Under examination – certain audit protection exception temporarily

inapplicable. For a taxpayer’s first, second, or third taxable year ending on or after

November 20, 2018, the audit protection rule in section 8.02(1) of Rev. Proc. 2015-13
 191

does not apply to a change in method of accounting made under this section 12.02.

However, section 8.02(1) of Rev. Proc. 2015-13 continues to apply for purposes of

determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided

in section 7.03(3)(b) of Rev. Proc. 2015-13.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.02 is “23.”

(7) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.03 Impact fees.

(1) Description of change. This change applies to a taxpayer that incurs

impact fees as defined in Rev. Rul. 2002-9, 2002-1 C.B. 614, in connection with the

construction of a new residential rental building that wants to capitalize the costs to the

building under §§ 263(a) and 263A. See Rev. Rul. 2002-9 for further information.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.03 is “25.”

(3) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.04 Change to capitalizing environmental remediation costs under § 263A.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for environmental remediation costs from a method

that does not comply with the holding in Rev. Rul. 2004-18, 2004-1 C.B. 509, to

capitalizing them to inventory under § 263A.

 192

(2) Concurrent automatic changes. A taxpayer making both this change and

another automatic change under § 263A for the same year of change may file a single

Form 3115 for both changes, provided the taxpayer enters the designated automatic

change numbers for both changes on the appropriate line on that Form 3115, and

complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.04 is “77.”

(4) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.05 Change in allocating environmental remediation costs under § 263A.

(1) Description of change. This change applies to a taxpayer that capitalizes

environmental remediation costs to inventory under § 263A, but allocates these costs to

inventory using a method of accounting that does not comply with the holding in Rev.

Rul. 2005-42, 2005-2 C.B. 67, and wants to change to allocating these costs to

inventory produced during the taxable year in which the costs are incurred under

§ 263A. See Rev. Rul. 2005-42 for further information.

(2) Concurrent automatic changes. A taxpayer making both this change and

another automatic change under § 263A for the same year of change may file a single

Form 3115 for both changes, provided the taxpayer enters the designated automatic

accounting method change numbers for both changes on the appropriate line on that

Form 3115, and complies with the ordering rules of § 1.263A-7(b)(2). See section
 193

6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making

concurrent changes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.05 is “92.”

(4) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles.

(1) Description of change. This change applies to a motor vehicle

dealership, as defined in section 4 of Rev. Proc. 2010-44, 2010-49 I.R.B. 811, that is

within the scope of section 3 of Rev. Proc. 2010-44 and wants to change its method of

accounting to (1) treat its sales facility as a retail sales facility or (2) be treated as a

reseller without production activities, as described in section 5 of Rev. Proc. 2010-44. A

motor vehicle dealership that wants to make an automatic change in method of

accounting to use one or both safe harbor methods described in section 5 of Rev. Proc.

2010-44 may make any corresponding changes in the identification of costs subject to

§ 263A that will be accounted for using the proposed method (for example, to remove

internal profit from inventory costs) or to no longer include negative amounts as

additional § 263A costs in the numerator of the simplified resale method formula or the

simplified production method formula. However, except as provided in the preceding

sentence, a change under this section does not include a change for purposes of

recharacterizing “§ 471 costs” as “additional § 263A costs” (or vice versa) under the

simplified resale method or the simplified production method.

 194

(2) Concurrent automatic changes. A motor vehicle dealership making an

automatic change to one or both safe harbor methods described in section 5 of Rev.

Proc. 2010-44 and another automatic change under § 263A for the same taxable year

may file one Form 3115 to make both changes, provided the dealership enters the

designated automatic change numbers for all such changes in Part I on that Form 3115,

and complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.

(3) Multiple adjustments. In the event that a motor vehicle dealership is

taking into account a § 481(a) adjustment from another accounting method change in

addition to the § 481(a) adjustment required by a change to a safe harbor method

described in section 5 of Rev. Proc. 2010-44, the § 481(a) adjustments must be taken

into account separately. For example, a motor vehicle dealership that changed to

comply with § 263A in 2009 and was required to take its § 481(a) adjustment into

account over four years must continue to take into account that adjustment over the

remainder of that four year § 481(a) adjustment period even though the dealership

changed to a safe harbor method described in section 5 of Rev. Proc. 2010-44 in 2010

and has an additional § 481(a) adjustment required by that change.

(4) Designated automatic accounting method change numbers. The

designated automatic accounting method change number for a change to treat certain

sales facilities as retail sales facilities as described in section 5.01 of Rev. Proc. 2010-

44 is “150.” The designated automatic accounting method change number for a change

to be treated as a reseller without production activities as described in section 5.02 of

Rev. Proc. 2010-44 is “151.”

 195

(5) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.07 Change to not apply § 263A to one or more plants removed from the list of

plants that have a preproductive period in excess of 2 years.

(1) Description of change. This change, as described in Rev. Proc. 2013-20,

2013-14 I.R.B. 744, applies to a taxpayer that is not a corporation, partnership, or tax

shelter required to use an accrual method of accounting under § 447 or § 448(a)(3), and

either (a) wants to not apply § 263A, pursuant to § 263A(d)(1) and § 1.263A-4(a)(2), to

the production of one or more plants that the IRS and the Treasury Department have

removed from the list of plants that have a nationwide weighted average preproductive

period in excess of 2 years, or (b) properly elected, pursuant to § 263A(d)(3) and

§ 1.263A-4(d), to not apply § 263A to the production of a plant or plants that have been

removed from the list of plants that have a nationwide weighted average preproductive

period in excess of 2 years, and wishes to revoke its § 263A(d)(3) election with respect

to those plants. See Notice 2013-18, 2013-14 I.R.B. 742, or its successor.

(2) Audit protection. If a taxpayer currently does not apply § 263A to its

blackberry, raspberry, or papaya plants in a manner that complies with the requirements

of § 263A(d)(1) and § 1.263A-4(a)(2), the IRS will not raise such method of accounting

for a taxable year that ends on or before February 15, 2013. Also, if the use of such a

method of accounting by a taxpayer is an issue under consideration (within the meaning

of section 3.08 of Rev. Proc. 2015-13) for taxable years in examination, before an

Appeals office, or before the U.S. Tax Court in a taxable year that ends on or before

February 15, 2013, the IRS will not further pursue that issue.
 196

(3) Manner of making change. A change under this section 12.07 is made

with any necessary adjustments under § 481(a). For example, the revocation of an

election under § 263A(d)(3) results in a § 481(a) adjustment that must take into account

the change in depreciation from the alternative depreciation system to the general

depreciation system included within such revocation.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.07 is “181.”

(5) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

.08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for

self-constructed assets.

(1) Description of change.

(a) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-

9 I.R.B. 606, applies to a producer (as defined in section 12.01(3)(b) of this revenue

procedure) or a reseller-producer (as defined in section 12.01(3)(c) of this revenue

procedure) that wants to change to a reasonable allocation method within the meaning

of § 1.263A-1(f)(4), other than the methods specifically described in § 1.263A-1(f)(2) or

(3), for self-constructed assets produced during the taxable year, including any

necessary changes in the identification of costs subject to § 263A that will be accounted

for using the proposed method. This section 12.08 also includes a change from not

capitalizing a cost subject to § 263A to capitalizing that cost for a producer or reseller-

producer under a reasonable allocation method within the meaning of § 1.263A-1(f)(4)

that the producer or reseller-producer is already using for self-constructed assets, other
 197

than the methods specifically described in § 1.263A-1(f)(2) or (3). See section 12.02 of

this revenue procedure for a producer or reseller-producer that wants to change to a

method described in § 1.263A-1(f)(2) or (3).

(b) Inapplicability. This change does not apply to an allocation method

based on the number of units produced or an allocation method that does not allocate

costs to the units of property produced. This change does not apply to a change

described in another section of this revenue procedure or in other guidance published in

the Internal Revenue Bulletin. For example, this change does not apply to a change

described in section 12.01 or 12.02 of this revenue procedure.

(2) No ruling on reasonableness of method. The consent granted in section

9 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for this change is not a determination by the

Commissioner that the taxpayer is using a reasonable allocation method for costs

subject to § 263A and does not create any presumption that the proposed allocation

method is permissible. The director will ascertain whether the taxpayer’s allocation

method is reasonable within the meaning of § 1.263A-1(f)(4).

(3) Multiple changes. A taxpayer making both this change and another

change in method of accounting under section 11.08 of this revenue procedure for the

same year of change must comply with the ordering rules of § 1.263A-7(b)(2).

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.08 is “194.”

(5) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.09 Real property acquired through foreclosure.

 198

(1) Applicability. This change, as described in Rev. Proc. 2014-16, 2014-9

I.R.B. 606, applies to a taxpayer that capitalizes costs under § 263A(b)(2) and

§ 1.263A-3(a)(1) to real property acquired through foreclosure, or similar transaction,

where the taxpayer wants to change its method of accounting to an otherwise

permissible method of accounting under which the acquisition and holding costs for real

property acquired through foreclosure, or similar transaction, are not capitalized under

§ 263A(b)(2) and § 1.263A-3(a)(1). To qualify for this change in method of accounting,

a taxpayer must:

(a) originate, or acquire and hold for investment, loans that are secured

by real property; and

(b) acquire the real property that secures the loans at a foreclosure sale,

by deed in lieu of foreclosure, or in another similar transaction.

(2) Inapplicability. This change does not apply to costs capitalized under

§ 263A(b)(1) and § 1.263A-2(a)(1) by the taxpayer to the acquired real property as a

result of production activities.

(3) Designated automatic accounting method change numbers. The

designated automatic accounting method change number for a change under this

section 12.09 is “195.”

(4) Contact information. For further information regarding a change under

this section, contact Roy Hirschhorn at (202) 317-7007 (not a toll-free number).

.10 Sales-Based Royalties.

(1) Description of change. This change, as described in Rev. Proc. 2014-33,

2014-22 I.R.B. 1060, applies to a taxpayer that wants to change its method of
 199

accounting for sales-based royalties (as described in § 1.263A-1(e)(3)(ii)(U)(2)) that are

properly allocable to inventory property:

(a) From not capitalizing sales-based royalties to capitalizing these costs

and allocating them entirely to cost of goods sold under a taxpayer’s method of

accounting;

(b) From not capitalizing sales-based royalties to capitalizing these costs

and allocating them to inventory property under a taxpayer’s method of accounting;

(c) From capitalizing sales-based royalties and allocating these costs to

inventory property to allocating them entirely to cost of goods sold; or

(d) From capitalizing sales-based royalties and allocating these costs

entirely to cost of goods sold to allocating them to inventory property.

(2) Limitations.

(a) A taxpayer may not make a change in method of accounting under

this section 12.10 if the taxpayer wants to change to capitalizing sales-based royalties

and allocating them to inventory property using another reasonable allocation method

within the meaning of § 1.263A-1(f)(4).

(b) A taxpayer making the changes described in section 12.10(1)(a) or

12.10(1)(c) of this revenue procedure that uses a simplified method to determine the

additional § 263A costs allocable to inventory property on hand at year end must

remove sales-based royalties allocated to cost of goods sold from the formulas used to

allocate additional § 263A costs to ending inventory in the same manner that the

taxpayer included these amounts in the formulas.

(c) A taxpayer making a change in method of accounting under this

section 12.10 that uses a simplified method with an historic absorption ratio election
 200

(see §§ 1.263A-2(b)(4) and 1.263A-3(d)(4)) and currently includes, or is changing its

method to include, sales-based royalties in any part of its historic absorption ratio must

revise its previous and current historic absorption ratios. To revise its historic

absorption ratios, the taxpayer must apply its proposed method of accounting during the

test period, during all recomputation years, and during all updated test periods to

determine the § 471 costs and additional § 263A costs that were incurred. The revised

historic absorption ratios must be used to revalue beginning inventory and must be

accounted for in the taxpayer’s § 481(a) adjustment. The taxpayer must use a method

described in § 1.263A-7(c) to revalue beginning inventory.

(3) Concurrent automatic changes. A taxpayer making a change under this

section 12.10 and one or more automatic changes in method of accounting under

§ 263A for the same year of change may file a single Form 3115 for all changes,

provided the taxpayer enters the designated automatic change numbers for all changes

on the appropriate line on the Form 3115 and complies with the ordering rules of

§ 1.263A–7(b)(2). See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on

making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in method of

accounting under this section 12.10 is “201.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method.

(1) Description of change. This change, as described in Rev. Proc. 2014-33,

2014-22 I.R.B. 1060, applies to a taxpayer that wants to change its method of
 201

accounting to no longer include cost adjustments for sales-based vendor chargebacks

described in § 1.471-3(e)(1) in the formulas used to allocate additional § 263A costs to

ending inventory under a simplified method.

(2) Limitations.

(a) A taxpayer making this change that uses a simplified method to

determine the additional § 263A costs allocable to inventory property on hand at year

end must remove sales-based vendor chargebacks from the formulas used to allocate

additional § 263A costs to ending inventory in the same manner that the taxpayer

included these amounts in the formulas.

(b) A taxpayer making a change in method of accounting under this

section 12.11 that uses a simplified method with an historic absorption ratio election

(see §§ 1.263A-2(b)(4) and 1.263A-3(d)(4)) and currently includes sales-based vendor

chargebacks in any part of its historic absorption ratio must revise its previous and

current historic absorption ratio(s). To revise its historic absorption ratios, the taxpayer

must apply its proposed method of accounting during the test period, during all

recomputation years, and during all updated test periods to determine the § 471 costs

and additional § 263A costs that were incurred. The revised historic absorption ratios

must be used to revalue beginning inventory and must be accounted for in the

taxpayer’s § 481(a) adjustment. The taxpayer must use a method described in

§ 1.263A-7(c) to revalue beginning inventory.

(3) Concurrent automatic changes. A taxpayer making both this change and

one or more automatic changes under § 263A, or both this change and the change

described in section 21.15 of this revenue procedure for the same taxable year of

change may file a single Form 3115 for both changes, provided the taxpayer enters the
 202

designated automatic change numbers for all changes on the appropriate line on the

Form 3115 and complies with the ordering rules of § 1.263A-7(b)(2). See section

6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in method of

accounting under this section 12.11 is “202.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.12 U.S. ratio method.

(1) Change to the U.S. ratio method.

(a) Description of change. This change applies to a foreign person, as

defined in Notice 88-104, 1988-2 C.B. 443, as modified by Notice 89-67, 1989-1 C.B.

723, that is required to capitalize costs under § 263A and wants to change its method of

accounting to the U.S. ratio method, as described in Notice 88-104.

(b) Manner of making change. A taxpayer requesting a change on

behalf of a foreign person under section 12.12(1) of this revenue procedure must attach

a statement to the Form 3115 providing the following information:

(i) Foreign person requirement. A representation that the foreign

person is a qualified business unit (QBU), as defined in § 1.989(a)-1(b), of a foreign

person, or the foreign branch of a U.S. person that constitutes a separate QBU, within

the meaning of Notice 88-104. If the taxpayer is requesting a change in method of

accounting on behalf of multiple foreign persons, please provide a representation that

each foreign person is a QBU, as defined in § 1.989(a)-1(b), of a foreign person or the

 203

foreign branch of a U.S. person that constitutes a separate QBU, within the meaning of

Notice 88-104;

(ii) Description of trade or business. The name and employer

identification number (if applicable) for each foreign person and an explanation of each

trade or business, as defined in § 1.446-1(d), for which a request to change to the U.S.

ratio method is being made under this section 12.12(1);

(iii) Applicable U.S. trade or business requirement. The identity of

the “applicable U.S. trade or business,” as defined in Notice 88-104, that the foreign

person wishes to use and an explanation of how this U.S. trade or business is “the

same as, or most similar to” the trade or business conducted by the foreign person. If

the taxpayer is requesting a change in method of accounting for multiple foreign

persons, the taxpayer must identify the “applicable U.S. trade or business” for each

foreign person, and explain how the respective U.S. trade or business is “the same as,

or most similar to” the trade or business conducted by the foreign person; and

(iv) Relationship requirement. An explanation of how the “applicable

U.S. trade or business” identified in section 12.12(1)(b)(iii) of this revenue procedure is

a trade or business conducted in the United States by a “related person,” as defined in

Notice 88-104, with respect to the foreign person requesting a change under this

section. If the taxpayer is requesting a change in method of accounting for multiple

foreign persons, the taxpayer must explain how the “applicable U.S. trade or business”

identified in section 12.12(1)(b)(iii) of this revenue procedure is a trade or business

conducted in the United States by a “related person” for purposes of Notice 88-104 for

each foreign person requesting a change in method of accounting. Use § 267(b) or

§ 707(b), as applicable, to explain the relationship.

 204

(c) Additional requirements.

(i) A foreign person must continue to use the U.S. ratio of the

applicable U.S. trade or business identified in section 12.12(1)(b)(iii) of this revenue

procedure unless consent of the Commissioner is obtained to use the U.S. ratio of a

different applicable U.S. trade or business under § 446(e) (see section 12.12(2) of this

revenue procedure);

(ii) In the case of a controlled foreign corporation, the controlling U.S.

shareholder, or in the case of a foreign branch of a U.S. person, the U.S. person, must

maintain records of the U.S. ratio used by each foreign person to calculate the

additional § 263A costs capitalized to property produced and property acquired for

resale for the year of change and for subsequent taxable years for each foreign person

requesting a change in method of accounting under this section 12.12. In the case of a

controlled foreign partnership, the U.S. partner must maintain records of the U.S. ratio

used by each foreign person to calculate the additional § 263A costs capitalized to

property produced and property acquired for resale for the year of change and for

subsequent taxable years for each foreign person requesting a change in method of

accounting under this section 12.12.

(iii) The § 481(a) adjustment is computed in the manner provided in

Notice 88-104;

(iv) The U.S. ratio is determined, and the ratio is applied to the costs

of property produced or property acquired for resale incurred by the foreign person, in

accordance with Notice 88-104; and

(v) If any foreign person is unable to obtain a U.S. ratio from the

applicable U.S. trade or business identified in section 12.12(1)(b)(iii) of this revenue

 205

procedure, or is otherwise no longer eligible to use the U.S. ratio method, the foreign

person is no longer permitted to use the U.S. ratio method. However, the foreign

person is not ineligible to use the U.S. ratio method if the foreign person is able to

obtain a U.S. ratio from a different applicable U.S. trade or business, and changes the

applicable U.S. trade or business pursuant to section 12.12(2) of this revenue

procedure or under the non-automatic change procedures of this revenue procedure, as

applicable. If a foreign person is no longer eligible to use the U.S. ratio method, it is

required to change its method of accounting to a method that complies with §§ 263A

and 471 using either the automatic change procedures of Rev. Proc. 2015-13, 2015-5

I.R.B. 419, and sections 12.01, 12.02, or 12.08, as applicable, of this revenue procedure

or the non-automatic change procedures of Rev. Proc. 2015-13.

(2) Change within U.S. ratio method. This change applies to a foreign

person currently using the U.S. ratio method that wants to use the U.S. ratio of a

different applicable U.S. trade or business for purposes of applying the U.S. ratio

method as described in section 12.12(2)(a) or 12.12(2)(b) of this revenue procedure.

(a) Required change in the applicable U.S. trade or business.

(i) In general. A foreign person is permitted to change its method of

accounting under this section 12.12(2)(a) to use the U.S. ratio of a different applicable

U.S. trade or business, as defined in Notice 88-104, if the foreign person is no longer

able to obtain the U.S. ratio from the applicable U.S. trade or business previously

identified and if: (A) the U.S. person or related person in which the applicable U.S. trade

or business is conducted terminates its existence; (B) the foreign person is no longer

related, within the meaning of § 267(b) or § 707(b), to the U.S. person or related person
 206

in which the applicable U.S. trade or business is conducted; or (C) the U.S. person or

related person ceases to conduct the applicable U.S. trade or business.

(ii) Certain eligibility rule inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to the change described in section

12.12(2)(a) of this revenue procedure.

(iii) Manner of making change. A foreign person making a change in

method of accounting under this section 12.12(2)(a) must make the change in

accordance with the requirement set forth in section 12.12(2)(c) of this revenue

procedure.

(b) Other changes in the applicable U.S. trade or business.

(i) In general. If the foreign person cannot make the change in

method of accounting described in section 12.12(2)(a) of this revenue procedure, or

there is more than one U.S. trade or business that can reasonably be considered the

“same as, or most similar to” the foreign person’s trade or business, the foreign person

is permitted to change its method of accounting under this section 12.12(2)(b) to use the

U.S. ratio of a different applicable U.S. trade or business.

(ii) Manner of making change. A foreign person making a change in

method of accounting under this section 12.12(2)(b) must make the change in

accordance with the requirement set forth in section 12.12(2)(c) of this revenue

procedure.

(c) Short Form 3115 in lieu of a standard Form 3115. In accordance with

§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is

waived and pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized for a change described in section 12.12(2)(a) or 12.12(2)(b) of this revenue

 207

procedure. The short Form 3115 (Rev. December 2018) must include the following

information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a);

(iv) the information required under section 12.12(1)(b) of this revenue

procedure; and

(v) a statement that the change in method of accounting is made

under section 12.12(2)(a) or 12.12(2)(b) of Rev. Proc. 2022-14, as applicable.

(3) Designated automatic accounting method change numbers. The

designated automatic accounting method change number for a change under this

section 12.12 is “214.”

(4) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.13 Depletion.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for depletion to treat these amounts as an indirect cost

that is only properly allocable to property that has been sold (that is, for purposes of

determining gain or loss on the sale of the property) under § 1.263A-1(e)(3)(ii)(J).

(2) Limitation.

(a) A taxpayer making this change in method of accounting that uses a

simplified method to determine the additional § 263A costs allocable to inventory

property on hand at year end must remove depletion allocated to cost of goods sold
 208

from the formulas used to allocate additional § 263A costs to ending inventory in the

same manner that the taxpayer included these amounts in the formulas.

(b) A taxpayer making this change in method of accounting that uses a

simplified method with an historic absorption ratio election (see §§ 1.263A-2(b)(4) and

1.263A-3(d)(4)) and currently includes depletion in any part of its historic absorption

ratio must revise its previous and current historic absorption ratios. To revise its historic

absorption ratios, the taxpayer must apply its proposed method of accounting during the

test period, during all recomputation years, and during all updated test periods to

determine the § 471 costs and additional § 263A costs that were incurred. The revised

historic absorption ratios must be used to revalue beginning inventory and must be

accounted for in the taxpayer’s § 481(a) adjustment. The taxpayer must use a method

described in § 1.263A-7(c) to revalue beginning inventory

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(4) Concurrent automatic changes. A taxpayer making both this change and

another automatic change under § 263A for the same year of change may file a single

Form 3115 for both changes, provided the taxpayer enters the designated automatic

change numbers for both changes on the appropriate line on that Form 3115 and

complies with the ordering rules of § 1.263A–7(b)(2). See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change in method of

accounting under this section 12.13 is “215.”

 209

(6) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.14 Interest capitalization.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

its method of accounting for interest from not capitalizing any interest, capitalizing

interest in accordance with its method of accounting for financial reporting purposes, or

applying an improper method of capitalizing interest under §§ 1.263A-8 through -14,

with respect to the production of designated property, to capitalizing interest with

respect to the production of designated property in accordance with §§ 1.263A-8

through -14.

(b) Inapplicability. This change does not apply to a taxpayer that wants

to change its method of accounting for interest from either capitalizing interest to not

capitalizing interest or not capitalizing interest to capitalizing interest for improvements

that involve the associated property rules in § 1.263A-11(e)(1)(ii)(B).

(2) Manner of making change. A taxpayer requesting a change under this

section 12.14 must attach a statement to the Form 3115 with the following information:

(a) Representations as to the following:

(i) The taxpayer's method is in accordance with the avoided cost

method under § 1.263A-9; and

(ii) The taxpayer will comply with § 1.263A-14 and Notice 88-89,

1988-2 C.B. 422, should the taxpayer incur average excess expenditures allocable to

related persons; and

 210

(b) Details with respect to the taxpayer’s sub-methods of accounting for

determining capitalizable interest in accordance with §§ 1.263A-8 through -14 (for

example, whether the taxpayer elects to not trace debt under § 1.263A-9(d); the

computation period(s) used under the new method; and whether the taxpayer will

suspend the capitalization of interest for units of property for which production has

ceased for at least 120 consecutive days as determined under § 1.263A-12(g)).

(3) Concurrent automatic changes. A taxpayer making a change under this

section 12.14 and one or more automatic changes in method of accounting under §

263A for the same year of change may file a single Form 3115 for all changes, provided

the taxpayer enters the designated automatic change numbers for all changes on the

appropriate line on the Form 3115 and complies with the ordering rules of § 1.263A-

7(b)(2). See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change in method of

accounting under this section 12.14 is "224."

(5) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.15 Change to not apply § 263A to replanting costs for lost or damaged citrus

plants pursuant to § 263A(d)(2)(C).

(1) Description of change.

(a) In general. This change, as described in Rev. Proc. 2018-35, 2018-

28 I.R.B. 204, applies to a taxpayer, other than the owner described in § 263A(d)(2)(A),

that: (i) paid or incurred replanting costs of citrus plants after the loss or damage of
 211

citrus plants by reason of freezing temperatures, disease, drought, pests, or casualty,

as described in § 263A(d)(2)(A); (ii) paid or incurred the replanting costs after December

22, 2017, and on or before December 22, 2027; (iii) satisfies the ownership test

provided in section 12.15(1)(b) of this revenue procedure; and (iv) wants to change its

method of accounting from applying § 263A to citrus plant replanting costs to not

applying § 263A to those costs, pursuant to § 263A(d)(2)(C).

(b) Ownership test. The taxpayer satisfies the ownership test if either:

(i) the owner described in § 263A(d)(2)(A) has an equity interest of not less than 50

percent in the replanted citrus plants at all times during the taxable year in which the

taxpayer paid or incurred amounts for replanting costs, and the taxpayer holds any part

of the remaining equity interest; or (ii) the taxpayer acquired the entirety of the equity

interest of the owner described in § 263A(d)(2)(A) in the land on which the lost or

damaged citrus plants were located at the time of the loss or damage, and the

replanting is on such land.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(3) Section 481(a) adjustment. A taxpayer making a change under this

section 12.15 calculates a § 481(a) adjustment by taking into account only amounts

paid or incurred after December 22, 2017, and on or before December 22, 2027.

(4) Multiple changes. A taxpayer making both this change and another

change in method of accounting in the same year of change must comply with the

ordering rules of § 1.263A-7(b)(2).

 212

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.15 is "232."

(6) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.16 Small business taxpayer exception from requirement to capitalize costs under

§ 263A.

(1) Description of change. This change applies to a small business taxpayer,

as defined in section 12.01(3)(h) of this revenue procedure, that chooses to no longer

capitalize costs under § 263A, including for self-constructed assets, pursuant to

§ 263A(i), proposed § 1.263A-1(j), or § 1.263A-1(j), as applicable.

(2) Inapplicability.

(a) Home construction contracts. This change does not apply to a

taxpayer not required by § 460(e)(1) to capitalize costs under § 263A for home

construction contracts, and that wants to make a change to no longer capitalize costs

under section 263A. See section 19.01 of this revenue procedure to make this change.

(b) Election under § 263A(d)(3). This change does not apply to a small

business taxpayer, as defined in section 12.01(3)(h) of this revenue procedure, that

elected under § 263A(d)(3) not to have § 263A apply to certain plants produced by the

taxpayer in a farming business and wants to revoke its § 263A(d)(3) election and

change to a method of accounting that no longer capitalizes costs under § 263A. But

see Rev. Proc. 2020-13, 2020-11 I.R.B. 511.

(3) Eligibility rules.

 213

(a) Eligibility rule inapplicable. For a change described in section

12.16(1) of this revenue procedure, if the taxpayer changed from not capitalizing costs

under § 263A in accordance with § 263A(i), proposed § 1.263A-1(j) or § 1.263A-1(j), as

applicable, to capitalizing costs under § 263A and the accompanying regulations within

the prior five taxable years ending with the year of change, and such change was made

in the first taxable year that the taxpayer did not qualify as a small business taxpayer,

then such change is disregarded for purposes of section 5.01(f) of Rev. Proc. 2015-13,

2015-5 I.R.B. 419.

(b) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to this change for the taxpayer’s first,

second or third taxable year beginning after December 31, 2017. In addition, the

eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a taxpayer’s

early application year, or, in the case of a taxpayer that does not apply § 1.263A-1(j) in

the early application year, the taxpayer’s first taxable year beginning on or after January

5, 2021. For purposes of this section 12.16, “early application year” means the taxable

year beginning before January 5, 2021, in which a taxpayer first applies § 1.263A-1(j).

(4) Reduced filing requirement. A taxpayer is required to complete only the

following information on Form 3115 (Rev. December 2018) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16; and

(e) Part IV, all lines except line 25.

 214

(5) Acceleration of § 481 adjustment. If a taxpayer making a change

described in section 12.16(1) of this revenue procedure has a § 481(a) adjustment

remaining on a prior change in method of accounting from not capitalizing costs under

§ 263A in accordance with § 263A(i), proposed § 1.263A-1(j) or § 1.263A-1(j), as

applicable, to capitalizing costs under § 263A and the accompanying regulations, then it

must take the remaining portion of such prior § 481(a) adjustment into account in the

year of change.

(6) Concurrent automatic changes. A small business taxpayer making a

change under this section 12.16 and a change under sections 15.17, 22.18 and/or

22.19 of this revenue procedure for the same year of change may file a single Form

3115 for such changes, provided the taxpayer enters the designated automatic

accounting method change number for each change on the appropriate line of the Form

3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making

concurrent changes.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.16 is "234."

(8) Contact information. For further information regarding a change under this

section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

.17 Recharacterizing costs under the simplified resale method, simplified

production method, or the modified simplified production method.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that uses or is

changing to the simplified production method, the modified simplified production

 215

method, or the simplified resale method under §§ 1.263A-2(b), 1.263A-2(c), and

1.263A-3(d), respectively, and that wants to recharacterize a section 471 cost, as

defined in § 1.263A-1(d)(2), as an additional section 263A cost, as defined in § 1.263A-

1(d)(3), or vice versa, in accordance with the characterization requirements of § 1.263A-

1(d)(2) and (d)(3). For example, this change applies to a taxpayer using the modified

simplified production method that treats a direct cost of property produced or property

acquired for resale as an additional section 263A cost and that wants to change to

characterize the direct cost as a section 471 cost, as required by § 1.263A-1(d)(2)(ii).

(b) Inapplicability. This change does not apply to a change in method of

accounting that is described in another section of this revenue procedure or in other

guidance published in the IRB. For example, this change does not apply to a taxpayer

that wants to make a change described in section 12.01 or 12.02 of this revenue

procedure, such as a change to use the methods described in § 1.263A-1(d)(2)(iv), (v),

or (vi), § 1.263A-2(b), § 1.263A-2(c), or § 1.263A-3(d).

(2) Restatement of financial statement. A taxpayer's restatement of its

financial statement does not invalidate the taxpayer's method of accounting or change

its determination of section 471 costs in earlier taxable years.

(3) Certain eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this

change for the taxpayer's first, second, or third taxable year ending on or after

November 20, 2018.

(4) Reduced filing requirement. A taxpayer is required to complete only the

following information on Form 3115 (Rev. December 2018) to make this change:

(a) The identification section of page 1 (above Part I);

 216

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 13, 15b, 16c, and 19;

(e) Part IV, all lines except line 25; and

(f) Schedule D, all Parts except Part I.

(5) Limitation. If a taxpayer making this change in method of accounting

uses a historic absorption ratio election under §§ 1.263A-2(b)(4), 1.263A-2(c)(4), or

1.263A-3(d)(4)), and the change in the characterization of cost(s) under this section

12.17 affects any part of the taxpayer's historic absorption ratio, the taxpayer must

revise its previous and current historic absorption ratios. To revise its historic

absorption ratios, the taxpayer must apply its proposed method of accounting during the

test period, during all recomputation years, and during all updated test periods to

determine the section 471 costs and additional section 263A costs that were incurred.

The revised historic absorption ratios must be used to revalue beginning inventory and

must be accounted for in the taxpayer's § 481(a) adjustment. The taxpayer must use a

method described in § 1.263A-7(c) to revalue beginning inventory.

(6) Concurrent automatic changes. A taxpayer making both this change and

another automatic change under § 263A for the same year of change may file a single

Form 3115 for both changes, provided the taxpayer enters the designated automatic

change numbers for both changes on the appropriate line of that Form 3115 and

complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(7) Under examination – certain audit protection exception temporarily

inapplicable. For a taxpayer’s first, second, or third taxable year ending on or after
 217

November 20, 2018, the audit protection rule in section 8.02(1) of Rev. Proc. 2015-13

does not apply to a change in method of accounting made under this section 12.17.

However, section 8.02(1) of Rev. Proc. 2015-13 continues to apply for purposes of

determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided

in section 7.03(3)(b) of Rev. Proc. 2015-13.

(8) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.17 is "237."

(9) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.18 Revocation of a historic absorption ratio election.

(1) Description of change. This change applies to a taxpayer that uses the

simplified resale method with a historic absorption ratio election that wants to revoke its

historic absorption ratio election and change to the simplified resale method without a

historic absorption ratio. This change also applies to a taxpayer that uses the simplified

production method with a historic absorption ratio election that wants to revoke its

historic absorption ratio election and change to the simplified production method without

a historic absorption ratio. This change applies to a revocation of the simplified resale

method with a historic absorption ratio election or the simplified production method with

a historic absorption ratio election regardless of whether the year of change is during

the taxpayer's qualifying period.

(2) Limited applicability. This change is the exclusive procedure for a

taxpayer on the simplified production method with a historic absorption ratio election or

the simplified resale method with a historic absorption ratio election that wants to revoke
 218

its historic absorption election under the transition rules of §§ 1.263A-2(b)(4)(v)(B) and

1.263A-3(d)(4)(v)(B). This change is applicable only for the taxpayer's first, second, or

third taxable year ending on or after November 20, 2018. A taxpayer that complies with

the requirements of this section 12.18 will be deemed to have obtained the consent of

the Commissioner to make a revocation of its historic absorption ratio election under §

446(e).

(3) Certain eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this

change for the taxpayer's first, second or third taxable year ending on or after November

20, 2018.

(4) Manner of making change.

(a) Cut-off basis. This change is made on a cut-off basis. Accordingly, a

§ 481(a) adjustment is neither permitted nor required.

(b) Audit protection.

(i) No audit protection. A taxpayer does not receive audit protection

under section 8.01 of Rev. Proc. 2015-13 in connection with this change if the

taxpayer's revocation of a historic absorption ratio election is during a qualifying period

or extended qualifying period. See section 8.02(2) of Rev. Proc. 2015-13.

(ii) Under examination – certain audit protection exception

temporarily inapplicable. For a taxpayer’s first, second, or third taxable year ending on

or after November 20, 2018, the audit protection rule in section 8.02(1) of Rev. Proc.

2015-13 does not apply to a taxpayer’s revocation of its historic absorption ratio election

as described in this section 12.18 if such revocation is not during a qualifying period or

extended qualifying period. However, section 8.02(1) of Rev. Proc. 2015-13 continues
 219

to apply for purposes of determining the § 481(a) adjustment period for a positive §

481(a) adjustment provided in section 7.03(3)(b) of Rev. Proc. 2015-13.

(5) Concurrent automatic changes. A taxpayer making both this change and

another automatic change under § 263A for the same year of change may file a single

Form 3115 for both changes, provided the taxpayer enters the designated automatic

change numbers for both changes on the appropriate line of that Form 3115 and

complies with the ordering rules of § 1.263A-7(b)(2). See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 12.18 is "238."

(7) Contact information. For further information regarding a change under

this section, contact Tom McElroy at (202) 317-7007 (not a toll-free number).

.19 Late revocation of elections under § 263A(d)(3).

(1) Description of change.

(a) Applicability. This change applies to an eligible small business

taxpayer within the scope of Rev. Proc. 2020-13, 2020-11 I.R.B. 515, that wants to

make a late revocation of the election under § 263A(d)(3) provided in section 5.02(2)(b)

of Rev. Proc. 2020-13.

(b) Inapplicability. The IRS will treat the late revocation of an election

under § 263A(d)(3) that is provided in section 5.02(2)(b) of Rev. Proc. 2020-13 as a

change in method of accounting with a § 481(a) adjustment only for the taxable years

specified in section 12.19(2) of this revenue procedure. This treatment does not apply

to a taxpayer that makes a late revocation under § 263A(d)(3) provided in section

 220

5.02(2)(b) of Rev. Proc. 2020-13 before or after the time specified in section 12.19(2) of

this revenue procedure, and any such late revocation is not a change in method of

accounting.

(2) Time for making the change. The change under this section 12.19 must

be made for the taxpayer's first, second, or third taxable year beginning after the

taxpayer's first taxable year beginning in 2018 (2018 taxable year).

(3) Certain eligibility rules inapplicable. The eligibility rules in section

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B 419, do not apply to this change

for the taxpayer's first, second, or third taxable year succeeding the 2018 taxable year.

(4) Concurrent automatic change. A taxpayer making this change for more

than one property used predominantly in any farming business of the taxpayer under

section 5.02(2)(b) of Rev. Proc. 2020-13 for the same year of change should file a

single Form 3115 for all such farming property. The single Form 3115 must provide a

single net § 481(a) adjustment for all such changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the method of

accounting under this section 12.19 is “243.”

(6) Contact information. For further information regarding a change under this

section, contact Anna Gleysteen at (202) 317-7007 (not a toll-free number).

SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO

TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)
.01 Change to comply with § 267.

(1) Description of change. This change applies to a taxpayer that wants to

change its method or methods of accounting to comply with the requirements of § 267,
 221

and, to clarify, this change also applies to a taxpayer that, by reason of the exception in

§ 1.267(a)-3(c)(4), wants to change its method of accounting with respect to the

deduction of amounts owed to a controlled foreign corporation (as defined in § 957)

(CFC) that does not have any United States shareholders (as defined in § 951(b))

owning stock of the CFC within the meaning of § 958(a). However, this change does

not apply to a change for original issue discount (OID), including stated interest that is

OID because it is not qualified stated interest (as defined in § 1.1273-1(c)). See section

5.02 of this revenue procedure for a change to comply with § 163(e)(3) for OID on an

obligation held by a related foreign person.

(2) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(e) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change

to comply with § 267(a)(3), including a change by reason of the exception in § 1.267(a)-

3(c)(4).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 13.01 is “26.”

(4) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number). For

further information regarding a change to comply with § 267(a)(3), contact Anisa Afshar

at (202) 317-6934 (not a toll-free number).

SECTION 14. DEFERRED COMPENSATION (§ 404)

.01 Deferred compensation.
 222

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to change its method of accounting to

treat bonuses or vacation pay as follows (see § 404(a)(5) and § 1.404(b)-1T, Q&A 2):

(a) Applicability.

(i) Bonuses.

(A) Bonuses not subject to capitalization under § 263A. If by the

end of the taxable year all the events have occurred that establish the fact of the liability

to pay a bonus and the amount of the liability can be determined with reasonable

accuracy (see § 1.446-1(c)(1)(ii)), and the bonus is otherwise deductible, but the bonus

is received by the employee after the 15th day of the 3rd calendar month after the end of

that taxable year, to treat the bonus as deductible in the taxable year of the employer in

which or with which ends the taxable year of the employee in which the bonus is

includible in the gross income of the employee; or

(B) Bonuses that are subject to capitalization under § 263A. If by

the end of the taxable year all the events have occurred that establish the fact of the

liability to pay a bonus and the amount of the liability can be determined with reasonable

accuracy (see § 1.446-1(c)(1)(ii)), and the bonus is otherwise deductible (without regard

to § 263A), but the bonus is received by the employee after the 15th day of the 3rd

calendar month after the end of that taxable year, to treat the bonus as capitalizable

(within the meaning of § 1.263A-1(c)(3)) in the taxable year of the employer in which or

with which ends the taxable year of the employee in which the bonus is includible in the

gross income of the employee.

(ii) Vacation pay.

 223

(A) Vacation pay not subject to capitalization under § 263A. If by

the end of the taxable year all the events have occurred that establish the fact of the

liability to pay vacation pay and the amount of the liability can be determined with

reasonable accuracy (see § 1.446-1(c)(1)(ii)), and the vacation pay is otherwise

deductible but the vacation pay is received by the employee after the 15th day of the 3rd

calendar month after the end of that taxable year, to treat the vacation pay as deductible

in the taxable year of the employer in which the vacation pay is paid to the employee; or

(B) Vacation pay that is subject to capitalization under § 263A. If

by the end of the taxable year all the events have occurred that establish the fact of the

liability to pay vacation pay and the amount of the liability can be determined with

reasonable accuracy (see § 1.446-1(c)(1)(ii)), and the vacation pay is otherwise

deductible (without regard to § 263A), but the vacation pay is received by the employee

after the 15th day of the 3rd calendar month after the end of that taxable year, to treat the

vacation pay as capitalizable (within the meaning of § 1.263A-1(c)(3)) in the taxable

year of the employer in which the vacation pay is paid to the employee.

(b) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 14.01 if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

 224

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 14.01 is “28.”

(3) Contact information. For further information regarding a change under

this section, contact Thomas Scholz at (202) 317-5600 (not a toll-free number).

.02 Grace period contributions.

(1) Description of change. This change applies to a taxpayer that wants to

cease deducting contributions made during the § 404(a)(6) grace period to a qualified

cash or deferred arrangement within the meaning of § 401(k) or to a defined

contribution plan as matching contributions with the meaning of § 401(m) when the

contributions are attributable to compensation earned by plan participants after the end

of a taxable year as required by Rev. Rul. 2002-46, 2002-2 C.B. 117, as modified by

Rev. Rul. 2002-73, 2002-2 C.B. 805.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 14.02 is “29.”

(3) Contact information. For further information regarding a change under

this section, contact John Ricotta at 202-317-4102 or Joyce Kahn at 202-317-4148 (not

toll-free numbers).

SECTION 15. METHODS OF ACCOUNTING (§ 446)

.01 Change in overall method from the cash method to an accrual method.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

its overall method of accounting from the cash receipts and disbursements method
 225

(cash method), as defined in section 15.01(2)(a) of this revenue procedure, to an

accrual method, as defined in section 15.01(2)(b) of this revenue procedure. A change

under this section 15.01 applies to (1) a taxpayer required to make this change by

§ 448, any other section of the Code or regulations, or in other guidance published in

the Internal Revenue Bulletin (IRB), and (2) a taxpayer that wants to make this change

but is not required to do so by § 448, any other section of the Code or regulations, or in

other guidance published in the IRB. A taxpayer changing to an overall accrual method

because it is prohibited from using the overall cash method under § 448 may use this

section 15.01 regardless of whether the year of change is the first taxable year that the

taxpayer is required by § 448 to change from the cash method, as defined in § 1.448-

1(g)(1) (“first § 448 year”); or a mandatory § 448 year, as defined in proposed § 1.448-

2(g)(1) or § 1.448-2(g)(1), as applicable; or a taxable year other than the taxpayer’s first

§ 448 year or mandatory § 448 year, as applicable. Similarly, a taxpayer changing to an

overall accrual method because it is prohibited from using the overall cash method

under § 447 may use this section 15.01 regardless of whether the year of change is the

first taxable year that the taxpayer is required by § 447 to change from the cash method

or a subsequent taxable year in which the taxpayer is newly subject to § 447 after

previously making a change in method of accounting that complies with § 447

(“mandatory § 447 year”), or a taxable year other than a mandatory § 447 year, as

applicable.

Additionally, a taxpayer qualifies to change its overall method of accounting from

the cash method to an accrual method using this section 15.01 even if the taxpayer is

also making one or more of the following changes in method of accounting for the same

year of change:
 226

(i) adopting the recurring item exception, as defined in section

15.01(2)(c) of this revenue procedure, for one or more types of recurring items. See

§ 1.461-5(d);

(ii) adopting or changing to a permissible inventory method of

accounting and is either adopting this inventory method or qualifies to change to this

inventory method using the automatic change procedures of Rev. Proc. 2015-13, 2015-

5 I.R.B. 419, and a section of this revenue procedure, or the change can be made

automatically under any section of the Code or regulations, or other guidance published

in the IRB. See Rev. Rul. 90-38, 1990-1 C.B. 57, regarding when a taxpayer may adopt

a method of accounting;

(iii) adopting or changing to a permissible § 263A method of

accounting and is either adopting this § 263A method or qualifies to change to this

§ 263A method using the automatic change procedures of Rev. Proc. 2015-13 and a

section of this revenue procedure, or the change can be made automatically under any

section of the Code or regulations, or other guidance published in the IRB. See Rev.

Rul. 90-38 regarding when a taxpayer may adopt a method of accounting; or

(iv) adopting or changing to any other special method of accounting

(as defined in section 15.01(2)(d) of this revenue procedure) and is either adopting this

special method or qualifies to change to this special method using the automatic change

procedures of Rev. Proc. 2015-13 and a section of this revenue procedure, or the

change can be made automatically under any section of the Code or regulations, or

other guidance published in the IRB. See Rev. Rul. 90-38 regarding when a taxpayer

may adopt a method of accounting.

 227

Also, a taxpayer qualifies to use this section 15.01 when that taxpayer, in the taxable

year immediately preceding the year of change, has used a permissible inventory

method for that year, and, if that taxpayer was subject to § 263A for that year, has also

used a permissible § 263A method for that year, and the method(s) continue to be used

for the year of change.

Lastly, for a taxable year beginning after December 31, 2017, or December 31, 2018

in the case of specified credit card fees, as defined in § 1.451-3(j)(2), and before

January 1, 2021, a taxpayer with an applicable financial statement (AFS) that is

changing its overall method of accounting from the cash method to an accrual method

qualifies to use this section 15.01 to comply with § 451(b)(1), and, if applicable,

§ 451(b)(4), or the proposed regulations under § 1.451-3 (REG-104870-18; 84 FR

47191) (proposed § 1.451-3). For a taxable year beginning after December 31, 2017,

or December 31, 2018 in the case of specified credit card fees, a taxpayer with an AFS

that is changing its overall method of accounting from the cash method to an accrual

method qualifies to use this section 15.01 to comply with § 1.451-3. For purposes of

this section 15.01, the term “AFS” is defined under: § 451(b)(3) for a taxpayer making a

change to comply with § 451(b); proposed § 1.451-3(c)(1) for a taxpayer making a

change to comply with proposed § 1.451-3; or § 1.451-3(b)(5) for a taxpayer making a

change to comply with § 1.451-3.

(b) Inapplicability. This change does not apply to:

(i) a taxpayer that is making a change from a hybrid method of

accounting as defined in section 15.01(2)(e) of this revenue procedure;

(ii) a taxpayer that is changing its method of accounting for one or

more items of income or expense, but not its overall method of accounting. See section
 228

15.09 of this revenue procedure for a description of accounting method changes from

the cash method to an accrual method for specific items that are to be made using the

automatic change procedures of Rev. Proc. 2015-13 and that section;

(iii) a taxpayer that is required by the Code, regulations, or other

guidance published in the IRB to use a special method such as, for example, an

inventory method, a § 263A method, or a long-term contract method, in the year of

change and fails to adopt or change to that method;

(iv) a taxpayer that has included in its § 481(a) adjustment any

amount of deferred compensation that is described under § 457A(d)(3) that is

attributable to services performed before January 1, 2009;

(v) a taxpayer that is engaged in two or more trades or businesses,

unless that taxpayer makes this change for each trade or business so that the identical

accrual method is used for each trade or business beginning with the year of change;

(vi) a cooperative organization described in §§ 501(c)(12), 521, or

1381;

(vii) an individual taxpayer, except for activities conducted as a sole

proprietorship;

(viii) a taxpayer with an AFS that wants to make a change in method

of accounting for allocating transaction price between item(s) of gross income that are

subject to § 451 and item(s) of gross income that are subject to a special method of

accounting, as defined in § 451(b)(2), proposed § 1.451-3(c)(5) or § 1.451-3(a)(14), as

applicable, including a change to comply with the transaction price allocation rules in

§ 1.451-3(d)(5);
 229

(ix) a taxpayer with an AFS that wants to change to use the AFS cost

offset method, as defined in § 1.451-3(c), if the taxpayer receives advance payments

from the sale of inventory and does not also make a concurrent change to apply the

advance payment cost offset method, as defined in § 1.451-8(e), for the same year of

change by using section 16.10 of this revenue procedure, or a taxpayer with an AFS

that wants to change to use the advance payment cost offset method if the taxpayer is

required to include gross income from the sale of inventory under § 1.451-3 and does

not also make a change to apply the AFS cost offset method;

(x) a taxpayer with an AFS that wants to make a change in method

of accounting for specified fees as defined in proposed § 1.451-3(i)(2) or § 1.451-3(j)(2),

as applicable, other than specified credit card fees;

(xi) a taxpayer that wants to make a change in method of accounting

for payments within the scope of the specified good exception, as defined in

§ 1.451-8(a)(1)(ii), if the proposed method of accounting is to include such payments in

gross income under § 1.451-3 in one or more taxable years following the taxable year of

receipt; or

(xii) a taxpayer with an AFS that makes a change to apply § 1.451-3

for a taxable year that begins before January 1, 2021, and fails to comply with the

requirements in § 1.451-3(m)(3).

(2) Definitions.

(a) Cash method of accounting is the method identified by § 446(c)(1)

and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1). In addition, solely for purposes

of this section 15.01, a method of accounting in which a taxpayer uses an accrual

method for purchases and sales of inventories, and uses the cash method for
 230

computing all other items of income and expense is deemed to be a cash method of

accounting and not a hybrid method of accounting.

(b) Accrual method of accounting is a method identified by § 446(c)(2)

and §§ 1.446-1(c)(1)(ii), 1.451-1(a), 1.451-3, and 1.461-1(a)(2). For a taxable year

beginning after December 31, 2017, for which the taxpayer has an AFS, the all events

test under § 451(b)(1)(C) and § 1.451-1(a) for any item of gross income, or portion

thereof, is met no later than when that item, or portion thereof, is taken into account as

AFS revenue. See § 451(b)(1) and § 1.451-3(b).

(c) Recurring item exception is the method described in § 461(h)(3) and

§ 1.461-5.

(d) Special method of accounting within the meaning of this section

15.01 is a method of accounting, other than the cash method, expressly permitted or

required by the Code, regulations, or in other guidance published in the IRB, that

deviates from the tax accrual accounting rules of §§ 446, 451, 461, and the regulations

thereunder. For purposes of this section 15.01, a deferral method under § 451(c) and

the regulations thereunder is deemed to be a special method of accounting. Examples

of special methods of accounting include the installment method of accounting under

§ 453, the mark-to-market method under § 475, and a long-term contract method under

§ 460. In contrast, application of the all-events test under a specific set of facts is not a

special method of accounting. See, for example, Rev. Rul. 69-314, 1969-1 C.B. 139

concerning the treatment of retainages.

(e) Hybrid method of accounting is a combination of the cash and accrual

methods under which one or more items of income or expense are reported on the cash

method and one or more items of income or expense are reported on an accrual
 231

method. For purposes of this section 15.01, a hybrid method of accounting does not

include a method of accounting in which a taxpayer uses an accrual method for

purchases and sales of inventories and uses the cash method for computing all other

items of income and expense.

(3) Manner of making change.

(a) Section 481(a) adjustment.

(i) In general. A taxpayer changing its method of accounting under

this section 15.01 must compute a § 481(a) adjustment. This adjustment must reflect

the account receivables, account payables, inventory, and any other item determined to

be necessary in order to prevent items from being duplicated or omitted. However, the

adjustment does not include any item of income accrued but not received that was

worthless or partially worthless, within the meaning of § 166(a), on the last day of the

year immediately prior to the year of change.

(ii) Temporary rule for certain S corporation revocations. The rules in

this section 15.01(3)(a)(ii) apply to an eligible terminated S corporation, as defined in

§ 481(d)(2), that changes to an overall accrual method of accounting in the C

corporation's first taxable year after its revocation of its election under § 1362(a), and

such revocation occurs during the two-year period beginning on December 22, 2017.

(A) Required spread period. Pursuant to § 481(d)(1), an eligible

terminated S corporation required to change to an overall accrual method as a result of

a revocation of its S corporation election that changes its method of accounting under

this section 15.01 in the C corporation's first taxable year after such revocation, takes

into account the resulting positive or negative adjustment required by § 481(a)(2) ratably

during the six-year period beginning with the year of change.

 232

(B) Optional six-year spread period. An eligible terminated S

corporation that is permitted to continue to use the overall cash method after the

revocation of its S corporation election, and that changes to an overall accrual method

under this section 15.01 in the C corporation's first taxable year after such revocation,

may take into account the resulting positive or negative adjustment required by

§ 481(a)(2) ratably during the six-year period beginning with the year of change instead

of using the adjustment periods provided in section 7.03(1) of Rev. Proc. 2015-13. An

eligible terminated S corporation that wants to use this six-year spread period must

indicate in the statement required by Line 26 of Form 3115 (Rev. December 2018) that

it is making the change in method of accounting with the spread period permitted under

this section 15.01(3)(a)(ii)(B) on its timely filed Form 3115.

(iii) Section 481(a) adjustment period for changes relating to

specified credit card fees. In the case of income from a specified credit card fee, the

§ 481(a) adjustment period for any qualified change in method of accounting is six

taxable years (year of change and next five taxable years). For purposes of this section

15.01(3)(a)(iii), a qualified change in method of accounting is a change in method of

accounting for income from a specified credit card fee to a method that is required by

§ 451(b), as added by section 13221 of Public Law 115-97, 131 Stat. 2054 (Dec. 22,

2017), commonly referred to the Tax Cuts and Jobs Act (TCJA), for such income, but

only for the taxpayer’s first taxable year beginning after December 31, 2018.

Accordingly, a taxpayer that makes a qualified change in method of accounting as part

of its overall method change under section 15.01 of this revenue procedure is required

to use an adjustment period of six taxable years for the portion of the overall § 481(a)

adjustment that is attributable to the qualified change in method of accounting. The

 233

§ 481(a) adjustment period for the remainder of the overall § 481(a) adjustment required

by section 15.01(3)(a)(i) of this revenue procedure is determined without regard to the

qualified change in method of accounting.

(b) Change to comply with § 1.451-3. A taxpayer that uses section

15.01(1)(a) of this revenue procedure to comply with § 1.451-3 must attach a statement

to its Form 3115, Application for Change in Accounting Method (Rev. December 2018)

that provides a description of the proposed method(s) under § 1.451-3 to which it is

changing. For example, a taxpayer that chooses to apply the alternative AFS revenue

method in § 1.451-3(b)(2)(ii) must indicate in the statement attached to its Form 3115

that it is choosing to comply with the AFS income inclusion rule in § 1.451-3(b)(1) by

applying the alternative AFS revenue method described in § 1.451-3(b)(2)(ii).

(c) Adoption of recurring item exception. The taxpayer must attach to its

Form 3115 a statement describing the types of liabilities for which the recurring item

exception will be used.

(d) Concurrent automatic change to a special method.

(i) Generally only one Form 3115 required. Except as provided in

section 15.01(3)(e)(ii) of this revenue procedure, a taxpayer that is changing from the

overall cash method to an overall accrual method under this section 15.01 and changing

to one or more special methods, as permitted under section 15.01(1)(a)(ii), (iii), or (iv) of

this revenue procedure, must timely file a single Form 3115 for all changes and must

enter the designated automatic accounting method change numbers for all changes on

the appropriate line of Form 3115. For example, a taxpayer making both a change from

the overall cash method to an overall accrual method under this section 15.01 and a

change to the deferral method for advance payments under section 16.06 or 16.10 of
 234

this revenue procedure must timely file a single Form 3115 for both changes and enter

the designated automatic accounting method change numbers for both changes on the

appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes.

(ii) Two Forms 3115 required when a concurrent change is being

implemented under section 32.01 of this revenue procedure for short-term obligations.

When a taxpayer subject to § 1281 is changing its method of accounting for interest

income on short-term obligations as part of the change to an overall accrual method

under this section 15.01, that taxpayer must request the change for the interest income

under section 32.01 of this revenue procedure. The taxpayer must timely file individual

Forms 3115 for each change requested. This section 15.01 will govern the change to

an overall accrual method.

(e) Concurrent change in accounting method not permitted to be

implemented using the automatic change procedures of Rev. Proc. 2015-13 and a

section of this revenue procedure, any section of the Code or regulations, or other

guidance published in the IRB. A taxpayer that does not qualify to change from the

overall cash method to an overall accrual method under this section 15.01 because that

taxpayer is concurrently changing to a method of accounting that may not be

implemented using the automatic change procedures of Rev. Proc. 2015-13 and a

section of this revenue procedure, any section of the Code or regulations, or other

guidance published in the IRB, must timely request both changes using the non-

automatic change procedures in Rev. Proc. 2015-13. See Rev. Proc. 2022-1, 2022-1

I.R.B. 1 (or successor), for more information on whether one Form 3115 is required to

request the changes, and for information on the appropriate user fee.
 235

(4) Change made in the taxpayer’s first § 448 year or a mandatory § 448 year, as

applicable.

(a) First § 448 year. If the year of change is the first § 448 year for a

taxpayer that qualifies to make the change from the cash method under the provisions

of § 1.448-1(g) and (h) as well as this section 15.01, that taxpayer may choose to

comply with the requirements and provisions of §§ 1.448-1(g) and (h) in addition to the

requirements and provisions of this section 15.01. For example, if the taxpayer is a

hospital, defined in § 1.448-1(g)(2)(ii)(B), and the taxpayer chooses to make its change

from the cash method for the first § 448 year, as defined in § 1.448-1(g), using this

section 15.01, the applicable § 481(a) adjustment period is provided by § 1.448-

1(g)(2)(ii). If a taxpayer chooses not to implement its change from the cash method

using this section 15.01, the taxpayer must make the change under the provisions of

§§ 1.448-1(g) and (h).

(b) Mandatory § 448 year. For a taxpayer applying proposed § 1.448-2

or § 1.448-2, as applicable, if the year of change is a mandatory § 448 year, as defined

in proposed § 1.448-2(g)(1) or § 1.448-2(g)(1), as applicable, such taxpayer makes the

change from the cash method to an accrual method under the provisions of this section

15.01, and must comply with all the requirements and provisions of proposed § 1.448-

2(g) or § 1.448-2(g), as applicable, in addition to the requirements and provisions of this

section 15.01.

(5) Eligibility rules inapplicable.

(a) Prior change eligibility rule inapplicable. Any prior change to the

overall cash method that the taxpayer implemented using the provisions of Rev. Proc.

2001-10, as modified by Rev. Proc. 2011-14, or Rev. Proc. 2002-28, as modified by

 236

Rev. Proc. 2011-14, is disregarded for purposes of section 5.01(1)(e) of Rev. Proc.

2015-13. Additionally, for a taxpayer making a change from the cash method in the first

§ 448 year, a mandatory § 448 year, or a mandatory § 447 year, as applicable, any prior

change to the overall cash method is disregarded for purposes of section 5.01(1)(e) of

Rev. Proc. 2015-13.

(b) Eligibility rule temporarily inapplicable for changes to comply with

§ 451(b). For a taxpayer with an AFS that changes to an overall accrual method under

this section 15.01 that complies with § 451(b)(1), and, if applicable, § 451(b)(4), or

proposed § 1.451-3, the eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015-13, 2015-

5 I.R.B. 419, does not apply to such change for the taxpayer’s first, second or third

taxable year beginning after December 31, 2017, provided such taxable year begins

before January 1, 2021. In addition, for a taxpayer with an AFS that changes to an

overall accrual method under this section 15.01 that complies with § 1.451-3 for a

taxable year beginning before January 1, 2021, the eligibility rule in section 5.01(1)(e) of

Rev. Proc. 2015-13 does not apply to such change for such taxable year. For a

taxpayer with an AFS that does not apply § 1.451-3 for a taxable year beginning before

January 1, 2021, and changes to an overall accrual method under this section 15.01

that complies with § 1.451-3 for the first taxable year that begins on or after January 1,

2021, the eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015-13 does not apply to

such change for such taxable year.

(6) No ruling on method used. The consent granted under section 9 of Rev.

Proc. 2015-13 for a change made under this section 15.01 is not a determination by the

Commissioner that the new method of accounting is a permissible method of accounting

under § 451 and does not create a presumption that the allocation method used under
 237

§ 451(b)(4) is a permissible method of accounting. The director may ascertain whether

the new method of accounting is a permissible method of accounting under § 451 and

whether the allocation method is permissible under § 451(b)(4). This section 15.01(6)

does not apply to a taxpayer with an AFS that is making a change to a method of

accounting permissible under proposed § 1.451-3 or § 1.451-3.

(7) Designated automatic accounting method change number.

(a) Change made in the first § 448 year. The designated automatic

accounting method change number for a change from the cash method to an accrual

method in the first § 448 year is “123.” Entering designated automatic accounting

method change number “123” on the appropriate line on the Form 3115 fulfills the

requirement of § 1.448-1(h)(2)(i) to type or print “Automatic Change to Accrual Method –

Section 448” at the top of page 1 of the Form 3115.

(b) Change made in the mandatory § 448 year. The designated

automatic accounting method change number for a change from the cash method to an

accrual method in the mandatory § 448 year is “257.”

(c) Change made for a taxpayer subject to § 447. The designated

automatic accounting method change number for a change from the cash method to an

accrual method for a taxpayer subject to § 447 under this section 15.01 is “258.”

(d) All other changes from the cash method to an overall accrual method.

The designated automatic accounting method change number for all other changes

from the cash method to an accrual method under this section 15.01 is “122.”

(8) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at 202-317-7007 (not a toll-free number).

.02 Multi-year insurance policies for multi-year service warranty contracts.

 238

(1) Description of change.

(a) Applicability. This change applies to a manufacturer, wholesaler, or

retailer of motor vehicles or other durable consumer goods that wants to change its

method of accounting for insurance costs paid or incurred to insure its risks under multi-

year service warranty contracts to the method described in section 15.02(2) of this

revenue procedure. Multi-year service warranty contracts to which this change applies

include only those separately priced contracts sold by a manufacturer, wholesaler, or

retailer also selling the motor vehicles or other durable consumer goods underlying the

contracts (to the ultimate customer or to an intermediary). The classification of goods

as “durable consumer goods” for purposes of this change depends on the common

usage of the goods, rather than the purchaser’s actual intended use of the goods.

(b) Inapplicability. This change does not apply to a taxpayer that covers

its risks under its multi-year service warranty contracts through arrangements not

constituting insurance.

(2) Description of method. If a taxpayer purchases a multi-year service

warranty insurance policy (in connection with its sale of multi-year service warranty

contracts to customers) by paying a lump-sum premium in advance, the taxpayer must

capitalize the amount paid or incurred and may only obtain deductions for that amount

by prorating (or amortizing) it over the life of the insurance policy (whether the cash

method or an accrual method of accounting is used to account for service warranty

transactions).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.02 is “31.”

 239

(4) Contact information. For further information regarding a change under

this section, contact David Sill at (202) 317-7011 (not a toll-free number).

.03 Nonaccrual-experience method.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to make

one or more of the changes in method of accounting to, from, or within a nonaccrual-

experience (NAE) method of accounting that are described in sections 3.01(1) through

(5) of Rev. Proc. 2006-56, 2006-2 C.B. 1169, as modified by Rev. Proc. 2011-14, 2011-

4 I.R.B. 330, and as modified and amplified by Rev. Proc. 2011-46, 2011-42 I.R.B. 518.

(b) Inapplicability. This change does not apply to a taxpayer within the

scope of sections 3.01(6) through 3.01(8) of Rev. Proc. 2006-56, as modified and

amplified by Rev. Proc. 2011-46.

(2) Manner of making the change.

(a) Changes made with a § 481(a) adjustment. A change in method of

accounting described in section 3.01(1), (2), (3), or (5) of Rev. Proc. 2006-56, as

modified and amplified by Rev. Proc. 2011-46, is made with a § 481(a) adjustment.

(b) Changes made on a cut-off basis.

(i) In general. A change described in section 3.01(4) of Rev. Proc.

2006-56 is made on a cut-off basis and the new applicable period applies only to the

taxpayer’s NAE calculation of its uncollectible amount for the year of change and for

subsequent years. Moreover, a change described in sections 5.02 and 5.03 of Rev.

Proc. 2011-46 is made on a cut-off basis and the proposed method applies only to

accounts receivable earned on or after the first day of the year of change. Accordingly,
 240

a § 481(a) adjustment is neither permitted nor required for a change described in

section 3.01(4) of Rev. Proc. 2006-56 or in section 5.02 or 5.03 of Rev. Proc. 2011-46.

(ii) Special filing rules for changes made under section 5.02 and 5.03

of Rev. Proc. 2011-46, as modified by this revenue procedure.

(A) Certain eligibility rule inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change

in method of accounting made under section 5.02 or 5.03 of Rev. Proc. 2011-46, as

modified by this revenue procedure.

(B) Filing rules. 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 and a statement in lieu of

a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115

in section 3.07 of Rev. Proc. 2015-13, the statement in lieu of a Form 3115 that is

permitted under section 5.02 or 5.03 of Rev. Proc. 2011-46 and this section 15.03 is

considered a Form 3115 for purposes of the automatic consent procedures of Rev.

Proc. 2015-13. However, the requirement to file the duplicate copy, under section

6.03(1)(a) of Rev. Proc. 2015-13, is waived. See section 5.02 or 5.03 of Rev. Proc.

2011-46, as applicable, for what information is required to be provided on the statement.

(3) Concurrent change to overall accrual method and a NAE method of

accounting. A taxpayer making both an automatic change to, from, or within a NAE

method of accounting under this section 15.03 and an automatic change to an overall

accrual method under section 15.01 of this revenue procedure (whether or not it is the

taxpayer’s first § 448 year or mandatory § 448 year), must file a single Form 3115 for

both changes. The taxpayer must complete all applicable sections of Form 3115,

including sections that apply to the change to an overall accrual method and to the
 241

change to a NAE method, and must enter the automatic accounting method change

numbers for both changes on Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13

for information on making concurrent changes.

A taxpayer making both an automatic change to, from, or within a NAE method of

accounting under this section 15.03 and a required change to an overall accrual method

under § 448 for the taxpayer’s first § 448 year, and is either not eligible to make the

change to an overall accrual method under section 15.01 of this revenue procedure or

chooses to make the change to an overall accrual method using the procedures of

§ 1.448-1(h)(2) for the taxpayer’ first § 448 year, must make both changes (change to,

from, or within a NAE method and change to an overall accrual method) on a single

Form 3115. The taxpayer must follow the automatic change procedures of Rev. Proc.

2015-13 and this section 15.03 for the NAE change, and the procedures of § 1.448-

1(h)(2) for the change to an overall accrual method for the taxpayer’s first § 448 year

except that entering the designated automatic accounting method change number “34”

on the Form 3115 fulfills the requirement of § 1.448-1(h)(2) to type or print “Automatic

Change to Accrual – Section 448” at the top of page 1 of the Form 3115. The taxpayer

must complete all applicable sections of Form 3115, including sections that apply to the

change to an overall accrual method and to the change to the NAE method and must

enter the designated automatic accounting method changes numbers for both changes

on Form 3115.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to, from, or

within a NAE method of accounting under this section 15.03 is “35.”

 242

(5) Contact information. For further information regarding a change under

this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

.04 Interest accruals on short-term consumer loans—Rule of 78’s method.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting from the Rule of 78’s method to the constant yield

method for stated interest (including stated interest that is original issue discount) on

short-term consumer loans described in Rev. Proc. 83-40, 1983-1 C.B. 774, which was

obsoleted by Rev. Proc. 97-37, 1997-2 C.B. 455.

(2) Background.

(a) A short-term consumer loan is described in Rev. Proc. 83-40,

provided:

(i) the loan is a self-amortizing loan that requires level payments, at

regular intervals at least annually, over a period not in excess of five years (with no

balloon payment at the end of the loan term); and

(ii) the loan agreement between the borrower and the lender

provides that interest is earned, or upon the prepayment of the loan interest is treated

as earned, in accordance with the Rule of 78’s method.

(b) In general, the Rule of 78’s method allocates interest over the term of

a loan based, in part, on the sum of the periods’ digits for the term of the loan. See

Rev. Rul. 83-84, 1983-1 C.B. 97, for a description of the Rule of 78’s method.

(c) In general, the constant yield method allocates interest and original

issue discount over the term of a loan based on a constant yield. See § 1.1272-1(b) for

a description of the constant yield method. The Rule of 78’s method generally front-

loads interest as compared to the constant yield method.

 243

(d) Rev. Proc. 83-40 was obsoleted because, under §§ 1.446-2 and

1.1272-1 (which were effective for debt instruments issued on or after April 4, 1994),

taxpayers generally must account for stated interest and original issue discount on a

debt instrument (loan) by using a constant yield method. As a result, the Rule of 78’s

method is no longer an acceptable method of accounting for federal income tax

purposes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.04 is “71.”

(4) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

.05 Film producer’s treatment of certain creative property costs.

(1) Description of change. This change applies to a taxpayer that wants to

change the method of accounting for creative property costs to the safe harbor method

provided by section 5 of Rev. Proc. 2004-36, 2004-1 C.B. 1063. This safe harbor

method of accounting applies to a taxpayer engaged in the trade or business of film

production and to creative property costs (as defined in section 2.01 of Rev. Proc. 2004-

36) properly written off by the taxpayer under The American Institute of Certified Public

Accountants Statement of Position (SOP) 00-2, “Accounting for Producers or

Distributors of Film.”

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.05 is “85.”

 244

(3) Contact information. For further information regarding a change under

this section, contact Bernard Harvey at (202) 317-7005 (not a toll-free number).

.06 Deduction of incentive payments to health care providers.

(1) Description of change. This change applies to a taxpayer that wants to

change to the method of accounting for provider incentive payments under which those

payments are included in discounted unpaid losses without regard to § 404, as provided

in Rev. Proc. 2004-41, 2004-2 C.B. 90. A payment by a taxpayer to a health care

provider is a “provider incentive payment,” and thus eligible for this treatment, if (a) the

taxpayer is taxable as an insurance company under Part II of subchapter L; (b) the

payment is made pursuant to a written agreement the purpose of which is to encourage

participating health care providers to provide quality health care to the taxpayer’s

subscribers in a cost-efficient manner; (c) the taxpayer’s liability for the payment is

dependent on the attainment of one or more preestablished goals during a performance

period consisting of not more than 12 consecutive months; (d) the terms of the

arrangement pursuant to which the payment is made are established unilaterally by the

taxpayer, and are not negotiated with the health care providers; (e) the taxpayer

normally makes payments to health care providers under the arrangement within 12

months after the close of the performance period; (f) deferring the receipt of income by

the health care provider or otherwise providing a tax benefit to the provider is not a

principal purpose of the arrangement; (g) the taxpayer records a liability for the payment

on its annual statement filed for state regulatory purposes, and includes this liability in

the determination of discounted unpaid losses under § 846; and (h) the health care

provider is not an employee, and is not providing health care as an agent, of the

taxpayer. See Rev. Proc. 2004-41.

 245

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.06 is “90.”

(3) Contact information. For further information regarding a change under

this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).

.07 Change by bank for uncollected interest.

(1) Description of change. This change applies to a “bank” as defined in

§ 1.166-2(d)(4)(i) that: (a) uses an overall accrual method of accounting to determine its

taxable income for federal income tax purposes; (b) is subject to supervision by Federal

authorities, or by state authorities maintaining substantially equivalent standards; (c)

has uncollected interest other than interest described in § 1.446-2(a)(2); and (d) has six

or more years of collection experience. Under the safe harbor method of accounting

provided by section 4 of Rev. Proc. 2007-33, 2007-1 C.B. 1289, a bank determines for

each taxable year the amount of uncollected interest (other than interest described in

§ 1.446-2(a)(2)) for which it is considered to have a reasonable expectancy of payment

by multiplying: (a) the total accrued (determined under § 1.446-2) but uncollected

interest for the year, by (b) the bank’s “recovery percentage” (determined under section

4.02 of Rev. Proc. 2007-33) for that year. Solely for purposes of this safe harbor, the

bank is not considered to have a reasonable expectancy of payment for the excess, if

any, of the accrued but uncollected interest over the expected collection amount

determined using the bank’s recovery percentage. The bank includes in gross income

the portion of accrued but uncollected interest for which it has a reasonable expectancy

of payment. The bank excludes from income the portion of accrued but uncollected

interest for which it has no reasonable expectancy of payment.

 246

(2) Recovery percentage. Subject to the limitations and conditions in Rev.

Proc. 2007-33, sections 4.02(2), (3), and (4), a bank determines its recovery percentage

for each taxable year by dividing: (a) total payments that the bank received on loans

(including principal and interest) during the 5 taxable years immediately preceding the

taxable year, by (b) total amounts that were due and payable to the bank on loans

during the same 5 taxable years. The recovery percentage cannot exceed 100 percent

and must be calculated to at least four decimal places. The data used in the recovery

percentage must take into account acquisitions and dispositions. If a bank acquires the

major portion of a trade or business of another person (predecessor) or the major

portion of a separate unit of a trade or business of a predecessor, then in applying Rev.

Proc. 2007-33 for any taxable year ending on or after the acquisition, the data from

preceding taxable years of the predecessor attributable to the portion of the trade or

business acquired, if available, must be used in determining the bank’s recovery

percentage. If a bank disposes of a major portion of a trade or business or the major

portion of a separate unit of a trade or business, and the bank furnished the acquiring

person the information necessary for the computations required by Rev. Proc. 2007-33,

then in applying the revenue procedure for any taxable year ending on or after the

disposition, the data from preceding taxable years attributable to the disposed portion of

the trade or business may not be used in determining the bank’s recovery percentage.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.07 is “108.”

(4) Contact information. For further information regarding a change under

this section, contact K. Scott Brown at (202) 317-6945 (not a toll-free number).
 247

.08 Change from the cash method to an accrual method for specific items.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that uses an overall

accrual method of accounting but has identified a specific item or items of income or

expense (or both) that are being accounted for on the cash method of accounting. This

change does not apply to a taxpayer that is changing its overall method of accounting

from cash to accrual. Such a taxpayer may be eligible to change to an overall accrual

method using section 15.01 of this revenue procedure.

(b) Inapplicability. This change does not apply to:

(i) a taxpayer that will not have all items of income and expense on

an accrual method subsequent to the change under this section 15.08;

(ii) a cooperative organization described in § 501(c)(12), 521, or

1381;

(iii) an individual taxpayer, except for activities conducted as a sole

proprietorship;

(iv) a taxpayer engaged in two or more trades or businesses, unless

the taxpayer makes this change so that the identical accrual method is used for each

such trade or business beginning with the year of change;

(v) a change in method of accounting for any payment liability

described in § 1.461-4(g);

(vi) a change in the method of accounting for interest that is not

taken into account under § 1.446-2;

 248

(vii) a taxpayer that has included in its § 481(a) adjustment any

amount of deferred compensation that is described under § 457A(d)(3) that is

attributable to services performed before January 1, 2009; and

(viii) any change that is specifically provided in another section of this

revenue procedure.

(2) Definitions.

(a) “Cash method of accounting” is the method identified by § 446(c)(1)

and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).

(b) “Accrual method of accounting” is the method identified by

§ 446(c)(2) and §§ 1.446-1(c)(1)(ii), 1.451-1(a), and 1.461-1(a)(2).

(3) Additional requirements. To change a method of accounting under this

section 15.08, a taxpayer must attach to its completed Form 3115 a full and complete

description of each specific item for which the change in method of accounting is being

made and how the accrual method of accounting applies to each item, and list the

§ 481(a) adjustment, if any, for each item associated with the change. The change is

fully and completely described if each income and expense item is described with

specificity and how the all-events test (and the economic performance requirement, if

applicable) applies to each item is described under the facts and circumstances of the

taxpayer’s trade or business. For example, a taxpayer that merely states that it is

changing its accounting method for advertising expenses from the cash method to an

accrual method, recites the regulations under § 1.461-1(a)(2), and enters the associated

§ 481(a) adjustment has failed to describe fully and completely the specific item for

which the change in method of accounting is being made. In contrast, a taxpayer that

states that it is changing its method of accounting for print advertising expenses from
 249

the cash method of accounting to an accrual method of accounting, describes all of the

relevant facts related to the print advertising expenses, and explains how the all-events

test applies to those facts and when economic performance occurs has fully and

completely described the item and the change. See section 6.03 of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, for additional filing requirements.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.08 is “124.”

(5) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

.09 Multi-year service warranty contracts.

(1) Description of change.

(a) Applicability. This change applies to a manufacturer, wholesaler, or

retailer of motor vehicles or other durable consumer goods that uses an overall accrual

method of accounting, and wants to change to the service warranty income method

described in section 5 of Rev. Proc. 97-38, 1997-2 C.B. 479. Under the service

warranty income method, a qualifying taxpayer may, in certain specified and limited

circumstances, include a portion of an advance payment related to the sale of a multi-

year service warranty contract in gross income generally over the life of the service

warranty obligation.

(b) Inapplicability. This change does not apply to a taxpayer not within

the scope of Rev. Proc. 97-38.

(2) Manner of making change and designated automatic accounting method

change number.
 250

(a) This change is made on a cut-off basis and applies only to qualified

advance payments for multi-year service warranty contracts on or after the beginning of

the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor

required.

(b) In accordance with § 1.446-1(e)(3)(ii), the requirement of § 1.446-

1(e)(3)(i) to file a standard Form 3115 is waived and pursuant to section 6.02(2) of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, a short Form 3115 is authorized for this change. The

short Form 3115 (Rev. December 2018) must include the following information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a); and

(iv) the information required under section 6.03 of Rev. Proc. 97-38,

except that the statement under section 6.03(2) (that the taxpayer agrees to all of the

terms and conditions of the revenue procedure) also should refer to Rev. Proc. 2015-13.

(3) Additional requirement. A taxpayer changing to the service warranty

income method of accounting under this section 15.09 must satisfy the annual reporting

requirement set forth in section 6.04 of Rev. Proc. 97-38.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.09 is “125.”

(5) Contact information. For further information regarding a change under

this section, contact David Christensen at (202) 317-7011 (not a toll-free number).

.10 Overall cash method for specified transportation industry taxpayers.

 251

(1) Description of change. This change applies to a “specified transportation

industry taxpayer” with “average annual gross receipts” of more than the inflation-

adjusted amount, as defined in section 15.10(2)(f) of this revenue procedure, and not in

excess of $50,000,000 that wants to change to the overall cash receipts and

disbursement (cash) method. For a small business taxpayer, as defined in section

15.17(4)(a) of this revenue procedure, see section 15.17 of this revenue procedure for a

change to the overall cash method.

(2) Definitions. For purposes of this section 15.10 the following definitions

apply:

(a) Specified transportation industry taxpayer. A specified transportation

industry taxpayer is a taxpayer that satisfies the following criteria for the year of change:

(i) The taxpayer reasonably identifies its “business” (as defined in

section 15.10(2)(b) of this revenue procedure) as being described in one of the following

NAICS subsector codes (first three digits of the six-digit NAICS codes):

(A) Air Transportation, Rail Transportation, Water Transportation,

Truck Transportation, Transit and Ground Passenger Transportation, or Scenic and

Sightseeing Transportation, within the meaning of NAICS subsector codes 481-485 and

487; or

(B) Support Activities for Transportation within the meaning of

NAICS subsector code 488.

(ii) The taxpayer is not prohibited from using the overall cash method

under § 448.

(b) Business. A taxpayer may use any reasonable method of applying

the relevant facts and circumstances to determine its business. A business may consist
 252

of several activities, which may or may not be related. For example, a taxpayer

engaged in transportation activities may provide various services such as transporting

air cargo and then subsequently trucking the cargo throughout a metropolitan area to

warehouses and wholesale/retail stores. However, each activity within a taxpayer’s

business must individually satisfy the description of a NAICS subsector code in section

15.10(2)(a)(i)(A) or (B) of this revenue procedure. For example, a sightseeing bus

operator that sells box lunches in connection with its tours is not a “specified

transportation industry taxpayer” because one of the two activities of its business (food

sales) does not satisfy the description of a NAICS subsector code in section

15.10(2)(a)(i)(A) or (B) of this revenue procedure. While the sightseeing transportation

activity satisfies the description of the NAICS subsector code in section 15.10(2)(a)(i)(A)

of this revenue procedure, the food sales activity does not satisfy the description of any

NAICS subsector code in section 15.10(2)(a)(i)(A) or (B) of this revenue procedure, and

thus, the taxpayer’s business fails to meet the criteria of section 15.10(2)(a)(i).

Similarly, a train operator who operates a dining car where meals are served is not a

“specified transportation industry taxpayer” because one of the two activities of its

business (food service) does not satisfy the description of a NAICS subsector code in

section 15.10(2)(a)(i)(A) or (B) of this revenue procedure. While the rail transportation

activity satisfies the description of a NAICS subsector code in section 15.10(2)(a)(i)(A)

of this revenue procedure, the food service activity does not satisfy the description of

any NAICS subsector code in section 15.10(2)(a)(i)(A) or (B) of this revenue procedure,

and thus, the taxpayer’s business fails to meet the criteria of section 15.10(2)(a)(i).

(c) Average annual gross receipts. A taxpayer has average annual gross

receipts of more than the inflation-adjusted amount and not in excess of $50,000,000 if
 253

the taxpayer’s average annual gross receipts for the three prior taxable-year period

ending with the applicable prior taxable year are more than the inflation-adjusted

amount and do not exceed $50,000,000. If a taxpayer has not been in existence for

three prior taxable years, the taxpayer must determine its average annual gross receipts

for the number of years (including short taxable years) that the taxpayer has been in

existence. See § 448(c)(3)(A).

(d) Gross receipts. Gross receipts is defined consistent with § 1.448-

2(c)(2)(iv). Thus, gross receipts for a taxable year equal all receipts that must be

recognized under the method of accounting actually used by the taxpayer for that

taxable year for federal income tax purposes. See also § 448(c)(3)(C).

(e) Aggregation of gross receipts. For purposes of computing gross

receipts under section 15.10(2)(d) of this revenue procedure, all taxpayers treated as a

single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a

single employer under these sections if the taxpayers had employees) will be treated as

a single taxpayer. However, when transactions occur between taxpayers that are

treated as a single taxpayer by the previous sentence, gross receipts arising from these

transactions will not be treated as gross receipts for purposes of the average annual

gross receipts limitation. See § 448(c)(2) and § 1.448-2(c)(2)(ii).

(f) Inflation-adjusted amount. The inflation-adjusted amount is the dollar

amount specified in § 448(c)(1), adjusted for inflation. See § 448(c)(4). For a taxable

year beginning in 2019, 2020, or 2021, the inflation-adjusted amount is $26,000,000.

See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev. Proc. 2019-44, 2019-47 I.R.B. 1093,

or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as applicable. For a taxable year
 254

beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev. Proc. 2021-

45, 2021-48 I.R.B. 764.

(g) Treatment of short taxable year. In the case of a short taxable year,

a taxpayer’s gross receipts must be annualized by multiplying the gross receipts for the

short taxable year by 12 and then dividing the result by the number of months in the

short taxable year. See § 448(c)(3)(B) and § 1.448-2(c)(2)(iii).

(h) Treatment of predecessors. Any reference to a taxpayer in this

section 15.10 includes a reference to any predecessor of that taxpayer. See

§ 448(c)(3)(D).

(i) Cash method. The “cash method” is the method identified by

§ 446(c)(1) and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.10 is “126.”

(4) Example. Taxpayer X is an LLC and taxed for federal income tax
purposes as a partnership. Taxpayer X does not have any C corporations as partners
and Taxpayer X is not a tax shelter within the meaning of § 448(d)(3). Taxpayer X’s
business consists of short-haul trucking among various cities within State Y, which
satisfies the description of the NAICS subsector code 484. Taxpayer X determines that
its 3-year average annual gross receipts for each prior taxable year have been more
than the inflation-adjusted amount as defined in section 15.10(2)(f) of this revenue
procedure and not in excess of $50,000,000. Taxpayer X qualifies to change to the
overall cash method using this section 15.10.

(5) Contact information. For further information regarding a change under

this section, contact Megan McLaughlin at (202) 317-7007 (not a toll-free number).

.11 Change to overall cash/hybrid method for certain banks.

(1) Description of change.

 255

(a) Applicability. This change applies to a bank described in section

15.11(2)(a) of this revenue procedure that wants to change to an overall cash/hybrid

method described in section 15.11(2)(b) of this revenue procedure.

(b) Inapplicability. A bank’s change to an overall cash/hybrid method

under this section 15.11 does not include any change in the accounting treatment of an

item for which the bank uses a special method (as described in section 15.11(2)(b) of

this revenue procedure) before the change, or is required to use a special method, or

will use a special method after the change. A bank may not change the accounting

treatment of such an item under this section 15.11. Any change in the accounting

treatment of such an item must be made under an applicable section of this revenue

procedure, under the non-automatic change procedures of Rev. Proc. 2015-13, 2015-5

I.R.B. 419, or under another guidance published in the Internal Revenue Bulletin, as

appropriate.

(2) Definitions. The following definitions apply for purposes of this section

15.11.

(a) Bank. A bank is described in this section 15.11(2)(a) if the bank:

(i) is a bank as defined in § 581;

(ii) is an S corporation as defined in § 1361(a)(1), or a qualified

subchapter S subsidiary as defined in § 1361(b)(3)(B); and

(iii) has average annual gross receipts (computed as described in

section 15.11(5) of this revenue procedure) not in excess of $50,000,000.

(b) Overall cash/hybrid method. An overall cash/hybrid method is the

use of a combination of accounting methods under which some items of income or

expense are reported on the cash receipts and disbursements method (cash method)
 256

and other items of income or expense are reported on methods permitted or required for

the accounting treatment of special items (special methods).

(i) Cash method. The cash method is the method identified by

§ 446(c)(1) and §§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1).

(ii) Special methods. A few of the special methods typically used by

banks include those provided for the accounting treatment of the following items:

securities held by a dealer in securities as defined in § 475(c)(1) (the mark-to-market

method of § 475); securities held by a dealer in securities as defined in § 1.471-5

(inventories maintained under § 471 and § 1.446-1(c)(2)(i)); hedging transactions

(§ 1.446-4); contracts to which § 1256 applies (§ 1256); original issue discount on debt

instruments (§§ 163(e) and 1271-1275); interest income (including acquisition discount

and original issue discount) on short-term obligations (§§ 1281-1283); and stripped debt

instruments (§ 1286). For example, a bank that regularly purchases or originates

mortgages in the ordinary course of its business and engages in more than negligible

sales of those mortgages generally is a dealer in securities under § 475(c)(1) and

§ 1.475(c)-1(c) and thus must use the mark-to-market method of § 475 for mortgages

and any other securities (as defined in § 475(c)(2)) held by the bank.

(3) Additional condition of change. To change to an overall cash/hybrid

method under this section 15.11, a bank must comply with the following additional

condition. In addition to complying with the terms and conditions set forth in section 7 of

Rev. Proc. 2015-13, the bank must keep its books and records for the year of change

and for subsequent taxable years on an overall cash/hybrid method allowed by this

section 15.11. This condition is considered satisfied if the bank reconciles the results

obtained under the method used in keeping its books and records and those obtained
 257

under the method used for federal income tax purposes pursuant to this section 15.11

and the bank maintains sufficient records to support such reconciliation. See also

§ 1.446-1(a)(4).

(4) Additional filing requirement. To change to an overall cash/hybrid method

under this section 15.11, a bank must include with its completed Form 3115 a

description of each specific item of the bank’s income or expense that is affected by the

change under this section 15.11 and, for each such item, identify the following: the

method of accounting under which the bank reports that item for federal income tax

purposes immediately before the change; and the amount of the § 481(a) adjustment

associated with changing that item to the cash method under this section 15.11.

(5) Computation of average annual gross receipts. For purposes of section

15.11(2)(a)(iii) of this revenue procedure, a bank’s average annual gross receipts are

computed as described in this section 15.11(5).

(a) Average annual gross receipts. A bank has average annual gross

receipts not in excess of $50,000,000 if, for each prior taxable year ending on or after

December 31, 2006, the bank’s average annual gross receipts for the three prior

taxable-year period ending with the applicable prior taxable year do not exceed

$50,000,000. If a bank has not been in existence for three prior taxable years, the bank

must determine its average annual gross receipts for the number of years (including

short taxable years) that the bank has been in existence. See § 448(c)(3)(A).

(b) Gross receipts. Gross receipts is defined consistent with § 1.448-

2(c)(2)(iv). Thus, gross receipts for a taxable year equal all receipts that must be

recognized under the method of accounting actually used by the bank for that taxable

year for federal income tax purposes. See also § 448(c)(3)(C).

 258

(c) Aggregation of gross receipts. For purposes of computing gross

receipts under section 15.11(5)(b) of this revenue procedure, all taxpayers treated as a

single employer under § 52(a) or (b) or § 414(m) or (o) (or that would be treated as a

single employer under these sections if the taxpayers had employees) will be treated as

a single taxpayer (that is, a single bank). However, when transactions occur between

taxpayers that are treated as a single taxpayer by the previous sentence, gross receipts

arising from these transactions will not be treated as gross receipts for purposes of the

average annual gross receipts limitation. See § 448(c)(2) and § 1.448-2(c)(2)(ii).

(d) Treatment of short taxable year. In the case of a short taxable year,

a bank’s gross receipts must be annualized by multiplying the gross receipts for the

short taxable year by 12 and then dividing the result by the number of months in the

short taxable year. See § 448(c)(3)(B) and § 1.448-2(c)(2)(iii).

(e) Treatment of predecessors. Any reference to a bank or taxpayer in

section 15.11(5) of this revenue procedure includes a reference to any predecessor of

that bank or taxpayer. See § 448(c)(3)(D).

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.11 is “127.”

(7) Contact information. For further information regarding a change under

this section, contact K. Scott Brown at (202) 317-6945 (not a toll-free number).

.12 Change to overall cash method for farmers.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer engaged in the trade

or business of farming that wants to change to the overall cash receipts and
 259

disbursement (cash) method. If a taxpayer is engaged in more than one trade or

business, this change applies only to the taxpayer’s trade or business of farming.

(b) Inapplicability. This change does not apply to a taxpayer that is

required to use an accrual method pursuant to § 447, or prohibited from using the cash

method by § 448.

(2) Definitions.

(a) Cash method of accounting is the method defined by § 446(c)(1) and

§§ 1.446-1(c)(1)(i), 1.451-1(a), and 1.461-1(a)(1). See also §§ 1.61-4 and 1.162-12 for

specific rules relating to farmers.

(b) The trade or business of farming is a farming business as defined by

§ 263A(e)(4) and the regulations thereunder.

(3) Certain eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(e) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this

change for a taxpayer's first, second, or third taxable year beginning after December 31,

2017.

(4) Manner of making change. Generally, a taxpayer changing its method of

accounting under this section 15.12 must compute a § 481(a) adjustment. However, if

the taxpayer is changing from the crop method, that portion of the change is made using

a cut-off basis under which expenses reported on the crop method and not deducted

prior to the year of change are deducted in the year the related crop is sold.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.12 is “128.”

 260

(6) Contact information. For further information regarding a change under

this section, contact Sophia Wang at (202) 317-5100 (not a toll-free number).

.13 Nonshareholder contributions to capital under § 118.

(1) Description of change.

(a) Water and sewerage disposal utilities under § 118(c) (as in effect on

the day before the date of enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22,

2017) (“former § 118(c)”)).

(i) This change applies to a regulated public utility described in

former § 118(c) that wants to change its method of accounting for payments received

from customers as customer connection fees, which are not contributions to the capital

of the regulated public utility within the meaning of former § 118(c), from excluding the

payments from gross income as nontaxable contributions to capital under § 118 to

including the payments in gross income under § 61. See Rev. Rul. 2008-30, 2008-1

C.B. 1156.

(ii) This change applies to a regulated public utility described in

former § 118(c) that wants to change its method of accounting for payments or property

received that are contributions in aid of construction under former § 118(c) and § 1.118-

2 and that meet the requirements of former § 118(c)(1)(B) and (c)(1)(C) from including

the payments or the fair market value of the property in gross income under § 61 to

excluding the payments or the fair market value of the property from income as

nontaxable contributions to capital under § 118(a).

(b) Other payments or property received. This change applies to a

taxpayer that wants to change its method of accounting for payments or property

received (other than the payments received by a public utility described in former §
 261

118(c) that are addressed in section 15.13(1)(a)(i) of this revenue procedure) that do

not constitute contributions to the capital of the taxpayer within the meaning of § 118

and the regulations thereunder, from excluding the payments or the fair market value of

the property from gross income as nontaxable contributions to capital under § 118 to

including the payments or the fair market value of the property in gross income under §

61.

(2) Inapplicability. The change described in section 15.13(1)(a)(ii) of this

revenue procedure does not apply to contributions made after December 22, 2017, the

date of enactment of Public Law 115-97 (commonly referred to as the Tax Cuts and

Jobs Act).

(3) Additional requirement. A taxpayer that is making a change described in

section 15.13(1)(a)(i) or (1)(b) of this revenue procedure must complete Schedule E of

Form 3115 for the depreciable property to which the change relates (as well as all other

relevant portions of the Form 3115).

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.13 is “129.”

(5) Contact information. For further information regarding a change under this

section, contact David H. McDonnell at (202) 317-4137 (not a toll-free number).

.14 Debt issuance costs.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for capitalized debt issuance costs to comply with

§ 1.446-5, which provides rules for allocating the costs over the term of the debt. This

change also applies to a taxpayer that wants to change its method of accounting for
 262

capitalized debt issuance costs from one permissible method to another permissible

method under the last sentence in § 1.446-5(b)(2) if the total original issue discount

determined for purposes of § 1.446-5 is de minimis.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.14 is “148.”

(3) Contact information. For further information regarding a change under

this section, contact Charles W. Culmer at (202) 317-6945 (not a toll-free number).

.15 Transfers of interties under the safe harbor described in Notice 2016-36 (§

118).

(1) Description of change.

(a) Safe harbor applicable. This change, as described in Notice 2016-

36, 2016-25 I.R.B. 1029, applies to a utility that wants to change to the safe harbor

method of accounting provided in section III.C of Notice 2016-36 for the treatment under

§ 118 of a transfer of an intertie, including a dual-use intertie, by a generator to a utility.

Under this safe harbor method of accounting, such a transfer will not be treated as

gross income under § 118(a) or a contribution in aid of construction (CIAC) under §

118(b) if all of the conditions specified in section III.C of Notice 2016-36 are met.

(b) Safe harbor terminates. This change, as described in Notice 2016-

36, applies to a utility that is using the safe harbor method of accounting provided in

section III.C of Notice 2016-36 and is required to terminate that safe harbor method of

accounting because of the occurrence of an event specified in section IV of Notice

2016-36. The occurrence of such event will require the utility to recognize income as a
 263

consequence of the transfer of an intertie, including a dual-use intertie, to the utility by a

generator.

(2) Definitions. For purposes of this section 15.15, the terms "utility,"

"intertie," "dual-use intertie," and "generator" are defined in section III.B of Notice 2016-

36.

(3) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a utility

making a change under this section 15.15.

(4) Manner of making change.

(a) The change in method of accounting under section 15.15(1)(a) of this

revenue procedure is made with a § 481(a) adjustment.

(b) The change in method of accounting under section 15.15(1)(b) of this

revenue procedure is made using a cut-off method and applies to a transfer of an

intertie, including a dual-use intertie, by a generator to a utility made on or after the

beginning of the taxable year in which the safe harbor method of accounting terminates.

(5) Concurrent automatic change. A utility making a change under this

section 15.15 for more than one transfer of an intertie, including a dual-use intertie, for

the same year of change should file a single Form 3115 for all such transfers. The

single Form 3115 must provide a single net § 481(a) adjustment for all changes under

section 15.15(1)(a) of this revenue procedure.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change to the methods

of accounting under this section 15.15 is "226."

 264

(7) Contact information. For further information regarding a change under

this section, contact Barbara Campbell at (202) 317-4137 (not a toll-free number).

.16 Change to or from the net asset value (NAV) method.

(1) Description of change. This change, as described in Rev. Proc. 2016-39,

2016-30 I.R.B. 164, applies to a taxpayer that holds shares in a money market fund

(MMF) as defined in § 1.446-7(b)(4) (giving effect to § 1.446-7(c)(5), under which MMF

holdings in different accounts are treated as different MMFs) and that wants to change

its method of accounting for gain or loss on the shares from a realization method to the

NAV method described in § 1.446-7 or from the NAV method to a realization method.

(2) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(c), (d), and (f) of Rev. Proc. 2015-13 do not apply to this change.

(3) Definitions.

(a) "Rule 2a-7" means Rule 2a-7 (17 CFR 270.2a-7) under the

Investment Company Act of 1940.

(b) "Floating-NAV MMF" means an MMF that is required to value its

assets using market factors and to round its price per share to the nearest basis point

(the fourth decimal place, in the case of a fund with a $1.0000 share price) under Rule

2a-7.

(c) "Stable-NAV MMF" means an MMF that is not a floating-NAV MMF.

(4) Manner of making change.

(a) A change to or from the NAV method is made on a cut-off basis. See

§ 1.446-7(c)(8). Accordingly, a § 481(a) adjustment is neither permitted nor required. A

taxpayer making a change to or from the NAV method for shares in an MMF applies the

new method only to the computation of gain or loss on the shares beginning with the
 265

year of change. Under § 1.446-7(b)(7)(ii), a taxpayer changing to the NAV method

takes a starting basis (as defined in § 1.446-7(b)(7)) in those shares for the year of

change equal to the aggregate adjusted basis of the taxpayer's shares in the MMF at

the end of the immediately preceding taxable year. A taxpayer changing from the NAV

method to a realization method for shares in an MMF must adjust the basis in the

shares beginning on the first day of the year of change to account for gain or loss

previously recognized under the NAV method. Accordingly, the taxpayer generally

takes a basis in each MMF share at the beginning of the year of change equal to the fair

market value of that share under § 1.446-7(b)(3) used in computing the ending value

(as defined in § 1.446-7(b)(2)) of the shares in that MMF for the final computation period

(as defined in § 1.446-7(b)(1)) of the taxable year prior to the year of change.

(b) Short Form 3115 in lieu of a standard Form 3115. In accordance with

§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is

waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized for a taxpayer changing from a realization method to the NAV method, or

changing from the NAV method to a realization method, for shares in an MMF. Unless

the change meets the requirements of section 15.16(4)(c) of this revenue procedure,

the taxpayer must file a short Form 3115 (Rev. December 2018) that includes the

following information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a);

 266

(iv) a statement specifying whether the taxpayer is changing from a

realization method to the NAV method or from the NAV method to a realization method;

and

(v) a statement specifying the MMF or MMFs to which the change

applies, if the change does not apply to all MMFs in which the taxpayer holds shares

(and, to the extent applicable, whether the change applies only to shares of the MMF or

MMFs held in a particular account).

(c) No Form 3115 Required. In accordance with § 1.446-1(e)(3)(ii), a

taxpayer changing to the NAV method for shares in a stable-NAV MMF may change to

the NAV method on a federal tax return without filing a Form 3115 if the following

requirements are satisfied:

(i) the taxpayer has not used the NAV method for shares in the

MMF for any taxable year prior to the year of change; and

(ii) prior to the year of change, either

(A) the taxpayer's basis in each share of the MMF has been at

all times equal to the MMF's target share price, or

(B) the taxpayer has not realized any gain or loss with respect to

shares in the MMF.

(5) Multiple changes. A taxpayer making multiple changes under this section

15.16 for the same year of change on a short Form 3115 should file a single short Form

3115. The short Form 3115 will be treated as applying to all shares that the taxpayer

holds in any MMF unless the taxpayer specifies the MMFs to which the change applies.

If the taxpayer specifies an MMF, the short Form 3115 will be treated as applying to all
 267

shares in that MMF held in any account by the taxpayer, unless the short Form 3115

specifies the accounts to which the change applies.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 15.16 is "227."

(7) Contact Information. For further information regarding a change under

this section, contact Grace Cho at (202) 317-6945 (not a toll-free number).

.17 Small business taxpayer changing to overall cash method, or to a method of

accounting in which a small business taxpayer uses an accrual method for purchases

and sales of inventories and uses the cash method for computing all other items of

income and expense.

(1) Description of change. This change applies to a small business taxpayer,

as defined in section 15.17(4)(a) of this revenue procedure, that wants to make a

change in method of accounting described in section 15.17(2) of this revenue

procedure. This change includes a change to account for any exempt construction

contracts described in § 1.460-3(b)(1)(ii) under the cash method or, in the case of an

exempt construction contract described in § 1.460-3(b)(1)(ii) that includes the sale of

inventory, a method of accounting that uses an accrual method for purchases and sales

of such inventory and the cash method for computing all other items of income and

expense from such contract. A small business taxpayer may be required to use a

method of accounting other than the cash method for one or more items of income or

expense under certain provisions of the Code or regulations, including, for example

§§ 475 and 1272.

 268

(2) Applicability. This change applies to a small business taxpayer that

wants to:

(a) change from an overall accrual method of accounting to the overall

cash method of accounting for a trade or business, and is otherwise not prohibited from

using the overall cash method or required to use another overall method of accounting;

(b) change from an overall accrual method of accounting for a trade or

business to an accrual method for purchases and sales of inventories (inventories) and

the cash method for computing all other items of income and expense, and is otherwise

not prohibited from using the cash method under § 448 or required to use another

overall method of accounting, such as an accrual method under § 447; or

(c) change from the overall cash method of accounting for a trade or

business to an accrual method for purchases and sales of inventories (inventories) and

the cash method for computing all other items of income and expense and is otherwise

not prohibited from using the cash method under § 448 or required to use another

overall method of accounting, such as an accrual method under § 447.

(3) Inapplicability. This change does not apply to the following:

(a) Banks changing to hybrid method. This change does not apply to a

bank described in section 15.11(2)(a) of this revenue procedure. However, such a bank

may be eligible to change to the overall cash/hybrid method under section 15.11 of this

revenue procedure if it meets the requirements of that section.

(b) Farmers changing to overall cash method. This change does not

apply to a farming business changing to the overall cash method. See, however,

section 15.12 of this revenue procedure.

 269

(4) Special rules for open accounts receivable. Notwithstanding § 1001 and

the accompanying regulations, a small business taxpayer that uses the overall cash

method for a trade or business includes amounts attributable to open accounts

receivable, as defined in section 15.17(5)(c) of this revenue procedure, in income as the

amounts are actually or constructively received on the receivables.

(5) Definitions.

(a) Small business taxpayer. “Small business taxpayer” means a

taxpayer, other than a tax shelter under § 448(d)(3), proposed § 1.448-2(b)(2), or

§ 1.448-2(b)(2), as applicable, that meets the § 448(c) gross receipts test.

(b) Section 448(c) gross receipts test. The § 448(c) gross receipts test is

met if a taxpayer has average annual gross receipts for the three prior taxable years of

$25,000,000 or less (adjusted for inflation), as described in § 448(c), proposed

§§ 1.448-2(c), proposed § 1.460-3(b)(3), § 1.448-2(c) or § 1.460-3(b)(3), as applicable.

For taxable years beginning in 2019, 2020 and 2021, the inflation-adjusted amount is

$26,000,000. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev. Proc. 2019-44, 2019-

47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as applicable. For a

taxable year beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev.

Proc. 2021-45, 2021-48 I.R.B. 764.

(c) Open accounts receivable. For purposes of this section 15.17, an

open accounts receivable is any receivable that is due in full in 120 days or less and

that is not subject to § 475.

(6) Eligibility rules.

(a) Eligibility rule inapplicable. For a change described in section

15.17(2) of this revenue procedure, any prior change in method of accounting to an

 270

overall accrual method that was made in the taxpayer’s first § 448 year (as defined in

section 15.01(1)(a) of this revenue procedure), a mandatory § 448 year (as defined in

proposed § 1.448-2(g)(1) or § 1.448-2(g)(1), as applicable), or a mandatory § 447 year

(as defined in section 15.01(1)(a) of this revenue procedure), as applicable, is

disregarded for purposes of section 5.01(1)(e) of Rev. Proc. 2015-13.

(b) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(e) of Rev. Proc. 2015-13 does not apply to this change for a taxpayer's first,

second, or third taxable year beginning after December 31, 2017. In addition, the

eligibility rule in section 5.01(1)(e) of Rev. Proc. 2015-13 does not apply to a taxpayer’s

early application year, or, in the case of a taxpayer that does not apply § 1.448-2 in the

early application year, the taxpayer’s first taxable year beginning on or after January 5,

2021. For purposes of this section 15.17, “early application year” means the taxable

year beginning before January 5, 2021, in which a taxpayer first applies § 1.448-2.

(7) Manner of making change.

(a) Acceleration of § 481(a) adjustment. If a taxpayer making a change

described in section 15.17(2)(a) or (b) of this revenue procedure has a § 481(a)

adjustment remaining on a prior overall change in method of accounting to an accrual

method, then it must take the remaining portion of such prior § 481(a) adjustment into

account in the year of change;

(b) Cut-off basis for exempt long-term contracts. A change to account

for exempt construction contracts described in § 1.460-3(b)(1)(ii) under this section

15.17 is made on a cut-off basis and applies only to contracts entered into on or after

the first day of the year of change. Accordingly, a § 481(a) adjustment is neither

permitted nor required.

 271

(8) Concurrent automatic changes. A small business taxpayer making a

change under this section 15.17 and a change under section 12.16, 22.18 and/or 22.19

of this revenue procedure for the same year of change may file a single Form 3115 for

such changes, provided the taxpayer enters the designated automatic accounting

method change numbers for each change on the appropriate line of Form 3115. See

section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(9) Designated automatic accounting method change number.

(a) Change to overall cash method. The designated automatic

accounting method change number for a change under section 15.17(2)(a) of this

revenue procedure is “233.”

(b) Change to a method of accounting that uses an accrual method for

inventories, and the cash method for computing all other items of income and expense.

The designated automatic accounting method change number for a change under

section 15.17(2)(b) or (c) of this revenue procedure is “259.”

(10) Contact information. For further information regarding a change under

this section, contact Anna Gleysteen at (202) 317-7007 (not a toll-free number).

SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451)

.01 Accrual of interest on nonperforming loans.

(1) Description of change.

(a) This change applies to a taxpayer using an overall accrual method of

accounting that is a bank as defined in § 581 (or whose primary business is making or

managing loans) and wants to change its method of accounting to comply with § 451

and § 1.451-1(a) for qualified stated interest (as defined in § 1.1273-1(c)) on

nonperforming loans.
 272

(b) Section 1.451-1(a) requires income to be accrued when all the events

have occurred that fix the right to receive the income and the amount thereof can be

determined with reasonable accuracy. A taxpayer may not stop accruing qualified

stated interest on a nonperforming loan for federal income tax purposes merely

because payments on the loan are overdue by a certain length of time, such as 90

days, even if a federal, state, or other regulatory authority having jurisdiction over the

taxpayer permits or requires that the overdue interest not be accrued for regulatory

purposes.

(c) Under § 451 and § 1.451-1(a), a taxpayer must continue accruing

qualified stated interest on any nonperforming loan until either (i) the loan is worthless

under § 166 and charged off as a bad debt, or (ii) the interest is determined to be

uncollectible. In order for interest to be determined uncollectible, the taxpayer must

substantiate, taking into account all the facts and circumstances, that it has no

reasonable expectation of payment of the interest. This substantiation requirement is

applied on a loan by loan basis.

(d) A taxpayer that changes its method of accounting under this section

16.01 must do so for all of its loans.

(2) Section 481(a) adjustment. In general, the § 481(a) adjustment for a

method change under this section 16.01 represents the amount of qualified stated

interest on the taxpayer’s nonperforming loans outstanding as of the beginning of the

year of change that should have been accrued under § 451 and § 1.451-1(a) and was

not accrued. Interest for which the taxpayer, as of the beginning of the year of change,

has no reasonable expectation of payment is not taken into account in determining the

amount of the § 481(a) adjustment.

 273

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.01 is “36.”

(4) Contact information. For further information regarding a change under

this section, contact K. Scott Brown at (202) 317-6945 (not a toll-free number).

.02 Advance rentals.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for advance rentals (other than advance rentals

subject to § 467 and the regulations thereunder) to include such advance rentals in

gross income in the taxable year received. See § 1.61-8(b).

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.02 is “37.”

(3) Contact information. For further information regarding a change under

this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).

.03 State or local income or franchise tax refunds.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that receives a state or local income or franchise

tax refund and wants to accrue the refund in the taxable year the taxpayer receives

payment or notice that the claim has been approved, whichever is earlier, as provided in

Rev. Rul. 2003-3, 2003-1 C.B. 252.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.03 is “38.”

 274

(3) Contact information. For further information regarding a change under

this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).

.04 Capital Cost Reduction Payments.

(1) Description of change. This change applies to a taxpayer that purchases

motor vehicles subject to leases and assumes the associated leases from the vehicles’

dealers and wants to use the safe harbor method of accounting for capital cost

reduction (CCR) payments specified in Rev. Proc. 2002-36, 2002-1 C.B. 993.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.04 is “39.”

(3) Contact information. For further information regarding a change under

this section, contact Bill Ruane at (202) 317-4718 (not a toll-free number).

.05 Credit card annual fees.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for credit card annual fees as described in Rev. Rul.

2004-52, 2004-1 C.B. 973, either to a method that satisfies the all events test in

accordance with Rev. Rul. 2004-52 or to the Ratable Inclusion Method for Credit Card

Annual Fees that is described in section 4 of Rev. Proc. 2004-32, 2004-1 C.B. 988.

Rev. Rul. 2004-52 holds that credit card annual fees are not interest for federal income

tax purposes and that such fees are includible in income by the card issuer when the all

events test under § 451 is satisfied. Rev. Proc. 2004-32 provides additional guidance

for taxpayers seeking to change their methods of accounting for such fees, including

guidance with respect to the Ratable Inclusion Method for Credit Card Annual Fees.

However, a taxpayer may make either change under this revenue procedure only if the
 275

taxpayer uses an overall accrual method of accounting for federal income tax purposes

and issues credit cards to, and receives annual fees from, cardholders under

agreements that allow each cardholder to use a credit card to access a revolving line of

credit to make purchases of goods and services and, if so authorized, to obtain cash

advances.

(2) Manner of making change. In completing its Form 3115 to make this

change, a taxpayer must identify the specific method to which the taxpayer is changing.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.05 to a method that satisfies the all events test in accordance with Rev. Rul.

2004-52 is “80.” The designated automatic accounting method change number for a

change under this section 16.05 to the Ratable Inclusion Method for Credit Card Annual

Fees is “81.”

(4) Contact information. For further information regarding a change under

this section, contact Kate Sleeth at (202) 317-7053 (not a toll-free number).

.06 Advance payments.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using or changing to

an overall accrual method of accounting that receives advance payments, as defined in

Rev. Proc. 2004-34, 2004-1 C.B. 991, as modified and clarified by Rev. Proc. 2011-18,

2011-5 I.R.B. 443, and Rev. Proc. 2013-29, 2013-33 I.R.B. 141, and as modified by

Rev. Proc. 2011-14, 2011-4 I.R.B. 330, and wants to change to either the full inclusion

or deferral method, as described in Rev. Proc. 2004-34, other than a taxpayer changing
 276

to a method described in section 16.08 of this revenue procedure. See also Notice

2018-35, 2018-18 I.R.B. 520, and Announcement 2004-48, 2004-1 C.B. 998.

(b) Inapplicability.

(i) In general. This change does not apply to a taxpayer that wants to

use the Deferral Method for payments described in section 5.02(4)(a) of Rev. Proc.

2004-34 (other than allocable payments described in section 5.02(4)(c) of Rev. Proc.

2004-34) or for payments for which a method under section 5.02(3)(b)(i) or (iii) of Rev.

Proc. 2004-34 applies. The taxpayer must request any such change in method of

accounting using the non-automatic change procedures in Rev. Proc. 2015-13, 2015-5

I.R.B. 419. See section 8.03 of Rev. Proc. 2004-34.

(ii) Limited time to make change. This change does not apply to

taxable years beginning on or after January 1, 2021.

(2) Certain eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a

taxpayer that changes to a method of accounting provided under section 16.06(1)(a) of

this revenue procedure for the taxpayer’s first or second taxable year ending on or after

May 9, 2018.

(3) Concurrent automatic change to an overall accrual method. A taxpayer

making both a change to its method of accounting for advance payments under this

section 16.06 and a change to an overall accrual method under section 15.01 of this

revenue procedure for the same year of change must file a single Form 3115 for both

changes and enter the designated automatic accounting method change numbers for

both changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

 277

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under section

16.06(1)(a) of this revenue procedure to use the full-inclusion method is “83.” The

designated automatic accounting method change number for a change under section

16.06(1)(a) of this revenue procedure to use the deferral method is “84.”

(5) Contact information. For further information regarding a change under this

section, contact Maria Castillo-Valle at (202) 317-7003 (not a toll-free number).

.07 Retainages.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting for treating

retainages to a method consistent with the holding in Rev. Rul. 69-314, 1969-1 C.B.

139. A taxpayer changing its method of accounting for retainages under this section

16.07 must treat all retainages, that is both receivables and payables, in the same

manner.

(b) Inapplicability. This change does not apply to retainages (receivables

and payables) for long-term contracts that must be accounted for under the percentage-

of-completion method (PCM) under § 460. Nor does this change apply to long-term

contracts otherwise accounted for under the PCM or long-term contracts accounted for

under exempt percentage-of-completion method or the completed contract method. For

the treatment of retainages under such methods, see §§ 1.460-4(b)(4)(i)(A) and 1.460-

4(d)(3).

(2) Manner of making change.

 278

(a) Except as provided in section 16.07(2)(b) of this revenue procedure,

a taxpayer changing its method of accounting under this section 16.07 must take into

account a § 481(a) adjustment.

(b) For retainages received and paid in connection with long term

contracts that are exempt construction contracts (as defined in § 1.460-3(b)(1))

accounted for using the taxpayer’s overall accrual method of accounting, this change is

made on a cut-off basis and applies only to long-term contracts entered into on or after

the beginning of the year of change. See § 1.460-1(c)(2) for a description of when a

contract is treated as "entered into." Accordingly, a § 481(a) adjustment is neither

permitted nor required.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.07 for retainages not received under long-term contracts is "130." The

designated automatic method change number for a change under this section 16.07 for

retainages received under long-term contracts is “217.” A taxpayer making a change

under this section 16.07 that has both types of retainages must file a single Form 3115

and enter both change numbers on the appropriate line on Form 3115.

(4) Contact information. For further information regarding a change under

this section, contact Peter Cohn at (202) 317-7011 (not a toll-free number).

.08 Change in applicable financial statements (AFS) for purposes of applying

certain revenue recognition methods of accounting.

(1) Description of change.

(a) Applicability.
 279

(i) This change applies to a taxpayer that has an applicable financial

statement (AFS), as defined in section 4.06 of Rev. Proc. 2004-34, 2004-1 C.B. 991, as

modified and clarified by Rev. Proc. 2011-18, 2011-5 I.R.B. 443, and Rev. Proc. 2013-

29, 2013-33 I.R.B. 141, and as modified by Rev. Proc. 2011-14, 2011-4 I.R.B. 330, that:

(A) receives advance payments, as defined in section 4 of Rev. Proc. 2004-34, (B) uses

the deferral method described in section 5.02(3)(a) of Rev. Proc. 2004-34 for including

those advance payments in gross income in accordance with its AFS, (C) changes the

manner in which it recognizes advance payments in revenues in its AFS, and (D) wants

to change its method of accounting to use the new AFS method of recognizing advance

payments in revenues in its AFS for determining the extent to which advance payments

are included in gross income under Rev. Proc. 2004-34. See also Notice 2018-35,

2018-18 I.R.B. 520.

(ii) This change applies to a taxpayer that has an AFS, as defined in

proposed § 1.451-8(b)(2) (REG-104554-18; 84 FR 47191), that: (A) receives advance

payments, as defined in proposed § 1.451-8(b)(1); (B) uses the deferral method

described in proposed § 1.451-8(c); (C) changes the manner in which it recognizes

advance payments in revenues in its AFS; and (D) wants to change its method of

accounting to use the new AFS method of recognizing advance payments in revenues

in its AFS for determining the extent to which advance payments are included in income

under proposed § 1.451-8(c).

(iii) This change applies to a taxpayer with an AFS, as defined in §

451(b)(3), that: (A) includes amounts in income in accordance with § 451(b); (B)

changes the manner in which the item, or portion thereof, is taken into account in

revenue in its AFS, as defined in § 451(b)(3), including, if applicable, a change in the

 280

matter in which transaction price is allocated to performance obligations; and (C) wants

to change its method of accounting to use the new AFS method of taking into account

the item, or portion thereof, in revenue in its AFS for purposes of § 451(b)(1)(A),

including, if applicable, a change in the manner in which transaction price is allocated

for purposes of § 451(b)(4).

(iv) This change applies to a taxpayer with an AFS, as defined in

proposed § 1.451-3(c)(1) (REG-104870-18; 84 FR 47205), that: (A) includes amounts in

income in accordance with proposed § 1.451-3; (B) changes the manner in which the

item, or portion thereof, is taken into account as revenue in its AFS, including, if

applicable, a change in the manner in which transaction price is allocated to

performance obligations; and (C) wants to change its method of accounting to use the

new AFS method of taking into account the item, or portion thereof, in revenue in its

AFS for purposes of proposed § 1.451-3(b), including, if applicable, a change in the

manner in which transaction price is allocated for purposes of proposed § 1.451-3(g).

(v) This change applies to a taxpayer with an AFS, as defined in §

1.451-3(a)(5), that: (A) includes amounts in income in accordance with § 1.451-3; (B)

changes the manner in which the item, or portion thereof, is taken into account as AFS

revenue, as defined in § 1.451-3(a)(4), including, if applicable, a change in the manner

in which transaction price is allocated to performance obligations; and (C) wants to

change its method of accounting to use the new AFS method of taking into account the

item, or portion thereof, in AFS revenue for purposes of § 1.451-3(b)(1), including, if

applicable, a change in the manner in which transaction price is allocated for purposes

of § 1.451-3(d).
 281

(vi) This change applies to a taxpayer with an AFS, as defined in §

1.451-3(a)(5), that: (A) receives an advance payment, as defined in § 1.451-8(a)(1); (B)

uses the deferral method described in § 1.451-8(c); (C) changes the manner in which it

recognizes advance payments in AFS revenue, as defined in § 1.451-8(a)(4), including,

if applicable, a change in the manner in which payments are allocated to performance

obligations; and (D) wants to change its method of accounting to use the new AFS

method of recognizing advance payments in AFS revenue for purposes of determining

the extent to which advance payments are included in income under § 1.451-8,

including, if applicable, a change in the manner in which payments are allocated for

purposes of § 1.451-8(c)(8).

(b) Inapplicability.

(i) Changes relating to Rev. Proc. 2004-34. The change described in

section 16.08(1)(a)(i) of this revenue procedure does not apply to:

(A) a taxpayer that uses a present method of accounting for

advance payments that is not the deferral method described in section 5.02(3)(a) of

Rev. Proc. 2004-34. For example, this change does not apply to a taxpayer that uses

the full inclusion method under section 5.01 of Rev. Proc. 2004-34;

(B) a taxpayer that wants to change its method for allocating

payments under section 5.02(4) of Rev. Proc. 2004-34; or

(C) taxable years beginning on or after January 1, 2021.

(ii) Changes relating to § 451(b), proposed § 1.451-3, or proposed

§ 1.451-8. A change described in section 16.08(1)(a)(ii), (iii) or (iv) of this revenue

procedure does not apply to:

 282

(A) a taxpayer whose present method of accounting does not

comply with § 451(b) or proposed § 1.451-3, as applicable, for a change described in

section 16.08(1)(a)(iii) or (iv) of this revenue procedure;

(B) a taxpayer whose present method is not the deferral method

under proposed § 1.451-8(c), for a change described in section 16.08(1)(a)(ii) of this

revenue procedure. For example, this change does not apply to a taxpayer that uses

the full inclusion method under § 451(c)(1)(A) or proposed § 1.451-8(a), or the non-AFS

deferral method under proposed § 1.451-8(d);

(C) a taxpayer that wants to change its method for allocating

payments under § 451(c)(1)(D) or proposed § 1.451-8(c)(6);

(D) a taxpayer that wants to change its method for allocating

transaction price between performance obligations that are accounted for under §

451(b) or proposed § 1.451-3, and performance obligations that are accounted for

under a special method of accounting, as defined in § 451(b)(2) and proposed § 1.451-

3(c)(5); or

(E) taxable years beginning on or after January 1, 2021.

(iii) Changes relating to § 1.451-3 or § 1.451-8. A change described

in section 16.08(1)(a)(v) or (vi) of this revenue procedure does not apply to:

(A) a taxpayer whose present method of accounting is not

described in § 1.451-3, for a change described in section 16.08(1)(a)(v) of this revenue

procedure. A taxpayer that wants to change to a method of accounting described in §

1.451-3 must use section 16.10(2)(a)(v) of this revenue procedure to make such

change;
 283

(B) a taxpayer whose present method of accounting for advance

payments is not the deferral method under § 1.451-8(c), for a change described in

section 16.08(1)(a)(vi) of this revenue procedure. For example, this change does not

apply to a taxpayer that uses the full inclusion method under § 1.451-8(b) or the non-

AFS deferral method under § 1.451-8(d). However, this change does apply to a

taxpayer that uses both the cost offset method under § 1.451-8(e) and the deferral

method under § 1.451-8(c);

(C) a taxpayer that wants to change its method for allocating

payments described in § 1.451-8(c)(8)(iii); or

(D) a taxpayer that wants to change its method for allocating

transaction price for contracts described in § 1.451-3(d)(5).

(c) Restatements of AFS. A taxpayer’s restatement of its AFS for

financial accounting presentation does not affect the propriety of the taxpayer’s method

of accounting for revenue recognized in the prior taxable year(s). For example, if the

taxpayer properly uses the deferral method described in § 1.451-8(c) for including

advance payments in gross income in accordance with its AFS, the taxpayer satisfies

the requirement of section 16.08(1)(a)(vi) of this revenue procedure even if the AFS for

that taxable year is later restated and may change its method of accounting under this

section 16.08 if it is otherwise eligible.

(2) Manner of making change.

(a) Cut-off basis or a § 481(a) adjustment.

(i) Cut-off basis for certain changes.

(A) In general. Except as provided in section 16.08(2)(a)(i)(B) of

this revenue procedure, a change made under section 16.08(1)(a)(i), (ii), or (vi) of this
 284

revenue procedure is made on a cut-off basis and applies to advance payments

received by the taxpayer on or after the beginning of the year of change. Accordingly,

any advance payments received prior to the year of change (prior advance payments)

are accounted for under the taxpayer’s former method of accounting, and any advance

payments received in the year of change and in subsequent taxable years are

accounted for under the taxpayer’s new method of accounting. A taxpayer that changes

its method of allocating payments for purposes of § 1.451-8(c)(8)(i) must allocate any

payments received prior to the year of change using the taxpayer’s former method of

accounting. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(B) Section 481(a) adjustment for certain changes. If a taxpayer

makes a change under section 16.08(1)(a)(i), (ii), or (vi) of this revenue procedure, and

the AFS treatment of prior advance payments in the year of change or a subsequent

taxable year is relevant for purposes of determining the amount of such payments that

is required to be included in gross income in the year of change or a subsequent

taxable year, the taxpayer must implement the change with a § 481(a) adjustment as

provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13.

(ii) Cut-off basis or § 481(a) adjustment for certain changes. A taxpayer that

makes a change under section 16.08(1)(a)(iii) or (iv) of this revenue procedure as a

result of adopting the New Standards, as defined in section 16.09(1) of this revenue

procedure, in the year of change may implement the change with either a § 481(a)

adjustment as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13, or on a cut-off

basis. If the taxpayer implements the change on a cut-off basis,

(A) the change applies to contracts entered into on or after the beginning of

the year of change;

 285

(B) all changes made under section 16.08(1)(a)(iii) or (iv) of this revenue

procedure for the same year of change must be implemented using a cut-off basis; and

(C) a § 481(a) adjustment is neither permitted nor required.

(iii) Computing § 481(a) adjustments when the year of change is a year

in which the taxpayer implements a change in accounting principle with a retained

earnings adjustment. If the year of change is a year in which the taxpayer implements a

change in accounting principle for AFS purposes, including a change in the method of

applying an accounting principle for AFS purposes, and the change in accounting

principle is implemented with a retained earnings adjustment that is taken into account

during the year of change, the taxpayer is required to treat such adjustment as being

taken into account in the taxable year prior to the year of change for purposes of

computing the § 481(a) adjustment. An AFS change to adopt the New Standards, as

defined in section 16.09(1) of this revenue procedure, is an example of a change in

accounting principle.

(iv) Example. Computing a § 481(a) adjustment when the taxpayer

presently uses the AFS cost offset method - related accounts. B is in the trade or
business of selling computers. B uses an accrual method of accounting and computes
Federal income tax on a calendar-year basis and has an AFS, as defined in § 1.451-
3(a)(5). B is not under examination within the meaning of section 3.18 of Rev. Proc.
2015-13. B does not receive advance payments. For 2021, B makes two changes in
method of accounting to comply with § 1.451-3. Specifically, pursuant to section
16.10(2)(a)(iii)(A) of this revenue procedure, B changes its method of accounting for
gross income from the sale of computers to apply the AFS income inclusion rule and,
pursuant to section 16.10(2)(a)(iii)(C) of this revenue procedure, changes its method of
accounting to apply the AFS cost offset method. For 2022, B changes the manner in
which income from the sale of computers is taken into account as AFS revenue, as
defined in § 1.451-3(a)(4), and changes its method of accounting under section
16.08(1)(a)(v) of this section to use the new AFS method. However, B continues to use
the AFS cost offset method. In computing the § 481(a) adjustment resulting from the
change to the new method of computing AFS revenue for 2022 under section
16.08(1)(a)(v) of this revenue procedure, B must take into account its continued use of
the AFS cost offset method. See section 3.15 of Rev. Proc. 2015-13.
 286

(b) 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 and a statement in lieu of a Form 3115 is

authorized for a change made under this section 16.08. Notwithstanding the definition

of Form 3115 in section 3.07 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in

lieu of a Form 3115 that is permitted under this section 16.08 is considered a Form

3115 for purposes of the automatic consent procedures of Rev. Proc. 2015-13.

However, the requirement to file the duplicate copy, under section 6.03(1)(a) of Rev.

Proc. 2015-13, is waived. The statement attached to the taxpayer’s return for the year

of change must include the following information for each applicant:

(i) the designated automatic accounting change number for this

change, which is “153;”

(ii) the applicant’s name, employer identification number (or social

security number in the case of an individual), and type of applicant, as would be

provided had a Form 3115 been required;

(iii) the year of change (both the beginning and ending dates);

(iv) the type of AFS used by the applicant, as defined in applicable

guidance, and which change the applicant is making under section 16.08(1)(a) of this

revenue procedure. See section 4.06 of Rev. Proc. 2004-34, § 451(b)(3), proposed §

1.451-8(b)(2), proposed § 1.451-3(c)(1), § 1.451-3(a)(5); and/or § 1.451-8(a)(5), as

applicable;

(v) a detailed and complete description of each item affected by the

change in AFS revenue recognition and the line number (or schedule) where the

affected item is reflected on the federal income tax return for the year of change, and if

applicable, the § 481(a) adjustment for each change; and

 287

(vi) a detailed description of the basis used for AFS revenue

recognition (that is, the method the taxpayer uses in its AFS) both before and after the

AFS change.

(c) Concurrent automatic change. A taxpayer may make more than one

change under this section 16.08 on the same statement in lieu of a Form 3115 for the

same year of change. The taxpayer must separately provide all of the information

required for each change on that statement.

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13 does not apply to this change.

(4) No audit protection. A taxpayer does not receive audit protection under

section 8.01 of Rev. Proc. 2015-13 for this change. See section 8.02(2) of Rev. Proc.

2015-13.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.08 is “153.”

(6) Contact information. For further information regarding a change under

this section, contact Maria Castillo-Valle at (202) 317-7003 (not a toll-free number).

. 09 Changes in the timing of recognition of income due to the New Standards.

(1) Description of change. On May 28, 2014, the Financial Accounting

Standards Board (FASB) and the International Accounting Standards Board (IASB)

jointly announced new financial accounting standards for revenue recognition entitled

"Revenue from Contracts with Customers (Topic 606)" (New Standards). See FASB

Update No. 2014-09, and IASB International Financial Reporting Standard (IFRS) 15.

Under the New Standards, a taxpayer generally recognizes revenue for financial
 288

accounting purposes when the taxpayer satisfies a performance obligation by

transferring a promised good or service to a customer, as described in the New

Standards.

(2) Applicability. This change applies to a taxpayer that wants to change its

method of accounting for the recognition of income for federal income tax purposes to a

method under the New Standards for: (a) identifying performance obligations,

(b) allocating transaction price to performance obligations, and/or (c) considering

performance obligations satisfied. A taxpayer may request a change under this section

16.09 only if the taxpayer's new method of accounting is otherwise permissible for

federal income tax purposes and the change in method of accounting is made for the

taxable year in which the taxpayer adopts the New Standards for financial accounting

purposes.

(3) Inapplicability. This change does not apply to:

(a) a change in the manner in which the taxpayer identifies contracts or

determines the transaction price, including the inclusion and exclusion of variable

consideration in the transaction price, under the New Standards;

(b) a change in method of accounting for recognizing income that is

made in a year that is different from the year that the taxpayer adopts the New

Standards;

(c) a change in method of accounting that does not comply with § 451 or

other guidance;

(d) any change in method of accounting that qualifies under another

automatic change described in the List of Automatic Changes provided in this revenue

procedure (or any successor), even if it is described in section 16.09(2) of this revenue
 289

procedure, and otherwise satisfies the requirements of paragraphs 5.01(1)(a)-(d) of

Rev. Proc. 2015-13, 2015-5 I.R.B. 419 (or any successor). The taxpayer must request

such change(s) in method of accounting by applying the automatic change procedures

in section 6 of Rev. Proc. 2015-13 (or any successor) and the respective section of Rev.

Proc. 2022-14 (or any successor);

(e) any change in the method of accounting for income from a long-term

contract, as defined in § 460(f), unless the long-term contract is excepted from required

use of the percentage-of-completion method by § 460(e)(1); or

(f) an item of gross income that is required to be accounted for under §

451(b) or § 451(c). Accordingly, a taxpayer that wants to make a change in method of

accounting for an item of gross income to comply with § 451(b), the proposed § 451(b)

regulations (REG-104870-18; 84 FR 47205) (proposed § 1.451-3), the proposed §

451(c) regulations (REG-104554-18; 84 FR 47191) (proposed § 1.451-8), § 1.451-3

and/or § 1.451-8, as applicable, in the year in which it adopts the New Standards is not

permitted to do so under this section 16.09. See, however, sections 16.06, 16.08, or

16.10, as applicable, of this revenue procedure.

(4) Time for making change. The change under this section 16.09 may only

be made for a taxable year ending on or before May 10, 2022.

(5) Manner of making change.

(a) Cut-off basis or § 481(a) adjustment. A taxpayer making a change

under this section 16.09 may implement the change with either a § 481(a) adjustment

as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13, or on a cut-off basis. If the

taxpayer implements the change on a cut-off basis, (i) the taxpayer must allocate any

payments received prior to the year of change using the taxpayer's former method of
 290

accounting, (ii) all changes made under this section 16.09 must be implemented using a

cut-off basis, and (iii) a § 481(a) adjustment is neither permitted nor required. Changes

under this section 16.09 with regard to taxpayers who are members of consolidated

groups generally are governed by this section 16.09 rather than by § 1.1502-17(b)(2)

(applicable to changes in the application of the timing rules of § 1.1502-13 in accounting

for intercompany transactions (within the meaning of § 1.1502-13(b)(1)(i)). See §

1.1502-17(a) and (b)(1).

(b) Reduced filing requirement. A taxpayer making a change under this

section 16.09 is required to complete only the following information on Form 3115 (Rev.

December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13,16c, and 19; and

(v) Part IV, all lines. For a taxpayer making a change under this section

16.09 using a § 481(a) adjustment, the statement required for Line 26 of Form 3115

should list a description of each change, the § 481(a) adjustment for each change (or a

statement that the change is being made on a cut-off basis) and, if applicable, a

description of where the item's § 481(a) adjustment is reflected on the federal income

tax return (line number (or schedule)).

In addition, the requirement to file the duplicate copy, under section 6.03(1)(a) of

Rev. Proc. 2015-13, is waived.

 291

(6) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13 does not apply to this change for a taxable year ending on or

before May 10, 2022.

(7) No ruling on method used. The consent granted under section 9 of Rev.

Proc. 2015-13 for a change made under this section 16.09 is not a determination by the

Commissioner that the new method of accounting is a permissible method of accounting

and does not create any presumption that the allocation method is a permissible

method of accounting under any provision of the Code. Further, the consent granted

under section 9 of Rev. Proc. 2015-13 for a change made under this section 16.09 is

not a determination that the amount of income included in taxable income using an

allocation method described in the New Standards is correct. The director will ascertain

whether the new method of accounting is a permissible method of accounting and

whether the allocation method is permissible under the Code (for example, a method

that is permitted under § 451).

(8) Concurrent automatic change. A taxpayer that wants to make one or

more changes in method of accounting under this section 16.09 may file a single Form

3115 that includes all of the changes, must separately state the § 481(a) adjustment for

each change made under this section, and may not net the § 481(a) adjustments with

§ 481(a) adjustments from other changes.

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 16.09 is "231."

(10) Contact information. For further information regarding a change under

this section, contact Sharon Horn at (202) 317-7003 (not a toll-free number).
 292

.10 Changes in the timing of income recognition under § 451(b) and (c).

(1) Description of change.

(a) In general. This change applies to an accrual method taxpayer with

an applicable financial statement (AFS) that wants to make certain changes in method

of accounting described in section 16.10(2)(a) of this revenue procedure. This change

also applies to a taxpayer without an AFS that wants to make certain changes in

method of accounting described in section 16.10(2)(b) of this revenue procedure.

(b) Applicable terms. For this section 16.10, the term “AFS” is defined

under proposed § 1.451-3(c)(1) (REG-104870-18; 84 FR 47205) for a taxpayer making

a change to apply proposed § 1.451-3 and/or proposed § 1.451-8 (REG-104554-18; 84

FR 47191), as applicable, or under § 1.451-3(b)(5) for a taxpayer making a change to

apply § 1.451-3 and/or § 1.451-8, as applicable. Additionally, because a change to

comply with §§ 1.451-3, 1.451-8, and/or 1.1275-2(l), as applicable, is a change in

method of accounting to which the provisions of § 446 and the accompanying

regulations apply, the item being changed to comply with §§ 1.451-3, 1.451-8, and/or

1.1275-2(l), as applicable, is determined by applying § 446 and the accompanying

regulations. See §§ 1.451-3(l)(1) and 1.451-8(g)(2). In that regard, while §§ 451(b) and

(c) and the final regulations use the term “item of gross income” to generally refer to

income that arises under a specific contract, the term “item of gross income” is not

synonymous with the terms “item” or “material item” as used throughout the regulations

under § 446.

(2) Applicability.

(a) Taxpayer with an AFS. This change applies to an accrual method

taxpayer with an AFS that:

 293

(i) for a taxable year beginning before January 1, 2021, wants to change

to a method of accounting under proposed § 1.451-3 (including a change for a

specified credit card fee under proposed § 1.451-3(i) and proposed § 1.1275-2(l));

(ii) for a taxable year beginning before January 1, 2021, wants to change

to a method of accounting for advance payments under proposed § 1.451-8(a) or

(c);

(iii) wants to make one of the following changes under § 1.451-3:

(A) a change to comply with the AFS income inclusion rule in § 1.451-

3(b) under which the taxpayer determines the amount of an item of gross income

that is treated as “taken into account as AFS revenue” by making the AFS revenue

adjustments provided in § 1.451-3(b)(2)(i) (including a change for specified credit

card fees under §§ 1.451-3(j)(2) and 1.1275-2(l));

(B) a change to comply with the AFS income inclusion rule in § 1.451-

3(b) under which the taxpayer determines the amount of the item of gross income

that is “taken into account as AFS revenue” by making the AFS revenue

adjustments provided in § 1.451-3(b)(2)(ii) (including a change for specified credit

card fees under §§ 1.451-3(j)(2) and 1.1275(l)) (Alternative AFS Revenue Method);

(C) except as provided in section 16.10(2)(a)(iii)(E) of this section, a

change to apply the AFS cost offset method in § 1.451-3(c) to determine the

amount of an item of gross income from the sale of inventory that is required to be

included in gross income under the AFS income inclusion rule in § 1.451-3(b);

(D) a change from applying a cost offset method, including the AFS

cost offset method in § 1.451-3(c), to not applying a cost offset method to determine
 294

the amount of an item of gross income from the sale of inventory that is required to

be included in gross income under the AFS income inclusion rule in § 1.451-3(b);

(E) a change to comply with § 1.451-3(c)(5)(ii) as a result of a

concurrent cost-offset related inventory method change, as defined in section 5.06

of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost

of goods in progress offset by reference to costs that the taxpayer has

impermissibly capitalized and/or allocated under its present method of accounting

for inventory. This section 16.10(2)(a)(iii)(E) applies whether the taxpayer presently

uses a cost offset method, including the AFS cost offset method under § 1.451-3(c),

or is proposing to make, for the same year of change, a change to begin using the

AFS cost offset method pursuant to section 16.10(2)(a)(iii)(C) of this revenue

procedure;

(F) a change to comply with the transaction price allocation rules in §

1.451-3(d); or

(G) a change to a method of accounting described in § 1.451-3(h)(4)

when a taxpayer’s AFS covers mismatched reportable periods; or

(iv) wants to make one of the following changes in method of accounting

for advance payments under § 1.451-8:

(A) a change to the full inclusion method provided in § 1.451-8(b);

(B) a change to the deferral method provided in § 1.451-8(c);

(C) a change to the specified goods § 451(c) method described in §

1.451-8(f) to treat payments that otherwise qualify for the specified good exception,

as defined in § 1.451-8(a)(1)(ii)(H), as advance payments and account for such

 295

payments either under the full inclusion method provided in § 1.451-8(b) or under

the deferral method provided in § 1.451-8(c);

(D) except as provided in section 16.10(2)(a)(iv)(F) of this revenue

procedure, a change to apply the advance payment cost offset method in § 1.451-

8(e) to determine the amount of an advance payment from the sale of inventory that

is required to be included in gross income under either the full inclusion method in §

1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;

(E) a change from applying a cost offset method, including the

advance payment cost offset method in § 1.451-8(e), to not applying a cost offset

method to determine the amount of an advance payment from the sale of inventory

that is required to be included in gross income under either the full inclusion method

in § 1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;

(F) a change to comply with § 1.451-8(e)(8)(ii) as a result of a

concurrent cost-offset related inventory method change, as defined in section 5.06

of Rev. Proc. 2015-13 (or successor), or because the taxpayer presently

determines its cost of goods in progress offset by reference to costs that the

taxpayer has impermissibly capitalized and/or allocated under its present method of

accounting for inventory. This section 16.10(2)(a)(iv)(F) applies whether the

taxpayer presently uses a cost offset method, including the advance payment cost

offset method under § 1.451-8(e), or is proposing to make, for the same year of

change, a change to begin using the advance payment cost offset method pursuant

to section 16.10(2)(a)(iv)(D) of this revenue procedure;

 296

(G) a change to a method of accounting described in § 1.451-8(c)(7),

which refers to the methods described in § 1.451-3(h)(4), when a taxpayer’s AFS

covers mismatched reporting periods; or

(H) a change to comply with the payment allocation rules in § 1.451-

8(c)(8).

(b) Taxpayer without an AFS. This change applies to a taxpayer that does

not have an AFS that:

(i) for a taxable year beginning after December 31, 2017, and before

January 1, 2021, wants to change to a method of accounting for advance payments

under proposed § 1.451-8(a) or (d); or

(ii) wants to make one of the following changes in method of accounting

for advance payments under § 1.451-8:

(A) a change to the full inclusion method provided in § 1.451-8(b);

(B) a change to the deferral method provided in § 1.451-8(d)(3);

(C) except as provided in section 16.10(2)(b)(ii)(E) of this revenue

procedure, a change to apply the advance payment cost offset method in § 1.451-

8(e) to determine the amount of an advance payment from the sale of inventory that

is required to be included in gross income under either the full inclusion method in §

1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;

(D) a change from applying a cost offset method, including the

advance payment cost offset method in § 1.451-8(e), to not applying a cost offset

method to determine the amount of an advance payment from the sale of inventory

that is required to be included in gross income under either the full inclusion method

in § 1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;

 297

(E) a change to comply with § 1.451-8(e)(8)(ii) as a result of a

concurrent cost-offset related inventory method change, as defined in section 5.06

of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost

of goods in progress offset by reference to costs that the taxpayer has

impermissibly capitalized and/or allocated under its present method of accounting

for inventory. This section 16.10(2)(b)(ii)(E) applies whether the taxpayer presently

uses a cost offset method, including the advance payment cost offset method under

§ 1.451-8(e), or is proposing to make, for the same year of change, a change to

begin using the advance payment cost offset method pursuant to section

16.10(2)(b)(ii)(C) of this revenue procedure; or

(F) a change to a payment allocation method described in § 1.451-

8(d)(4)(ii).

(3) Inapplicability. Section 16.10(2) of this revenue procedure does not apply

to:

(a) a change in method of accounting to use a special method of

accounting, as defined in proposed § 1.451-3(c)(5) or § 1.451-3(a)(13), as

applicable;

(b) a change in method of allocating transaction price between item(s) of

gross income that are accounted for under proposed § 1.451-3 or § 1.451-3, as

applicable, and item(s) of gross income that are accounted for under a special

method of accounting, as defined in proposed § 1.451-3(c)(5) or § 1.451-

3(a)(14), as applicable, including a change to comply with § 1.451-3(d)(5);

(c) a change described in section 16.10(2)(a)(iii)(E), section

16.10(2)(a)(iv)(F) or section 16.10(2)(b)(ii)(E) of this revenue procedure, as

 298

applicable, if, immediately after such change is made, the taxpayer’s method of

accounting for cost offsets does not otherwise comply with the AFS cost offset

method under § 1.451-3(c) and/or the advance payment cost offset method

under § 1.451-8(e), as applicable;

(d) a change described in section 16.10(2)(a)(iii)(E), section

16.10(2)(a)(iv)(F) or section 16.10(2)(b)(ii)(E) of this revenue procedure,

including a change to comply with § 1.451-3(c)(5)(ii) or § 1.451-8(e)(8)(ii)

because the taxpayer determines its cost of goods in progress offset by

reference to costs that the taxpayer has impermissibly capitalized and/or

allocated under its present method of accounting for inventory, unless the

taxpayer makes, for the same year of change, the cost-offset related inventory

method change(s), as defined in section 5.06 of Rev. Proc. 2015-13;

(e) a change to use the AFS cost offset method if the taxpayer receives

advance payments from the sale of inventory and does not also make a change

to apply the advance payment cost offset method, or a change to use the

advance payment cost offset method if the taxpayer is required to include gross

income from the sale of inventory under § 1.451-3 and does not also make a

change to apply the AFS cost offset method;

(f) a change to use the deferral method in § 1.451-8(c) for allocable

payments described in § 1.451-8(c)(8)(iii)(A) (other than allocable payments

described in § 1.451-8(c)(8)(iii)(B));

(g) a taxpayer that presently uses the deferral method in § 1.451-8(c) for

allocable payments described in § 1.451-8(c)(8)(iii)(A) that wants to change its

 299

payment allocation method to an allocation method that is not described in §

1.451-8(c)(8)(iii)(B);

(h) a change to use the deferral method in § 1.451-8(d)(3) for allocable

payments described in § 1.451-8(d)(4)(i) other than either allocable payments

described in § 1.451-8(d)(4)(ii) or allocable payments that are wholly

attributable to two or more items described in § 1.451-8(a)(1)(i)(C);

(i) a taxpayer that presently uses the deferral method in § 1.451-8(d)(3)

for allocable payments described in § 1.451-8(d)(4)(i) that wants to change its

payment allocation method to an allocation method that is not described in §

1.451-8(d)(4)(ii);

(j) a taxpayer without an AFS that wants to change its method of

accounting for advance payments to the deferral method under proposed §

1.451-8(d)(3) or § 1.451-8(d)(3) under which the taxpayer determines the

extent to which an advance payment is earned by using the following: (i) a

statistical basis if adequate data are available to the taxpayer; or (ii) the use of

any other basis that in the opinion of the Commissioner results in a clear

reflection of income;

(k) a change in method of accounting for specified fees, as defined in

proposed § 1.451-3(i)(2) or § 1.451-3(j)(2), as applicable, other than specified

credit card fees;

(l) a change in method of accounting that qualifies under another

automatic change provided in this revenue procedure including, for example, a

change described in section 16.08 of this revenue procedure;

 300

(m) a change in method of accounting for a liability, as defined in §

1.446-1(c)(1)(ii)(B);

(n) a change in a taxpayer’s mismatched reporting periods method

described in § 1.451-3(h)(4) if the taxpayer uses the deferral method for

advance payments under § 1.451-8(c) and does not also change to the same

mismatched reporting periods method for purposes of accounting for advance

payments pursuant to § 1.451-8(c)(7) for the same year of change; or, if

applicable, a change in a taxpayer’s mismatched reporting periods method

pursuant to § 1.451-8(c)(7) if the taxpayer uses the deferral method for

advance payments under § 1.451-8(c) and does not also change to the same

mismatched reporting periods method for purposes of § 1.451-3(h)(4) for the

same year of change;

(o) a change in method of accounting for payments within the scope of

the specified good exception, as defined in § 1.451-8(a)(1)(ii), if the proposed

method of accounting is to include such payments in gross income under §

1.451-3 in one or more taxable years following the taxable year of receipt; and

(p) a taxpayer that makes one or more changes under section

16.10(2)(a)(iii) or (iv) of this revenue procedure for a taxable year that begins

before January 1, 2021, unless the taxpayer complies with all the requirements

in §§ 1.451-3(m)(3), 1.451-8(h)(2), and 1.1275-2(l)(2)(ii), as applicable.

(4) Manner of making change.

(a) Short Form 3115. A taxpayer making a change under this section

16.10 for its early application year, as defined in section 16.10(4)(c)(i) of this revenue

procedure, or in the case of a taxpayer that does not apply § 1.451-3 and/or § 1.451-8,
 301

as applicable, for a taxable year beginning before January 1, 2021, for its first taxable

year beginning on or after January 1, 2021, is required to complete the following

information on Form 3115 (Rev. December 2018), and the and the requirement to file

the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13 is waived:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, all lines except lines 13, 16c, and 19; and

(v) Part IV, all lines. For a taxpayer making a change under this

section 16.10, the statement required for Line 26 of Form 3115 should list the § 481(a)

adjustment(s).

(vi) Schedule B, all lines except line 1e.

(b) Special rules relating to § 481(a) adjustment or cut-off basis.

(i) Section 481(a) adjustment period for changes relating to

specified credit card fees. In the case of income from a specified credit card fee, the §

481(a) adjustment period for any qualified change in method of accounting described in

this section 16.10(4)(b)(i) is six taxable years, including the year of change and next five

taxable years. For purposes of the preceding sentence, a qualified change in method of

accounting is a change in method of accounting for income from a specified credit card

fee to a method that is required by § 451(b), as added by § 13221 of Public Law 115-97,

131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act

(TCJA), for such income, but only for the taxpayer’s first taxable year beginning after

December 31, 2018. Section 16.10(4)(b)(ii) of this revenue procedure may not be used

for a change relating to specified credit card fees.

 302

(ii) Cut-off basis or § 481(a) adjustment.

(A) In general. Changes under this section 16.10 with regard to

taxpayers who are members of consolidated groups generally are governed by this

section 16.10, rather than by § 1.1502-17(b)(2) (applicable to changes in the application

of the timing rules of § 1.1502-13 in accounting for intercompany transactions (within

the meaning of § 1.1502-13(b)(1)(i))). See § 1.1502-17(a) and (b)(1).

(B) Cut-off basis or § 481(a) adjustment for changes made under

section 16.10(2)(a)(i) of this revenue procedure when taxpayer is also adopting the New

Standards. Except as otherwise provided in this section 16.10(4)(b)(ii), a taxpayer

making a change described in section 16.10(2)(a)(i) of this revenue procedure may

implement the change with either a § 481(a) adjustment as provided in sections 7.02

and 7.03 of Rev. Proc. 2015-13 or on a cut-off basis provided the year of change is the

same year that the taxpayer adopts the New Standards, as defined in section 16.09 of

this revenue procedure. A taxpayer described in section 16.10(4)(c)(i)(B) or (C) of this

revenue procedure that uses the streamlined procedures provided in section 16.10(4)(c)

of this revenue procedure may not make a change in method of accounting on a cut-off

basis. If the taxpayer makes a change described in section 16.10(2)(a)(i) of this

revenue procedure for the taxable year in which it adopts the New Standards and

chooses to implement such change on a cut-off basis, (1) the change applies to

contracts entered into on or after the beginning of the year of change, (2) all changes

made under section 16.10(2)(a)(i) of this revenue procedure must be implemented

using a cut-off basis, and (3) a § 481(a) adjustment is neither permitted nor required.

(C) Cut-off basis or § 481(a) adjustment for certain changes under

proposed § 1.451-8(c). Except as otherwise provided in this section 16.10(4)(b)(ii), a

 303

taxpayer that changes its method of accounting for advance payments to the deferral

method under proposed § 1.451-8(c) (as described in section 16.10(2)(a)(ii) of this

revenue procedure), may implement the change with either a § 481(a) adjustment as

provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13 or on a cut-off basis. A

taxpayer described in section 16.10(4)(c)(i)(B) of this revenue procedure that uses the

streamlined procedures provided in section 16.10(4)(c) of this revenue procedure may

not make a change in method of accounting on a cut-off basis. If the taxpayer

implements the change on a cut-off basis, (1) the change applies to contracts entered

into on or after the beginning of the year of change, (2) all changes made under section

16.10(2)(a)(ii) of this revenue procedure to comply with proposed § 1.451-8(c) must be

implemented using a cut-off basis, and (3) a § 481(a) adjustment is neither permitted

nor required.

(D) Computing § 481(a) adjustments when the year of change is a

year in which the taxpayer implements a change in accounting principle with a retained

earnings adjustment. If the year of change is a year in which the taxpayer implements

a change in accounting principle for AFS purposes, including a change in the method

of applying an accounting principle for AFS purposes, and the change in accounting

principle is implemented with a retained earnings adjustment that is taken into account

during the year of change, the taxpayer is required to treat such adjustment as being

taken into account in the taxable year prior to the year of change for purposes of

computing the § 481(a) adjustment. An AFS change to adopt the New Standards, as

defined in section 16.09(1) of this revenue procedure, is an example of a change in

accounting principle.

(iii) Netting of the § 481(a) adjustment.

 304

(A) Required netting for changes made under § 1.451-3 related to

inventory sales. A taxpayer that makes a change described in section 16.10(2)(a)(iii)(C)

or (D) of this revenue procedure and one or more changes described in section

16.10(2)(a)(iii)(A), (B), and/or (G) of this revenue procedure for gross income from

inventory sales for the same year of change must provide a single net § 481(a)

adjustment for all such changes. The § 481(a) adjustment period described in section

7.03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(B) Required netting for changes made under § 1.451-8 related to

inventory sales for taxpayers with an AFS. A taxpayer that makes a change described

in section 16.10(2)(a)(iv)(D) or (E) of this revenue procedure and one or more changes

described in section 16.10(2)(a)(iv)(A), (B), (C), and/or (G) of this revenue procedure for

advance payments from the sale of inventory for the same year of change must provide

a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period

described in section 7.03 of Rev. Proc. 2015-13 is determined based on the net §

481(a) adjustment.

(C) Required netting for changes made under § 1.451-8 related to

inventory sales for taxpayers without an AFS. A taxpayer that makes a change

described in section 16.10(2)(b)(ii)(C) or (D) of this revenue procedure and one or more

changes in method of accounting described in section 16.10(2)(b)(ii)(A) or (B) of this

revenue procedure for advance payments from the sale of inventory for the same year

of change must provide a single net § 481(a) adjustment for all such changes. The §

481(a) adjustment period described in section 7.03 of Rev. Proc. 2015-13 is determined

based on the net § 481(a) adjustment.

 305

(D) Required netting for non-automatic method changes under §

1.451-3 and/or § 1.451-8 related to inventory sales. The rules in section 16.10(4)(b)(iii)

of this revenue procedure generally will apply to a non-automatic change under § 1.451-

3 and/or § 1.451-8 for which the netting rules of section 16.10(4)(b)(iii) of this revenue

procedure would otherwise apply if the taxpayer were eligible to make the change under

section 16.10 of this revenue procedure.

(iv) Special § 481(a) adjustment rules for cost offset method

change(s) under § 1.451-3 and/or § 1.451-8 made with corresponding cost-offset

related inventory method change(s).

(A) Required netting rule for changes described in section

16.10(2)(a)(iii)(E). A taxpayer that makes more than one method change under section

16.10(2)(a)(iii)(E) of this revenue procedure for the same year of change must provide a

single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for

this net § 481(a) adjustment is determined by applying the rules in section

16.10(4)(b)(iv)(D) of this revenue procedure.

(B) Required netting rule for changes described in section

16.10(2)(a)(iv)(F). A taxpayer that makes more than one method change under section

16.10(2)(a)(iv)(F) of this revenue procedure for the same year of change must provide a

single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for

this net § 481(a) adjustment is determined by applying the rules in section

16.10(4)(b)(iv)(D) of this revenue procedure.

(C) Required netting rule for changes described in section

16.10(2)(b)(ii)(E). A taxpayer that makes more than one method change under section

16.10(2)(b)(ii)(E) of this revenue procedure for the same year of change must provide a
 306

single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for

this net § 481(a) adjustment is determined by applying the rules in section

16.10(4)(b)(iv)(D) of this revenue procedure.

(D) Special § 481(a) adjustment period. For purposes of sections

7.02 and 7.03 of Rev. Proc. 2015-13, the § 481(a) adjustment period for a cost offset

change described in section 16.10(2)(a)(iii)(E), section 16.10(2)(a)(iv)(F), or section

16.10(2)(b)(ii)(E) of this revenue procedure, whether the § 481(a) adjustment is positive

or negative, is the same as the § 481(a) adjustment period for the corresponding cost-

offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-

13. The rules of section 7.02 and 7.03 of Rev. Proc. 2015-13, including the short period

rule and the accelerated adjustment period rules, apply to determine the § 481(a)

adjustment period for the § 481(a) adjustment for the cost-offset related inventory

method change, which is used to determine the § 481(a) adjustment period for a

positive or negative § 481(a) adjustment for the corresponding cost offset change

described in section 16.10(2)(a)(iii)(E), section 16.10(2)(a)(iv)(F), or section

16.10(2)(b)(ii)(E) of this revenue procedure. If the taxpayer must net the § 481(a)

adjustments for cost offset changes under section 16.10(4)(b)(iv)(A), (B) or (C) of this

revenue procedure, as applicable, the § 481(a) adjustment period for any such net §

481(a) adjustment is the same as the § 481(a) adjustment period for the corresponding

cost-offset related inventory method changes, determined by netting the § 481(a)

adjustments from such corresponding cost-offset related inventory method changes.

The requirement that the taxpayer net the § 481(a) adjustments for such corresponding

cost-offset related inventory method changes is solely for purposes of determining the §

481(a) adjustment period for the net § 481(a) adjustment determined under section
 307

16.10(4)(b)(iv)(A), (B), or (C), as applicable. This section 16.10(4)(b)(iv)(D) does not

apply if, after applying the netting rules in section 16.10(4)(b)(iv)(A), (B), or (C), as

applicable, the § 481(a) adjustment for the corresponding cost offset change(s) is zero.

For example, if the taxpayer makes a cost-offset related inventory method change that

is implemented on a cut-off basis and the § 481(a) adjustment for the taxpayer’s

corresponding change described in section 16.10(2)(a)(iii)(E), section 16.10(2)(a)(iv)(F),

or section 16.10(2)(b)(ii)(E) of this revenue procedure is zero as a result, this section

16.10(4)(b)(iv)(D) does not apply.

(v) Examples. For each of the following examples, the taxpayer

uses an accrual method of accounting, is on a calendar year, and has an AFS, as

defined in § 1.451-3(a)(5). The taxpayer implements § 1.451-3 and, if applicable, §

1.451-8, beginning with its 2021 taxable year.

(A) Example 1. Netting rules. A is engaged in a single trade or

business of selling and servicing computers. A is not under examination within the
meaning of section 3.18 of Rev. Proc. 2015-13. A does not receive advance payments.
For 2021, A makes multiple changes in method of accounting to apply § 1.451-3.
Specifically, A changes its method of accounting for gross income from the sale of
computers to apply the AFS income inclusion rule pursuant to section 16.10(2)(a)(iii)(A)
of this revenue procedure and to apply the AFS cost offset method pursuant to section
16.10(2)(a)(iii)(C) of this revenue procedure. A also changes its method of accounting
for gross income from computer services to apply the AFS income inclusion rule
pursuant to section 16.10(2)(a)(iii)(A) of this revenue procedure. Since A made a
change described in section 16.10(2)(a)(iii)(C) of this revenue procedure and a change
described in section 16.10(2)(a)(iii)(A) of this revenue procedure for gross income from
computer sales for the same year of change, A must net the § 481(a) adjustments
resulting from these changes in the manner required by section 16.10(4)(b)(iii)(A) of this
revenue procedure. The § 481(a) adjustment resulting from A’s change in method of
accounting for income from computer services under section 16.10(2)(a)(iii)(A) of this
revenue procedure is not netted with the § 481(a) adjustments resulting from the
computer sales method changes.

(B) Example 2. Special § 481(a) adjustment period under section

16.10(4)(b)(iv) of this revenue procedure. The facts are the same as in Example 1. For
2022, A changes its inventory method under section 12.01 of this revenue procedure
and, as a result, also changes its cost offset method to comply with § 1.451-3(c)(5)(ii)
 308

pursuant to section 16.10(2)(a)(iii)(E) of this revenue procedure. The cost-offset related

inventory method change under section 12.01 of this revenue procedure results in a
positive § 481(a) adjustment that is spread over four taxable years under section 7.01
and 7.03 of Rev. Proc. 2015-13. The cost offset method change under section
16.10(2)(a)(iii)(E) of this revenue procedure results in a negative § 481(a) adjustment.
Section 16.10(4)(b)(iv)(D) of this revenue procedure requires A to spread the negative §
481(a) adjustment over four taxable years consistent with the § 481(a) adjustment
period for the concurrent cost-offset related inventory method change under section
12.01 of this revenue procedure.

(c) Streamlined method change procedures for certain taxpayers.

(i) Applicability. The procedures described in this section

16.10(4)(c) may be used by a taxpayer to make a change in method of accounting

described in section 16.10(2)(a)(iii)(A), (B), (F), and/or (G), section 16.10(2)(a)(iv)(A),

(B), (C), (G), and/or (H), or section 16.10(2)(b)(ii)(A), (B), and/or (F) of this revenue

procedure for the taxpayer’s early application year, provided the taxpayer meets the

requirements in this section 16.10(4)(c). For purposes of this section 16.10, a

taxpayer’s “early application year” means the taxable year beginning before January 1,

2021, in which a taxpayer first applies § 1.451-3 and/or § 1.451-8, as applicable. In

addition, in the case of a taxpayer that does not apply § 1.451-3 and/or § 1.451-8 for a

taxable year beginning before January 1, 2021, the procedures described in this section

16.10(4)(c) may be used to make a change in method of accounting described in

section 16.10(2)(iii)(A), (B), (F), and/or (G), section 16.10(2)(a)(iv)(A), (B), (C), (G),

and/or (H), or section 16.10(2)(b)(ii)(A), (B), and/or (F) of this revenue procedure, for the

taxpayer’s first taxable year beginning on or after January 1, 2021, provided the

taxpayer meets the requirements in section 16.10(4)(c). A taxpayer may not use the

streamlined procedures for any change in method of accounting described in section

16.10(2) of this revenue procedure if the taxpayer is also making a change in method of

accounting described in sections 16.10(2)(a)(iii)(C), (D), and/or (E), sections

 309

16.10(2)(a)(iv)(D), (E), and/or (F), or sections 16.10(2)(b)(ii)(C), (D), and/or (E) of this

revenue procedure for the same year of change. In addition, a taxpayer may not use

the streamlined procedures if one or more of the inapplicability rules provided in section

16.10(3) of this revenue procedure applies to the change. A taxpayer that is otherwise

permitted to use the streamlined method change procedures in this section 16.10(4)(c)

may use these streamlined procedures if the taxpayer meets one of the following

requirements:

(A) the taxpayer, other than a tax shelter, as defined in

§ 448(d)(3), meets the § 448(c) gross receipts test (a “small business taxpayer”) for the

year of change. The taxpayer meets the § 448(c) gross receipts test if the taxpayer has

average annual gross receipts for the three prior taxable years of $25,000,000 or less

(adjusted for inflation). See § 448(c)(4). For a taxable year beginning in 2019, 2020, or

2021, the inflation-adjusted amount is $26,000,000. See Rev. Proc. 2018-57, 2018-49

I.R.B. 827, Rev. Proc. 2019-44, 2019-47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46

I.R.B. 1016, as applicable. For a taxable year beginning in 2022, the inflation-adjusted

amount is $27,000,000. See Rev. Proc. 2021-45, 2021-48 I.R.B. 764;

(B) the taxpayer is making one or more changes described

in section 16.10(2)(a)(iii)(A), (B), (F), and/or (G) of this revenue procedure, and the §

481(a) adjustment required by each of the changes is zero. A taxpayer that meets this

requirement is permitted to make the changes described in section 16.10(2)(a)(iii)(A),

(B), (F), and/or (G) of this revenue procedure under the streamlined method change

procedures. Notwithstanding any provisions of this section 16.10, a taxpayer making

more than one change in method of accounting under section 16.10(2)(a)(iii)(A), (B),

(F), and/or (G) of this revenue procedure for the same year of change is not permitted to
 310

net the § 481(a) adjustments to determine if the taxpayer meets the requirements to use

the streamlined method change procedures. See section 16.10(7)(a) of this revenue

procedure for more information on making concurrent changes; or

(C) the taxpayer is making one or more changes described

in section 16.10(2)(a)(iv)(A), (B), (C), (G), and/or (H), or section 16.10(2)(b)(ii)(A), (B),

and/or (F) of this revenue procedure, and the § 481(a) adjustment required by each of

the changes is zero. A taxpayer that meets this requirement is permitted to make the

changes described in section 16.10(2)(a)(iv)(A), (B), (C), (G), and/or (H), or section

16.10(2)(b)(ii)(A), (B), and/or (F) of this revenue procedure under the streamlined

method change procedures. Notwithstanding any provisions of this section 16.10, a

taxpayer making more than one change in method of accounting under section 16.10(2)

for the same year of change is not permitted to net the § 481(a) adjustments to

determine if the taxpayer meets the requirements to use the streamlined method

change procedures. See section 16.10(7)(a) of this revenue procedure for more

information on making concurrent changes.

(ii) No Form 3115 required. 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 a taxpayer making

a change in method of accounting under this section 16.10 using the streamlined

method change procedures. Thus, a taxpayer using the streamlined method change

procedures is not required to file a Form 3115 and is not required to attach a separate

statement when making a change under this section 16.10.

(d) Certain cost offset changes made on an amended return.

(i) In general. Notwithstanding section 6.03(1)(a) of Rev. Proc.

2015-13, a taxpayer making a change described in section 16.10(2)(a)(iii)(E), section

 311

16.10(2)(a)(iv)(F), or section 16.10(2)(b)(ii)(E) of this revenue procedure, as applicable,

which corresponds to a cost-offset related inventory method change filed under the non-

automatic change procedures of Rev. Proc. 2015-13 for the same year of change may

make the corresponding cost offset change described in section 16.10(2)(a)(iii)(E),

section 16.10(2)(a)(iv)(F), or section 16.10(2)(b)(ii)(E) on an amended federal income

tax return for the cost offset year of change (as defined in section 16.10(4)(d)(ii) of this

revenue procedure) provided:

(A) the taxpayer received consent for the cost-offset related

inventory method change filed under the non-automatic change procedures for the year

of change after the time the taxpayer was required to file the original Form 3115 for the

corresponding cost offset change under section 16.10(2)(a)(iii)(E), section

16.10(2)(a)(iv)(F), or section 16.10(2)(b)(ii)(E) of this revenue procedure, as applicable,

in accordance with section 6.03(1)(a)(i)(A) of Rev. Proc. 2015-13 for the cost offset year

of change;

(B) the taxpayer timely signs and returns the Consent

Agreement for the non-automatic corresponding cost-offset related inventory method

change in accordance with section 11.03(2)(c)(i) of Rev. Proc. 2015-13, and timely

implements such non-automatic change in accordance with section 11.03(2)(c)(ii)(A) or

(B) of Rev. Proc. 2015-13;

(C) the taxpayer implements the corresponding cost offset

method change described in section 16.10(2)(a)(iii)(E), section 16.10(2)(a)(iv)(F), or

section 16.10(2)(b)(ii)(E) of this revenue procedure, as applicable, on the same

amended federal income tax return that the taxpayer implements the cost-offset related
 312

inventory method change described in section 16.10(4)(d)(i)(A) of this revenue

procedure; and

(D) the taxpayer’s amended federal income tax return for the

year of change includes any adjustments to taxable income or tax liability resulting from

the change(s) in method of accounting for the cost-offset related inventory method

change(s) specified in the letter ruling and the corresponding cost offset method

change(s).

(ii) Cost offset year of change. For purposes of this section

16.10(4)(d), a taxpayer’s cost offset year of change is the same year of change that the

taxpayer received consent under the non-automatic change procedures for the cost-

offset inventory related change.

(iii) Filing requirements. Notwithstanding section 6.03(1)(a) of Rev.

Proc. 2015-13, a taxpayer making a change under section 16.10(2)(a)(iii)(E), section

16.10(2)(a)(iv)(F), or section 16.10(2)(b)(ii)(E) of this revenue procedure in accordance

with section 16.10(4)(d) of this revenue procedure must attach the original Form 3115 to

the taxpayer’s timely filed amended federal income tax return for the cost offset year of

change and must file the duplicate copy (with signature) of the Form 3115 with the IRS

in Ogden, UT, no later than the date the taxpayer timely files the amended federal

income tax return that implements the cost-offset related inventory method described in

section 16.10(4)(d)(i)(A) of this revenue procedure, as provided in section

11.03(2)(c)(ii)(A) or (B) of Rev. Proc. 2015-13.

(5) Eligibility rules inapplicable.

(a) Eligibility rule temporarily inapplicable for changes under sections

16.10(2)(a)(i), (2)(a)(ii), or (2)(b)(i) of this revenue procedure. Except as otherwise

 313

provided in section 16.10(5)(c) of this revenue procedure, the eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a change under section

16.10(2)(a)(i), (a)(ii) or (2)(b)(i) of this revenue procedure for a taxpayer's first, second

or third taxable year beginning after December 31, 2017, provided the taxable year

begins before January 1, 2021.

(b) Eligibility rule temporarily inapplicable for changes under sections

16.10(2)(a)(iii), (2)(a)(iv), or (2)(b)(ii) of this revenue procedure. Except as otherwise

provided in section 16.10(5)(c) of this revenue procedure, for a taxpayer that applies §

1.451-3 and/or § 1.451-8, as applicable, for a taxable year beginning before January 1,

2021, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a

change under section 16.10(2)(a)(iii), (2)(a)(iv), or (2)(b)(ii) of this revenue procedure for

a taxpayer’s early application year, as defined in section 16.10(4)(c)(i) of this revenue

procedure. Except as otherwise provided in this section 16.10(5), for a taxpayer that

does not apply § 1.451-3 and/or § 1.451-8 for a taxable year beginning before January

1, 2021, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a

change under section 16.10(2)(a)(iii), (2)(a)(iv), or (2)(b)(ii) of this revenue procedure for

a taxpayer’s first taxable year beginning on or after January 1, 2021.

(c) Changes related to specified credit card fees. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a specified credit card fee

change made under section 16.10(2)(a)(i) of this revenue procedure for a taxpayer’s

first or second taxable year beginning after December 31, 2018, provided the taxable

year begins before January 1, 2021. In addition, for a taxpayer that applies § 1.451-3

and § 1.1275-2(l) for specified credit card fees for a taxable year beginning before

January 1, 2021, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not
 314

apply to a specified credit card fee change under section 16.10(2)(a)(iii) of this revenue

procedure for the taxpayer’s early application year, as defined in section 16.10(4)(c)(i)

of this revenue procedure. For a taxpayer that does not apply § 1.451-3 and § 1.1275-

2(l) for specified credit card fees for a taxable year beginning before January 1, 2021,

the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a

specified credit card fee change under section 16.10(2)(a)(iii) of this revenue procedure

for the taxpayer’s first taxable year beginning on or after January 1, 2021.

(d) Certain cost offset method changes. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a change under section

16.10(2)(a)(iii)(E), section 16.10(2)(a)(iv)(F) or section 16.10(2)(b)(ii)(E) of this revenue

procedure.

(e) Certain changes with § 481(a) adjustment of zero disregarded for

eligibility rule. A change made under section 16.10(2)(a)(iii)(A), (B), (F) and/or (G),

section 16.10(2)(a)(iv)(A), (B), (C), (G) and/or (H), or section 16.10(2)(b)(ii)(A), (B),

and/or (F) of this revenue procedure will be disregarded for purposes of section

5.01(1)(f) of Rev. Proc. 2015-13 if the change meets the following requirements:

(i) the change is made for the taxpayer’s early application year, as

defined in section 16.10(4)(c)(i) of this revenue procedure or, in the case of a taxpayer

that does not apply § 1.451-3 and/or § 1.451-8 for a taxable year beginning before

January 1, 2021, for the taxpayer’s first taxable year beginning on or after January 1,

2021, and

(ii) the § 481(a) adjustment required to implement the change is

zero.
 315

Notwithstanding any provisions of this section 16.10, a taxpayer that

makes more than one change in method of accounting described in this section

16.10(5)(e) for the same year of change is not permitted to net the § 481(a) adjustments

from such changes to determine if the requirement in section 16.10(5)(e)(ii) of this

revenue procedure is satisfied.

(f) Example. Application of section 5.01(1)(f) of Rev. Proc. 2015-13. B,

a calendar year taxpayer, is engaged in a single trade or business of selling
computers. B is not under examination within the meaning of section 3.18 of Rev. Proc.
2015-13. B does not receive advance payments. B presently recognizes gross income
from the sale of computers in the taxable year it begins manufacturing the computer
without regard to whether there is a contract with a customer, and does not apply a cost
offset method. For 2020, B makes a change in method of accounting for gross income
from the sale of computers under section 16.10(2)(a)(iii)(A) of this revenue procedure to
apply the AFS income inclusion rule under § 1.451-3(b). Unless a waiver of eligibility
applies, section 5.01(1)(f) of Rev. Proc. 2015-13 applies to prevent B from automatically
changing its method of accounting for gross income from the sale of computers under
section 16.10(2)(a)(iii)(C) of this revenue procedure to apply the AFS cost offset method
under § 1.451-3(c) for any of the four taxable years succeeding the 2020 year of change
(taxable year 2021 through 2024) because the 2020 change was for the same item.

(6) Audit protection.

(a) Streamlined procedures. A taxpayer making a change in method of

accounting under this section 16.10 using the streamlined method change procedures

provided in section 16.10(4)(c) of this revenue procedure does not receive audit

protection under section 8.01 of Rev. Proc. 2015-13.

(b) Taxpayers under examination.

(i) In general – certain audit protection exception temporarily

inapplicable. Except as otherwise provided in this section 16.10(6)(b)(ii) and (iii) of this

revenue procedure, for a taxpayer’s first, second or third taxable year beginning after

December 31, 2017, and before January 1, 2021, section 8.02(1) of Rev. Proc. 2015-13

does not apply to a change in method of accounting made under section 16.10(2)(a)(i),
 316

(2)(a)(ii) or (2)(b)(i) of this revenue procedure. In addition, except as otherwise provided

in section 16.10(6)(b)(ii) and (iii) of this revenue procedure, for a taxpayer that applies §

1.451-3 and/or § 1.451-8, as applicable, for a taxable year beginning before January 1,

2021, section 8.02(1) of Rev. Proc. 2015-13, does not apply to change a method of

accounting made under section 16.10(2)(a)(iii), (2)(a)(iv) or (2)(b)(ii) of this revenue

procedure for a taxpayer’s early application year, as defined in section 16.10(4)(c)(i) of

this revenue procedure. Except as otherwise provided in section 16.10(6)(b)(ii) and (iii)

of this revenue procedure, for a taxpayer that does not apply § 1.451-3 or § 1.451-8 for

a taxable year beginning before January 1, 2021, section 8.02(1) of Rev. Proc. 2015-13

does not apply to a change in method of accounting made under section 16.10(2)(a)(iii),

(2)(a)(iv), or (2)(b)(ii) of this revenue procedure for a taxpayer’s first taxable year

beginning on or after January 1, 2021. In addition, except as otherwise provided in

section 16.10(4) of this revenue procedure, section 8.02(1) of Rev. Proc. 2015-13

continues to apply for purposes of determining the § 481(a) adjustment period provided

in section 7.03(3)(b) of Rev. Proc. 2015-13.

(ii) Changes related to specified credit card fees. Except as otherwise

provided in section 16.10(6)(b)(iii) of this revenue procedure, for a taxpayer’s first or

second taxable year beginning after December 31, 2018, and before January 1, 2021,

section 8.02(1) of Rev. Proc. 2015-13 does not apply to a change under section

16.10(2)(a)(i) of this revenue procedure for specified credit card fees. In addition,

except as otherwise provided in section 16.10(6)(b)(iii) of this revenue procedure, for a

taxpayer that applies § 1.451-3 and § 1.1275-2(l) to specified credit card fees for a

taxable year beginning before January 1, 2021, section 8.02(1) of Rev. Proc. 2015-13

does not apply to a change for specified credit card fees under section 16.10(2)(a)(iii) of
 317

this revenue procedure for the taxpayer’s early application year, as defined in section

16.10(4)(c)(i) of this revenue procedure. Except as otherwise provided in section

16.10(6)(b)(iii) of this revenue procedure, for a taxpayer that does not apply § 1.451-3

and § 1.1275-2(l) to specified credit card fees for a taxable year beginning before

January 1, 2021, section 8.02(1) of Rev. Proc. 2015-13 does not apply to a change for

specified credit card fees under section 16.10(2)(a)(iii) of this revenue procedure for the

taxpayer’s first taxable year beginning on or after January 1, 2021. In addition, except

as otherwise provided in section 16.10(4)(b)(i) of this revenue procedure, section

8.02(1) of Rev. Proc. 2015-13 continues to apply for purposes of determining the

§ 481(a) adjustment period provided in section 7.03(3)(b) of Rev. Proc. 2015-13.

(iii) Exception. Sections 16.10(6)(b)(i) and (ii) of this revenue

procedure do not apply to a taxpayer that uses the streamlined method change

procedures under section 16.10(4)(c) of this revenue procedure.

(iv) No audit protection for certain cost offset changes. For a taxpayer

under examination that makes a change in method of accounting under section

16.10(2)(a)(iii)(E), section 16.10(a)(iv)(F), or section 16.10(2)(b)(ii)(E) of this revenue

procedure, the taxpayer does not receive audit protection under section 8.01 of Rev.

Proc. 2015-13 for such change if, at the time of filing, the taxpayer’s method of

accounting for the item being changed by the corresponding cost-offset related

inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or

successor), is an issue under consideration for the taxable year under examination.

However, if the taxpayer ultimately receives audit protection for the corresponding cost-

offset related inventory method change under section 8.02(1)(f) of Rev. Proc. 2015-13,
 318

then the preceding sentence does not apply and the normal audit protection rules in

section 8 of Rev. Proc. 2015-13 apply.

(7) Concurrent automatic changes.

(a) Changes under this section 16.10. A taxpayer that wants to make one

or more concurrent changes in method of accounting under this section 16.10 may file a

single Form 3115 that includes all of the changes. Except as otherwise required by

section 16.10(4)(b)(iii) of this revenue procedure, the taxpayer may not net the § 481(a)

adjustment from one change with the § 481(a) adjustment from another change, and

must separately state the § 481(a) adjustment for each change. If a taxpayer makes a

concurrent change in method of accounting to allocate transaction price and/or

payments under section 16.10(2)(a)(i), (iii), or (iv) or section 16.10(2)(b)(ii) of this

revenue procedure, the taxpayer is required to make the allocation change before any

other change described in section 16.10(2)(a)(i), (iii), or (iv) or section 16.10(2)(b)(ii) of

this revenue procedure, as applicable.

(b) Concurrent cost offset change and cost-offset related inventory method

change. See section 6.03(1)(b) of Rev. Proc. 2015-13 for a taxpayer that makes one or

more change(s) under section 16.10(2)(a)(iii)(E), (a)(iv)(F), or (b)(ii)(E) of this revenue

procedure and one or more cost-offset related inventory method change(s), as defined

in section 5.06 of Rev. Proc. 2015-13, under this revenue procedure in the same year of

change. Additionally, such taxpayer is required to implement the cost-offset related

inventory method change(s) under this revenue procedure before it implements the

corresponding change(s) under section 16.10(2)(a)(iii)(E), (a)(iv)(F), or (b)(ii)(E) of this

revenue procedure, as applicable. A taxpayer that makes a change under section

16.10(2)(a)(iii)(C) and (E) and/or section 16.10(2)(a)(iv)(D) and (F), or section

 319

16.10(2)(b)(ii)(C) and (E) of this revenue procedure, as applicable, for the same year of

change is required to implement the change under section 16.10(2)(a)(iii)(C),

16.10(2)(a)(iv)(D), or 16.10(2)(b)(ii)(C) of this revenue procedure, as applicable, before

it implements any cost-offset related inventory method change(s), as defined in section

5.06 of Rev. Proc. 2015-13, and the change(s) under section 16.10(2)(a)(iii)(E),

16.10(2)(a)(iv)(F), or 16.10(2)(b)(ii)(E) of this revenue procedure, as applicable.

(8) Limited Applicability. Notwithstanding the inapplicability rules in

section 16.10(3) of this revenue procedure, the changes described in section

16.10(2)(a)(iii)(A) and (B) of this revenue procedure are applicable only for taxable

years beginning before January 1, 2021, and for a taxpayer’s first, second or third

taxable year beginning after December 31, 2020.

(9) Designated automatic accounting method change number. See the

following tables for the designated automatic method change number (DCN) for the

changes in method of accounting under this section 16.10.

(a) Changes under proposed §§ 1.451-3 and 1.451-8.

Timing of Income Recognition - Taxpayer with an AFS:

SECTION # in DESIGNATED
Description of change REV. PROC. 2022- CHANGE NUMBER
14 (DCN)
Changes to proposed § 1.451-3 16.10(2)(a)(i) 242
Changes to account for advance
payments under proposed 16.10(2)(a)(ii) 242
§ 1.451-8(a) or (c)
 320

Timing of Income Recognition - Taxpayer without an AFS:

SECTION # in DESIGNATED
Description of change REV. PROC. 2022- CHANGE NUMBER
14 (DCN)
Changes to account for advance
payments under proposed § 16.10(2)(b)(i) 242
1.451-8(a) or (d)

(b) Changes under the final regulations of §§ 1.451-3 and 1.451-8.

DESIGNATED
SECTION # in REV.
Description of change CHANGE NUMBER
PROC. 2022-14
(DCN)
Changes related to § 1.451-3 16.10(2)(a)(iii)(A), (B),
250
other than cost offset (F), (G)
Changes related to cost offset
under § 1.451-3, except
16.10(2)(a)(iii)(C), (D) 251
concurrent cost-offset related
inventory method changes
Changes related to the deferral 16.10(2)(a)(iv)(B), (C),
method for advance payments - (G) and (H), 252
§ 1.451-8 other than cost offset 16.10(2)(b)(ii)(B) or (F)
Changes related to cost offset
under § 1.451-8, except 16.10(2)(a)(iv)(D), (E),
253
concurrent cost-offset related 16.10(2)(b)(ii)(C) or (D)
inventory method changes
Changes related to full-inclusion 16.10(2)(a)(iv)(A) and (C),
254
method under § 1.451-8(b) 16.10(2)(b)(ii)(A)
Changes related to cost offsets 16.10(2)(a)(iii)(E),
resulting from concurrent cost- 16.10(2)(a)(iv)(F), and 255
offset related inventory changes 16.10(2)(b)(ii)(E)

(10) Contact information. For further information regarding a change under

this section, contact Sharon Horn at (202) 317-7003 (not a toll-free number). For further

information regarding a change under this section for OID and specified fees (including

specified credit card fees), contact Deepan Patel at (202) 317-3423 (not a toll-free

number).
 321

SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)

.01 Series E, EE or I U.S. savings bonds.

(1) Description of change. This change applies to a taxpayer that uses the

overall cash receipts and disbursements (cash) method of accounting and that wants to

change its method of accounting for interest income on Series E, EE, or I U.S. savings

bonds. However, this change only applies to a taxpayer that previously made an

election under § 454 to report as interest income the increase in redemption price on a

bond occurring in a taxable year, and that now wants to report this income in the taxable

year in which the bond is redeemed, disposed of, or finally matures, whichever is

earliest.

(2) Manner of making change and designated automatic accounting method

change number.

(a) This change is made on a cut-off basis and is effective for any

increase in redemption price occurring after the beginning of the year of change for all

Series E, EE and I U.S. savings bonds held by the taxpayer on or after the beginning of

the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor

required.

(b) 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 and a statement in lieu of a Form 3115 is

authorized for this change. Notwithstanding the definition of Form 3115 in section 3.07

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in lieu of a Form 3115 that is

permitted under this section 17.01 is considered a Form 3115 for purposes of the

automatic consent procedures of Rev. Proc. 2015-13. However, the requirement to file
 322

the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived. The

statement must include the following information:

(i) the designated automatic accounting method change number for

this change, which is “131”;

(ii) the taxpayer’s name and employer identification number or social

security number, as applicable;

(iii) the year of change (both the beginning and ending dates);

(iv) the Series E, EE or I U.S. savings bonds for which this change in

accounting method is requested;

(v) a statement that the taxpayer will report all interest on any U.S.

savings bonds acquired during or after the year of change when the interest is realized

upon disposition, redemption, or final maturity, whichever is earliest; and

(vi) a statement that the taxpayer will report all interest on the U.S.

savings bonds acquired before the year of change when the interest is realized upon

disposition, redemption, or final maturity, whichever is earliest, with the exception of any

interest income previously reported in prior taxable years.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 17.01 is “131.”

(4) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455)

.01 Prepaid subscription income.
 323

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to change its method of accounting for

prepaid subscription income to the method described in § 455 and the regulations

thereunder, including an eligible taxpayer that wants to make the “within 12 months”

election under § 1.455-2.

(2) Manner of making change and designated automatic accounting method

change number.

(a) Cut-off basis. This change is made on a cut-off basis and applies

only to prepaid subscription income received on or after the beginning of the year of

change. The taxpayer must continue to account for prepaid subscription income

received prior to the year of change under the taxpayer’s present method of accounting.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) Short Form 3115 in lieu of a standard Form 3115. In accordance with

§ 1.446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a standard Form 3115 is

waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized for a change described in section 18.01(a) of this revenue procedure. The

requirement in § 1.455-6 to file a statement requesting consent is satisfied by filing such

short Form 3115. The short Form 3115 (Rev. December 2018) must include the

following information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a);

(iv) the information described in § 1.455-6(a), as required by § 1.455-

6(b); and
 324

(v) if the taxpayer wants to make a “within 12 months” election under

§ 1.455-6(c), the information described in section § 1.455-6(c)(2).

(c) Section 455 election made with consent. The consent granted in

section 9 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, satisfies the consent required under

§ 455(c)(3) and § 1.455-6(b).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 18.01 is “132.”

(4) Contact information. For further information regarding a change under

this section, contact Patrick Clinton at (202) 317-7005 (not a toll-free number).

SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

.01 Small business taxpayer exceptions from requirement to account for certain

long-term contracts under § 460 or to capitalize costs under § 263A for certain home

construction contracts.

(1) Description of change. This change applies to a taxpayer that (a) wants

to change its method of accounting for exempt long-term construction contracts

described in § 460(e)(1)(B) from the percentage-of-completion method of accounting

described in § 1.460-4(b) to an exempt contract method of accounting described in

§ 1.460-4(c); or (b) chooses to stop capitalizing costs under § 263A for home

construction contracts described in § 460(e)(1)(A) and meets the requirements of

§ 460(e)(1)(B)(i) and (ii).

(2) Inapplicability. A taxpayer can use a method of accounting for its exempt

long-term contracts that is different from the method used for contracts that are not

exempt. Thus, a taxpayer must use the percentage-of-completion method of

 325

accounting for nonresidential long-term construction contracts that do not meet the

requirements of § 460(e)(1)(B), proposed §1.460-3(b)(1)(ii), or §1.460-3(b)(1)(ii), as

applicable, in the first taxable year it enters into such a contract, but must continue to

use its exempt contract method of accounting for its existing exempt long-term

construction contracts. Similarly, in the first taxable year that a taxpayer enters into a

nonresidential long-term construction contract that meets the requirements of

§ 460(e)(1)(B), proposed §1.460-3(b)(1)(ii), or §1.460-3(b)(1)(ii), as applicable, the

taxpayer can use a permissible exempt contract method of accounting for such a

contract. Rev. Rul. 92-28, 1992-1 C.B. 153. Accordingly, only a taxpayer who

previously adopted the percentage-of-completion method of accounting for exempt

long-term construction contracts and wants to change to another permissible exempt

contract method of accounting is required to request consent to change under this

section 19.01. Similarly, a taxpayer that enters into a home construction contract

described in § 460(e)(1)(A) and that meets the requirements of § 460(e)(1)(B)(i) and (ii)

requires consent to change its method of accounting to not capitalize costs under

§ 263A only if the taxpayer has previously applied § 263A to home construction

contracts exempt from the capitalization requirement under § 460(e)(1).

(3) Manner of making change. This change is made on a cut-off basis and

applies only to long-term construction contracts entered into on or after the first day of

the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor

required.

(4) Certain eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this
 326

change for a taxpayer's first, second, or third taxable year ending after December 31,

2017.

(5) Reduced filing requirement. A taxpayer is required to complete only the

following information on Form 3115 (Rev. December 2018) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except line 16;

(e) Part IV, line 25; and

(f) Schedule D, Part I.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 19.01 is "236."

 327

(7) Contact information. For further information regarding changes under

this section, contact Innessa Glazman at (202) 317-7006 (not a toll-free number).

SECTION 20. TAXABLE YEAR INCURRED (§ 461)

In general. Applicable provisions of the Code, regulations and other guidance published

in the Internal Revenue Bulletin may prescribe the manner in which a taxpayer takes

into account a liability that has been incurred. For example, for a taxpayer with

inventories and subject to § 263A, the taxpayer must include direct and indirect costs in

inventory costs, which may be recovered through cost of goods sold. See § 1.263A-

1(e)(2)(i)(B). A taxpayer may not rely on any provision in this section 20 to take a

current year deduction if another applicable provision requires the taxpayer to take the

liability into account in a year other than the year incurred.

.01 Timing of incurring liabilities for employee compensation.

(1) Self-insured employee medical benefits.

(a) Description of change.

(i) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting for self-

insured liabilities (including any amounts not covered by insurance, such as a

“deductible” amount under an insurance policy) relating to employee medical expenses

(including liabilities resulting from medical services provided to retirees whom the

employer reimburses for the cost of medical services, or for whom the employer directly

pays a 3rd party medical provider, no later than the 15th day of the 3rd calendar month

after the end of the taxable year of the retirement, and to employees and former

employees who have filed claims under a workers’ compensation act) that are not paid

from a welfare benefit fund within the meaning of § 419(e) to a method as follows:
 328

(A) If the taxpayer has a liability to pay an employee for medical

expenses incurred by the employee, the taxpayer will treat the liability as incurred in the

taxable year in which the employee files the claim with the employer. See United States

v. General Dynamics Corp., 481 U.S. 239 (1987), 1987-2 C.B. 134.

(B) If the taxpayer has a liability to pay a 3rd party for medical

services provided to its employees, the taxpayer will treat the liability as incurred in the

taxable year in which the services are provided.

(ii) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 20.01(1) if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(b) Concurrent automatic change. A taxpayer making both this change

and a change to a UNICAP method described in section 20.01(1)(a)(ii) of this revenue

procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on

making concurrent changes.

 329

(c) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.01(1) is “42.”

(2) Bonuses.

(a) Description of change.

(i) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting to treat

bonuses as incurred in the taxable year in which all events have occurred that establish

the fact of the liability to pay a bonus and the amount of the liability can be determined

with reasonable accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a taxpayer may change

its method of accounting under this section 20.01(2) to one of the following methods:

(A) If all the events that establish the fact of the liability to pay a

bonus have occurred by the end of the taxable year in which the related services are

provided, and the bonus is received by the employee no later than the 15th day of the 3rd

calendar month after the end of the taxable year in which the related services are

provided, the taxpayer will treat the bonus liability as incurred in that taxable year. See

Rev. Rul. 55-446, 1955-2 C.B. 531, as modified by Rev. Rul. 61-127, 1961-2 C.B. 36.

(B) If all the events that establish the fact of the liability to pay a

bonus occur in the taxable year subsequent to the taxable year in which the related

services are provided, the taxpayer will treat the bonus liability as incurred in such

subsequent taxable year.

(ii) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this
 330

section 20.01(2) if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(b) Concurrent automatic change. A taxpayer making both this change

and a change to a UNICAP method described in section 20.01(2)(a)(ii) of this revenue

procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes.

(c) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.01(2) is “133.”

(3) Vacation pay, sick pay, and severance pay.

(a) Description of change.

(i) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting to treat

vacation pay, sick pay, and severance pay as incurred in the taxable year in which all

events have occurred that establish the fact of the liability to pay vacation pay, sick pay,

and severance pay and the amount of the liability can be determined with reasonable

accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a taxpayer may change its method of

accounting under this section 20.01(3) to one of the following methods:

 331

(A) If all the events that establish the fact of the liability to pay

vacation pay, sick pay, and severance pay have occurred by the end of the taxable year

in which the related services are provided, the vacation pay, sick pay, and severance

pay vests in the taxable year the related services are provided, and the vacation pay,

sick pay, and severance pay is received by the employee no later than the 15th day of

the 3rd calendar month after the end of the taxable year in which the related services are

provided, the taxpayer will treat the vacation pay, sick pay, and severance pay liability

as incurred in the taxable year in which the related services are provided.

(B) If all the events that establish the fact of the liability to pay

vacation pay, sick pay, and severance pay occur in the taxable year subsequent to the

taxable year in which the related services are provided, the taxpayer will treat the

vacation pay, sick pay, and severance pay liability as incurred in such subsequent

taxable year.

(ii) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 20.01(3) if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(b) Concurrent automatic change. A taxpayer making both this change

and a change to a UNICAP method described in section 20.01(3)(a)(ii) of this revenue

procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both
 332

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes.

(c) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.01(3) is “134.”

(4) Commissions.

(a) Description of change.

(i) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting to treat

commissions as incurred in the taxable year in which all events have occurred that

establish the fact of the liability to pay a commission, and the amount of the liability can

be determined with reasonable accuracy (see § 1.446-1(c)(1)(ii)). Specifically, a

taxpayer may change its method of accounting under this section 20.01(4) to one of the

following methods:

(A) If all the events that establish the fact of the liability to pay a

commission have occurred by the end of the taxable year in which the related services

are provided, and the commission is received by the employee no later than the 15th

day of the 3rd calendar month after the end of the taxable year in which the related

services are provided, the taxpayer will treat the commission liability as incurred in that

taxable year.

(B) If all the events that establish the fact of the liability to pay a

commission occur in the taxable year subsequent to the taxable year in which the
 333

related services are provided, the taxpayer will treat the commission liability as incurred

in such subsequent taxable year.

(ii) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 20.01(4) if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(b) Concurrent automatic change. A taxpayer making both this change

and a change to a UNICAP method described in section 20.01(4)(a)(ii) of this revenue

procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes.

(c) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.01(4) is “249.”

(5) Contact information. For further information regarding a change under

this section, contact Maria Castillo-Valle or Alicia Lee-Won at (202) 317-7003 (not a toll-

free number).
 334

.02 Timing of incurring liabilities for real property taxes, personal property taxes,

state income taxes, and state franchise taxes.

(1) Background. A taxpayer using an overall accrual method of accounting

generally incurs a liability in the taxable year that all the events have occurred that

establish the fact of the liability, the amount of the liability can be determined with

reasonable accuracy, and economic performance has occurred with respect to the

liability. See § 1.446-1(c)(1)(ii). Under § 1.461-4(g)(6), if the liability of the taxpayer is

to pay a tax, economic performance occurs as the tax is paid to the government

authority that imposed the tax.

(2) Description of change.

(a) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting to:

(i) treat liabilities (for which the all events test of § 461(h)(4) is

otherwise met) for real property taxes, personal property taxes, state income taxes, or

state franchise taxes as incurred in the taxable year in which the taxes are paid, under

§ 461 and § 1.461-4(g)(6);

(ii) account for real property taxes, personal property taxes, state

income taxes, or state franchise taxes under the recurring item exception method under

§ 461(h)(3) and § 1.461-5(b)(1); or

(iii) revoke an election under § 461(c) (ratable accrual election).

(b) Inapplicability. This change does not apply to:

(i) a taxpayer’s liability for a tax subject to the limitation on

acceleration of accrual of taxes under § 461(d); or

 335

(ii) a taxpayer that is required under § 263A and the regulations

thereunder to capitalize the costs with respect to which the taxpayer wants to change its

method of accounting under this section 20.02 if the taxpayer is not capitalizing these

costs, unless the taxpayer concurrently changes its method to capitalize these costs in

conjunction with a change to a UNICAP method under section 12.01, 12.02, 12.08, or

12.12 of this revenue procedure (as applicable).

(3) Concurrent automatic change. A taxpayer making both this change and a

change to a UNICAP method described in section 20.02(2)(b)(ii) of this revenue

procedure under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as

applicable) for the same year of change should file a single Form 3115 for both

changes, in which case the taxpayer must enter the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on

making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.02 is “43.”

(5) Contact information. For further information regarding a change under

this section, contact Christine Merson at (202) 317-5100 (not a toll-free number).

.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach

of contract, or violation of law.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that wants to change its method of accounting for self-
 336

insured liabilities (including any amounts not covered by insurance, such as a

“deductible” amount under an insurance policy) arising under any workers’

compensation act or out of any tort, breach of contract, or violation of law, to treating the

liability for the workers’ compensation, tort, breach of contract, or violation of law as

being incurred in the taxable year in which all the events have occurred that establish

the fact of the liability, the amount of the liability can be determined with reasonable

accuracy, and payment is made to the person to which the liability is owed. See § 461

and § 1.461-4(g)(1) and (2). If the taxpayer has self-insured liabilities resulting from

medical services provided to employees who have filed claims under a workers

compensation act, the taxpayer may change its method of accounting for those liabilities

under section 20.01(1) of this revenue procedure (if the taxpayer is otherwise eligible).

(b) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 20.03 if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(2) Concurrent automatic change. A taxpayer making both this change and

change to either a method provided in section 20.01(1) of this revenue procedure for

self-insured employee medical expenses or a UNICAP method described in section

20.03(1)(b) of this revenue procedure under section 12.01, 12.02, 12.08, or 12.12 of this

revenue procedure (as applicable) for the same year of change should file a single

Form 3115, in which case the taxpayer must enter the designated automatic accounting
 337

method change numbers for each change on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on

making concurrent changes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.03 is “44.”

(4) Contact information. For further information regarding a change under

this section, contact Christine Merson at (202) 317-5100 (not a toll-free number).

.04 Timing of incurring certain liabilities for payroll taxes.

(1) Description of change.

(a) Applicability. This change applies to:

(i) an employer using an overall accrual method of accounting that

wants to change its method of accounting for:

(A) FICA and FUTA taxes to a method consistent with the

holding in Rev. Rul. 96-51, 1996-2 C.B. 36. Rev. Rul. 96-51 permits an accrual method

employer to take into account in Year 1, under the all events test of § 461, its otherwise

deductible FICA and FUTA taxes imposed with respect to year-end wages properly

accrued in Year 1, but paid in Year 2, if the requirements of the recurring item exception

are met; and

(B) state unemployment taxes and, in the event the taxpayer is

an employer within the meaning of the Railroad Retirement Tax Act (RRTA) (see

§ 3231(a)), RRTA taxes to a method under which the taxpayer may take into account in

Year 1 its otherwise deductible state unemployment taxes and railroad retirement taxes

(if applicable) imposed with respect to year-end wages properly accrued in Year 1, but
 338

paid in Year 2, if the requirements of the recurring item exception are met (including the

requirement that, as of the end of the taxable year, all events have occurred that

establish the fact of the liability and the amount of the liability can be determined with

reasonable accuracy, see § 1.461-5(b));

(ii) an accrual method employer that utilizes a method of accounting

for FICA and FUTA taxes that is consistent with the holding in Rev. Rul. 96-51 and

wants to change its method of accounting for state unemployment taxes and, in the

event the employer is an employer within the meaning of RRTA (see § 3231(a)), RRTA

taxes to a method under which the taxpayer may take into account in Year 1 its

otherwise deductible state unemployment taxes and railroad retirement taxes (if

applicable) imposed with respect to year-end wages properly accrued in Year 1, but

paid in Year 2, if the requirements of the recurring item exception are met (including the

requirement that, as of the end of the taxable year, all events have occurred that

establish the fact of the liability and the amount of the liability can be determined with

reasonable accuracy, see § 1.461-5(b)); or

(iii) a taxpayer using an overall accrual method of accounting that

wants to change its method of accounting for FICA and FUTA taxes to the safe harbor

method provided in Rev. Proc. 2008-25, 2008-1 C.B. 686. Rev. Proc. 2008-25 provides

that for purposes of the recurring item exception, a taxpayer will be treated as satisfying

the requirement in § 1.461-5(b)(1)(i) for its payroll tax liability in the same taxable year in

which all events have occurred that establish the fact of the related compensation

liability and the amount of the related compensation liability can be determined with

reasonable accuracy.
 339

(b) Inapplicability. This change does not apply to a taxpayer that is

required under § 263A and the regulations thereunder to capitalize the costs with

respect to which the taxpayer wants to change its method of accounting under this

section 20.04 if the taxpayer is not capitalizing these costs, unless the taxpayer

concurrently changes its method to capitalize these costs in conjunction with a change

to a UNICAP method under section 12.01, 12.02, 12.08, or 12.12 of this revenue

procedure (as applicable).

(2) Recurring item exception. A taxpayer that previously has not changed to

or adopted the recurring item exception for FICA taxes, FUTA taxes, state

unemployment taxes, and RRTA taxes (if applicable) must change to the recurring item

exception method for FICA taxes, FUTA taxes, state unemployment taxes, and RRTA

taxes (if applicable) as specified in § 461(h)(3) as part of this change.

(3) Concurrent automatic change. A taxpayer making both this change and a

change to a UNICAP method described in section 20.04(1)(b) of this revenue procedure

under section 12.01, 12.02, 12.08, or 12.12 of this revenue procedure (as applicable) for

the same year of change should file a single Form 3115 for both changes, in which case

the taxpayer must enter the designated automatic accounting method change numbers

for both changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of

Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under section

20.04(1)(a)(i) or (ii) of this revenue procedure is “45.” The designated automatic

accounting method change number for a change under section 20.04(1)(a)(iii) of this

revenue procedure is “113.”

 340

(5) Contact information. For further information regarding a change under

this section, contact James Williford at (202) 317-5100 (not a toll-free number).

.05 Cooperative advertising.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to change its method of accounting for

cooperative advertising costs to a method consistent with the holding in Rev. Rul. 98-

39, 1998-2 C.B. 198. Rev. Rul. 98-39 generally provides that, under the all events test

of § 461, an accrual method manufacturer’s liability to pay a retailer for cooperative

advertising services is incurred in the year in which the services are performed,

provided the manufacturer is able to reasonably estimate this liability, and even though

the retailer does not submit the required claim form until the following year.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.05 is “46.”

(3) Contact information. For further information regarding a change under

this section, contact Vincent Brodbeck at (202) 317-5100 (not a toll-free number).

.06 Timing of incurring certain liabilities for services or insurance.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that is currently treating the mere execution of a

contract for services or insurance as establishing the fact of the liability under § 461 and

wants to change from that method of accounting for liabilities for services or insurance

to comply with Rev. Rul. 2007-3, 2007-1 C.B. 350, that is, all the events needed to

establish the fact of the liability occur when (a) the event fixing the liability, whether that
 341

be the required performance or other event occurs or (b) payment is due, whichever

happens earliest.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.06 is “106.”

(3) Contact information. For further information regarding a change under

this section, contact Sharon Horn at (202) 317-7003 (not a toll-free number).

.07 Rebates and allowances.

(1) Description of change.

(a) Applicability. This change applies to taxpayer using an overall

accrual method of accounting that wants to change its method of accounting for treating

its liability for rebates and allowances to the recurring item exception method under

§ 461(h)(3) and § 1.461-5.

(b) Inapplicability. This change does not apply to a taxpayer’s liability to

pay a refund.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.07 is “135.”

(3) Contact information. For further information regarding a change under

this section, contact Hyowon Lee at (202) 317-5100 (not a toll-free number).

.08 Ratable accrual of real property taxes.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to change its method of accounting for

real property taxes to the method described in § 461(c) and § 1.461-1(c)(1) (ratable
 342

accrual election). This change applies to real property taxes that relate to a definite

period of time. This change does not apply to a taxpayer’s first taxable year in which

the taxpayer incurs real property taxes, in which case the change is made using the

provisions of § 1.461-1(c)(3)(i).

(2) Manner of making change and designated automatic accounting method

change number.

(a) Cut-off basis. This change is made on a cut-off basis and applies

only to real property taxes accrued on or after the beginning of the year of change. Any

real property taxes accrued prior to the year of change are accounted for under the

taxpayer’s former method of accounting. See § 1.461-1(c)(6), Examples (2) – (5).

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) Short Form 3115 in lieu of a standard Form 3115. In accordance with

§ 1.446-1(e)(3)(ii), the requirement in § 1.461-1(e)(3)(i) to file a standard Form 3115 is

waived and, pursuant to section 6.02(2) of Rev. Proc. 2015-13, a short Form 3115 is

authorized with respect to a taxpayer making a change under this section 20.08. The

taxpayer’s short Form 3115 (Rev. December 2018) must include all of the following

information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a); and

(iv) the information described in § 1.461-1(c)(3)(ii)(a) through (f).

(c) Section 461 election made with consent. The consent granted under

section 9 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, satisfies the consent required under

§ 461(c)(2)(B) and § 1.461-1(c)(3)(ii).

 343

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.08 is “149.”

(4) Contact information. For further information regarding a change under

this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).

.09 California Franchise Taxes.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to change its method of accounting for

California franchise taxes to a method consistent with the holding in Rev. Rul. 2003-90,

2003-2 C.B. 353. Rev. Rul. 2003-90 provides that for taxable years beginning on or

after January 1, 2000, a taxpayer that uses an accrual method of accounting incurs a

liability for California franchise tax for federal income tax purposes in the taxable year

following the taxable year in which the California franchise tax is incurred under the Cal.

Rev. & Tax Code, as amended.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.09 is “154.”

(3) Contact information. For further information regarding a change under

this section, contact Sharon Horn at (202) 317-7003 (not a toll-free number).

.10 Gift cards issued as a refund for returned goods.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using an overall

accrual method of accounting that sells goods at retail and that wants to change its

method of accounting for gift cards (as defined by section 4.02 of Rev. Proc. 2011-17,
 344

2011-5 I.R.B. 441) issued as a refund for returned goods to treat the transaction as (1)

the payment of a cash refund in the amount of the gift card, and (2) the sale of a gift

card in the amount of the gift card.

(b) Treatment of proceeds of the deemed sale. A taxpayer must treat the

proceeds of the deemed sale of a gift card in accordance with the method of accounting

it otherwise employs for sales of gift cards.

(2) Concurrent automatic change. A taxpayer making both this change and

an automatic change to the deferral method for advance payments under Rev. Proc.

2004-34 (see section 16.06 of this revenue procedure) for the same taxable year of

change must file a single Form 3115 for both changes and enter the designated

automatic accounting method change numbers for both changes on the appropriate line

on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419,

for information on making concurrent changes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.10 is “156.”

(4) Contact information. For further information regarding a change under

this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number).

.11 Timing of incurring liabilities under the recurring item exception to the

economic performance rules.

(1) Description of change. This change applies to a taxpayer using an

overall accrual method of accounting that wants to conform to any of the holdings in

Rev. Rul. 2012-1, 2012-2 I.R.B. 255, which clarifies the treatment of certain liabilities

under the recurring item exception to the economic performance requirement under
 345

§ 461(h)(3) by addressing the application of the “not material” and “better matching”

requirements, and distinguishes contracts for the provision of services from insurance

and warranty contracts.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 20.11 is “161.”

(3) Contact information. For further information regarding a change under

this section, contact Justin Grill at (202) 317-7003 (not a toll-free number).

.12 Economic performance safe harbor for ratable service contracts.

(1) Description of change. This change applies to an accrual method

taxpayer that wants to change its treatment of Ratable Service Contracts to conform to

the safe harbor method provided by Rev. Proc. 2015-39, 2015-33 I.R.B. 195.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in methods of

accounting under this section 20.12 is “220.”

(3) Contact information. For further information regarding a change under this

section, contact David Christensen at (202) 317-7011 or Douglas Kim at (202) 317-7003

(not toll-free numbers).

.13 Timing of incurring inventory costs.

(1) Applicability. This change applies to an accrual method taxpayer that

wants to change its method of accounting for one or more inventory costs to treat such

costs as incurred in accordance with § 1.461-1(a)(2) and § 1.461-4(d)(4) if:

(a) under the taxpayer’s present method of accounting, the taxpayer

takes one or more inventory costs into account in a taxable year prior to the taxable
 346

year in which such costs are incurred under § 461 and the regulations thereunder, and

recovers such costs in a taxable year prior to the taxable year in which ownership of

inventory is transferred to the customer to offset income inclusions under § 451(b)

and/or § 451(c);

(b) in the case of a taxpayer with an applicable financial statement

(AFS), as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer makes, for the same year of change, a change in method of

accounting for advance payments from the sale of inventory under section

16.10(2)(b)(ii) of this revenue procedure;

(c) the taxpayer makes, for the same year of change, a change in

method of accounting for such inventory costs under section 12.01, 12.02, 22.04, 22.10,

22.17, or 22.18 of this revenue procedure, as applicable; and

(d) the taxpayer makes the change for its inventory costs under this

section 20.13 for its early application year, as defined in section 16.10(4)(c)(i) of this

revenue procedure, or if a taxpayer does not apply § 1.451-3 and/or § 1.451-8, as

applicable, for a taxable year beginning before January 1, 2021, for the taxpayer’s first

taxable year beginning on or after January 1, 2021.

(2) Inapplicability. This section 20.13 does not apply to a taxpayer that is not

on a permissible method of accounting for its inventory as required under § 471 and §
 347

263A, as applicable, unless the taxpayer changes to a permissible method of

accounting under § 471 or § 263A, as applicable, for the same year of change.

(3) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of Rev.

Proc. 2015-13 does not apply to a change described in section 20.13(1) of this revenue

procedure.

(4) No ruling on method used. The consent granted under section 9 of Rev.

Proc. 2015-13 for a change made under this section 20.13 is not a determination by the

Commissioner that the proposed method of accounting is a permissible method of

accounting under § 1.461-1(a)(2) and § 1.461-4(d)(4), and does not create a

presumption that the proposed method of accounting is a permissible method of

accounting under a provision of the Code. The director will ascertain whether the

proposed method is permissible and in accordance with § 1.461-1(a)(2) and § 1.461-

4(d)(4).

(5) Concurrent automatic change. A taxpayer that is making a change

described in section 20.13(1) of this revenue procedure and one or more changes

described in section 12.01, 12.02, 22.04, 22.10, 22.17, or 22.18 of this revenue

procedure for the same year of change must timely file a single Form 3115 for all such

changes and must enter the designated automatic accounting change numbers for all

such changes on the appropriate line of Form 3115. If the taxpayer is making a change

described in section 20.13(1) of this revenue procedure for one or more inventory costs,

and a change described in section 12.01, 12.02, 22.04, 22.10, 22.17, or 22.18 of this

revenue procedure for the same year of change, the taxpayer may provide a single net

§ 481(a) adjustment for all such changes. See section 6.03(1)(b) of Rev. Proc. 2015-13

for information on making concurrent changes.

 348

(6) Designated automatic accounting method change number. The

designated automatic method change number (DCN) for a change to the method of

accounting under this section 20.13 is “256.”

(7) Contact information. For further information regarding a change under

this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number).

SECTION 21. RENT (§ 467)

.01 Change from an improper method of inclusion of rental income or expense to

inclusion in accordance with the rent allocation.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that:

(i) is a party to § 467 rental agreements (within the meaning of

§ 1.467-1(c)(1) for rental agreements entered into after May 18, 1999, and § 467(d) for

all other agreements); and

(ii) except as provided in section 21.01(1)(b)(ii) of this revenue

procedure, wants to change its method of accounting for its fixed rent (as defined in

§ 1.467-1(d)(2)) to the rent allocation method provided in § 1.467-1(d)(2)(iii).

(b) Inapplicability. This change does not apply to:

(i) rental agreements for which taxpayers are required to use the

constant rental accrual method, as described in § 1.467-3(a), or the proportional rental

accrual method, as described in § 1.467-2(a), for their fixed rent; and

(ii) rental agreements that provide a specific allocation of fixed rent

as described in § 1.467-1(c)(2)(ii)(A)(2) that allocate rent to periods other than when

such rents are payable.

 349

(2) Additional requirements. The taxpayer must attach to its Form 3115 a

copy of one of its § 467 rental agreements to be covered by this automatic change (or at

least the pages of the agreement relating to the manner in which rent is allocated).

(3) Audit protection limited. Any audit protection under section 8 of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change for any § 467 rental

agreement determined by the Commissioner to be a disqualified leaseback or long-term

agreement described in § 1.467-3(b).

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 21.01 is “136.”

(5) Contact information. For further information regarding a change under

this section, contact William Ruane at (202) 317-4718 (not a toll-free number).

SECTION 22. INVENTORIES (§ 471)

.01 Cash discounts.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for cash discounts (that is, discounts granted for timely

payment) when they approximate a fair interest rate, from a method of consistently

including the price of the goods before discount in the cost of the goods and including in

gross income any discounts taken (the “gross invoice method”), to a method of reducing

the cost of the goods by the cash discounts and deducting as an expense any discounts

not taken (the “net invoice method”), or vice versa. See Rev. Rul. 73-65, 1973-1 C.B.

216.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-
 350

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Computation of § 481(a) adjustment for changes to net invoice method.

In the case of a taxpayer changing from the gross invoice method to the net invoice

method, a negative § 481(a) adjustment is required to prevent duplications arising from

the fact that the gross invoice method reported income upon timely payment for some or

all of the goods that remain in inventory, and a positive § 481(a) adjustment is required

to prevent omissions arising from the fact that the gross invoice method included the

invoice price, unadjusted for the cash discounts, of some or all goods in cost of goods

sold and the discount will be earned by payment in a subsequent taxable year. The net

§ 481(a) adjustment is computed by deducting the “Applicable Discount” at the

beginning of the year of change from the “Available Discount” at the beginning of the

year of change. The Available Discount is equal to the difference between the accounts

payable balance under the gross invoice method and the net invoice method. The

Applicable Discount is equal to the difference between the beginning inventory value

under the gross invoice method and the net invoice method.

Example. Taxpayer’s accounts payable balance at the beginning of the year

of change was $1,000 under the gross invoice method and $980 under the net invoice
method. Taxpayer’s inventory value was $3,000 under the gross invoice method and
$2,955 under the net invoice method. The Available Discount is $20 ($1,000 - $980)
and the Applicable Discount is $45 ($3,000 - $2,955). Thus, Taxpayer’s net § 481(a)
adjustment is a negative $25 ($20 - $45).

(4) Computation of § 481(a) adjustment for changes to gross invoice method.

In the case of a taxpayer changing from the net invoice method to the gross invoice

method, a positive § 481(a) adjustment is required to prevent omissions arising from the

fact that the net invoice method did not report income upon timely payment for some or
 351

all of the goods that remain in inventory, and a negative § 481(a) adjustment is required

to prevent duplications arising from the fact that the net invoice method included the

invoice price, adjusted for the cash discounts, of some or all goods in cost of goods sold

and the discount will be earned by payment in a subsequent taxable year. The net

§ 481(a) adjustment can be computed by deducting the “Available Discount” at the

beginning of the year of change from the “Applicable Discount” at the beginning of the

year of change. The Available Discount is equal to the difference between the accounts

payable balance under the gross invoice method and the net invoice method. The

Applicable Discount is equal to the difference between the beginning inventory value

under the gross invoice method and the net invoice method.

Example. Taxpayer’s accounts payable balance at the beginning of the year

of change was $980 under the net invoice method and $1,000 under the gross invoice
method. Taxpayer’s inventory value was $2,955 under the net invoice method and
$3,000 under the gross invoice method. The Applicable Discount is $45 ($3,000 -
$2,955) and the Available Discount is $20 ($1,000 - $980). Thus, Taxpayer’s net
§ 481(a) adjustment is a positive $25 ($45 - $20).

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.01 is “48.”

(6) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.02 Estimating inventory “shrinkage”.

(1) Description of change. This change applies to a taxpayer that wants to

change to a method of accounting for estimating inventory shrinkage in computing

ending inventory, using:

 352

(a) the “retail safe harbor method” described in section 4 of Rev. Proc.

98-29, 1998-1 C.B. 857, as modified by this revenue procedure; or

(b) a method other than the retail safe harbor method, provided (i) the

taxpayer’s present method of accounting does not estimate inventory shrinkage, and (ii)

the taxpayer’s proposed method of accounting (that estimates inventory shrinkage)

clearly reflects income under § 446(b).

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Additional requirements. If the taxpayer wants to change to a method of

accounting for inventory shrinkage other than the retail safe harbor method, the

taxpayer must attach to its Form 3115 a statement setting forth a detailed description of

all aspects of the proposed method of estimating inventory shrinkage (including, for last-

in, first-out (LIFO) taxpayers, the method of determining inventory shrinkage for, or

allocating inventory shrinkage to, each LIFO pool). The director or national office

subsequently may review whether the proposed method clearly reflects the taxpayer’s

income under § 446(b), notwithstanding any provision of Rev. Proc. 2015-13, 2015-5

I.R.B. 419 (or successor). If the director or the national office determines that the

proposed method of accounting does not clearly reflect the taxpayer’s income, the

taxpayer will be treated as having made a change in method of accounting without

obtaining the consent of the Commissioner as required by § 446(e). See sections

2.01(3) and 2.03 of Rev. Proc. 2015-13.

 353

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.02 is “49.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.03 Qualifying volume-related trade discounts.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting to treat qualifying volume-related trade discounts as a

reduction in the cost of merchandise purchased at the time the discount is recognized in

accordance with § 1.471-3(b). A “qualifying volume-related trade discount” means a

discount satisfying the following criteria:

(a) the taxpayer receives or earns the discount based solely upon the

purchase of a particular volume of the merchandise to which the discount relates;

(b) the taxpayer is neither obligated nor expected to perform or provide

any services in exchange for the discount; and

(c) the discount is not a reimbursement of any expenditure incurred or to

be incurred by the taxpayer.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Section 481(a) adjustment. The net § 481(a) adjustment attributable to

the change is computed in a manner similar to the computation of a net § 481(a)

 354

adjustment in the case of a change to the net invoice method of accounting for cash

discounts. See section 22.01(2) of this revenue procedure.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.03 is “53.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.04 Impermissible methods of identification and valuation of inventories.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from an impermissible method of identifying or valuing inventories to a permissible

method of identifying or valuing inventories. For example, a taxpayer:

(i) using last-in, first-out (LIFO) as its inventory-identification method

may change its inventory-valuation method from below cost to cost;

(ii) using an impermissible method of accounting described in

§§ 1.471-2(f)(1) through (5) may change to a permissible method of accounting that

corrects the impermissible method described in §§ 1.471-2(f)(1) through (5);

(iii) using a method that is not in accordance with § 1.471-2(c) may

change to a permissible method of valuing “subnormal goods” under § 1.471-2(c);

(iv) changing from a gross profit method. For this purpose, a gross

profit method is a method in which the taxpayer estimates the cost of goods sold by

reducing its gross sales by a percentage “mark-up” from cost. The estimated cost of

goods sold is subtracted from the sum of the beginning inventory and purchases and

the result is used as the ending inventory; or

 355

(v) changing from a method of determining market that is not in

accordance with § 1.471-4. For this purpose, an example of a method of determining

market that is not in accordance with § 1.471-4 is where a taxpayer, under ordinary

circumstances, determines the market value of purchased merchandise using judgment

factors, and not using the prevailing current bid price on the inventory date for the

particular merchandise in the volume in which it is usually purchased by the taxpayer.

(b) Inapplicability. This change does not apply to:

(i) any change for real property or improvements to the real property

because real property is not inventoriable property under § 1.471-1;

(ii) a taxpayer who meets the definition of a “dealer in securities”

under both § 1.471-5 and § 475 because such dealer is required to account for

securities, as defined in § 475, under § 475 and may not use the rules described in §

1.471-5 for those securities;

(iii) any change described in another section of this revenue

procedure or in other guidance published in the Internal Revenue Bulletin, or to any

change within the last-in, first-out (LIFO) inventory method. For example, this change

does not apply to a taxpayer that wants to change to a rolling-average method (but see

section 22.13 of this revenue procedure) or to a taxpayer that accounts for inventory, or

proposes to account for inventory, under § 471(c), proposed § 1.471-1(b), or § 1.471-

1(b), as applicable. For taxable years beginning on or after January 5, 2021, a taxpayer

is required to comply with § 1.471-1(b);

(iv) any change to a method of allocating costs to inventory under §

471 or any change to a method under § 263A (but see sections 12.01 and 12.02 of this

revenue procedure); or
 356

(v) a taxpayer that is currently deducting inventories (but see section

22.17 of this revenue procedure).

(c) Permissible method defined. For purposes of this change, a

permissible method is an inventory method of identification or valuation, or both,

specifically permitted by the Code, the regulations, or other guidance published in the

Internal Revenue Bulletin, or a decision of the United States Supreme Court. However,

an otherwise permissible inventory method is not permissible under this section 22.04

for a specific taxpayer if that taxpayer is prohibited from using that method or if that

taxpayer is required to use a different method.

(d) Eligibility rule temporarily inapplicable for certain changes related to

cost offset method. The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does

not apply to a method change under this section 22.04 if:

(i) the taxpayer made or requested to make a change during any of

the five taxable years ending with the year of change to recover inventory costs in a

taxable year prior to the taxable year in which ownership of the inventory is transferred

to the customer to offset inclusions under § 451(b) and/or § 451(c), as applicable;

(ii) in the case of a taxpayer with an applicable financial statement

(AFS), as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer concurrently changes its method of accounting for advance
 357

payments from the sale of inventory under section 16.10(2)(b)(ii) of this revenue

procedure; and

(iii) the taxpayer makes the change under this section 22.04 for its

early application year, as defined in section 16.10(4)(c)(i) of this revenue procedure, or

if a taxpayer does not apply § 1.451-3 and/or § 1.451-8, as applicable, for a taxable

year beginning before January 1, 2021, for the taxpayer’s first taxable year beginning on

or after January 1, 2021.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.04 is “54.”

(3) Contact information. For further information regarding a change under this

section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.05 Core Alternative Valuation Method.

(1) Description of change.

(a) Applicability. This change applies to a remanufacturer and rebuilder

of motor vehicle parts and a reseller of remanufactured and rebuilt motor vehicle parts

that use the cost or market, whichever is lower (LCM), inventory valuation method to

value their inventory of cores held for remanufacturing or sale and wants to use the

Core Alternative Valuation (CAV) method specified in Rev. Proc. 2003-20, 2003-1 C.B.

445.

(b) Inapplicability. This change does not apply to a taxpayer that:

(i) values its inventory of cores at cost, including a taxpayer using the

LIFO inventory method, unless the taxpayer concurrently changes, under section 6.02
 358

of Rev. Proc. 2003-20, from cost to the LCM method for its cores, including labor and

overhead related to the cores in raw materials, work-in-process, and finished goods; or

(ii) accounts for inventory, or proposes to account for inventory,

under § 471(c), proposed § 1.471-1(b), or § 1.471-1(b), as applicable. For taxable

years beginning on or after January 5, 2021, a taxpayer is required to comply with

§ 1.471-1(b).

(2) Concurrent automatic change. A taxpayer making both this change and

(i) a change from the cost method to the LCM method under section 22.10 of this

revenue procedure, or (ii) a change from the LIFO inventory method to a permitted

method for identification under (and as determined and defined in) section 23.01(1)(b)

of this revenue procedure for the same year of change, should file a single Form 3115

for both changes, provided the taxpayer enters the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on

making concurrent changes.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.05 is “55.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.06 Replacement cost for automobile dealers’ parts inventory.

(1) Description of change. This change applies to a taxpayer that is engaged

in the trade or business of selling vehicle parts at retail, that is authorized under an

agreement with one or more vehicle manufacturers or distributors to sell new

 359

automobiles or new light, medium, or heavy-duty trucks, and that wants to use the

replacement cost method described in section 4 of Rev. Proc. 2002-17, 2002-1 C.B.

676, as modified by Rev. Proc. 2006-14, 2006-1 C.B. 350, for its vehicle parts inventory.

See Rev. Proc. 2002-17 for further information regarding this change.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Manner of making change. This change is made on a cut-off basis and

applies only to the computation of ending inventories on or after the beginning of the

year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.06 is “63.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.07 Replacement cost for heavy equipment dealers’ parts inventory.

(1) Description of change. This change applies to a heavy equipment dealer

that is engaged in the trade or business of selling heavy equipment parts at retail, that is

authorized under an agreement with one or more heavy equipment manufacturers or

distributors to sell new heavy equipment, and that wants to use the replacement cost

method described in section 4 of Rev. Proc. 2006-14, 2006-1 C.B. 350, for its heavy

equipment parts inventory.

 360

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Manner of making the change. This change is made on a cut-off basis

and applies only to the computation of ending inventories after the beginning of the year

of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(4) Concurrent automatic change. A taxpayer making both this change and

another automatic change in method of accounting under § 263A (see section 12 of this

revenue procedure) for the same year of change may file a single Form 3115 for both

changes, provided the taxpayer enters the designated automatic accounting method

change numbers for both changes on the appropriate line on that Form 3115, and

complies with the ordering rules of § 1.263A-7(b)(2).

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.07 is “96.”

(6) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.08 Rotable spare parts.

(1) Description of change. This change applies to a taxpayer that is using

the safe harbor method of accounting to treat its rotable spare parts as depreciable

assets in accordance with Rev. Proc. 2007-48, 2007-2 C.B. 110, as modified by this

revenue procedure, and wants to change its method of accounting to treat its rotable

spare parts as inventoriable items. This change also applies to a taxpayer who is
 361

treating its rotable spare parts as depreciable assets in a manner similar to the safe

harbor method described in Rev. Proc. 2007-48, and wants to change its method of

accounting to treat its rotable spare parts as inventoriable items. A taxpayer changing

its method of accounting for rotable spare parts under this section 22.08, must use a

proper inventory method to identify and value its rotable spare parts.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer that is required to make

the change in method of accounting pursuant to section 5.06 of Rev. Proc. 2007-48.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.08 is “110.”

(5) Contact information. For further information regarding a change under

this section, contact Stephen Rothandler at (202) 317-7003 (not a toll-free number).

.09 Advance Trade Discount Method.

(1) Description of change. This change applies to a taxpayer that wants to

use the Advance Trade Discount Method described in Rev. Proc. 2007-53, 2007-2 C.B.

233.

(2) Applicability. This change in method of accounting applies to a taxpayer

using an overall accrual method of accounting that is required to use an inventory

method of accounting, that maintains inventories as provided in § 471 and the

 362

regulations thereunder, and that receives advance trade discounts as defined in section

4.03 of Rev. Proc. 2007-53.

(3) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.09 is “111.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.10 Permissible methods of identification and valuation of inventories.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from one permissible method of identifying or valuing inventories to another permissible

method of identifying or valuing inventories. For example, a taxpayer using the first-in,

first-out (FIFO) method as its inventory-identification method may change its inventory-

valuation method from cost to cost or market, whichever is lower (LCM), or a taxpayer

valuing “subnormal” goods at cost may change its valuation method to another

permissible method of valuing “subnormal goods” under § 1.471-2(c).

(b) Inapplicability. This change does not apply to:

(i) any change for real property or improvements to the real property

because real property is not inventoriable property under § 1.471-1:

 363

(ii) a taxpayer who meets the definition of a “dealer in securities”

under both § 1.471-5 and § 475 because such dealer is required to account for

securities, as defined in § 475, under § 475 and may not use the rules described in §

1.471-5 for those securities;

(iii) any change described in another section of this revenue

procedure or in other guidance published in the Internal Revenue Bulletin, or to any

change within the last-in, first-out (LIFO) inventory method. For example, this change

does not apply to a taxpayer that wants to change to a rolling-average method (but see

section 22.13 of this revenue procedure) or to a taxpayer that accounts for inventory, or

proposes to account for inventory, under § 471(c), proposed § 1.471-1(b), or § 1.471-

1(b), as applicable. For taxable years beginning on or after January 5, 2021, a taxpayer

is required to comply with § 1.471-1(b); or

(iv) any change to a method of allocating costs to inventory under §

471 or any change to a method under § 263A (but see sections 12.01 and 12.02 of this

revenue procedure).

(c) Permissible method defined. For purposes of this change, a

permissible method is an inventory method of identification or valuation, or both,

specifically permitted for inventories by the Code, the regulations, or other guidance

published in the Internal Revenue Bulletin, or a decision of the United States Supreme

Court. However, an otherwise permissible inventory method is not permissible under

this section 22.10 for a specific taxpayer if that taxpayer is prohibited from using that

method or if that taxpayer is required to use a different method.

 364

(d) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a method change under this section

22.10 if:

(i) the taxpayer made or requested to make a change during any of

the five taxable years ending with the year of change to recover inventory costs in a

taxable year prior to the taxable year in which ownership of the inventory is transferred

to the customer to offset inclusions under § 451(b) and/or 451(c), as applicable;

(ii) in the case of a taxpayer with an applicable financial statement

(AFS), as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer concurrently changes its method of accounting for advance

payments from the sale of inventory under section 16.10(2)(b)(ii) of this revenue

procedure; and

(iii) the taxpayer makes the change under this section 22.10 for its

early application year, as defined in section 16.10(4)(c)(i) of this revenue procedure, or

if a taxpayer does not apply § 1.451-3 and/or § 1.451-8, as applicable, for a taxable

year beginning before January 1, 2021, for the taxpayer’s first taxable year beginning on

or after January 1, 2021.

(e) Permissible method determination. The eligibility waiver under

section 22.10(1)(d) of this revenue procedure is not a determination by the

Commissioner that the taxpayer’s present method of accounting described in section

 365

22.10(1)(d)(i) of this revenue procedure is a permissible method of accounting. The

method of accounting described in section 22.10(1)(d)(i) of this revenue procedure is

not a permissible method of accounting for any taxable year in which §§ 1.451-3 and

1.451-8 are applicable.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.10 is “137.”

(3) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.11 Change in the official used vehicle guide utilized in valuing used vehicles.

(1) Description of change. Used vehicles taken in trade as part payment on

the sale of vehicles by a dealer may be valued for inventory purposes at valuations

comparable to those listed in an official used vehicle guide as the average wholesale

prices for comparable vehicles. See Rev. Rul. 67-107, 1967-1 C.B. 115. This change

applies to:

(a) a taxpayer that wants to change from not using an official used

vehicle guide to using an official used vehicle guide for valuing used vehicles; or

(b) a taxpayer that wants to change to a different official used vehicle

guide for valuing used vehicles.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

 366

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.11 is “138.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.12 Invoiced advertising association costs for new vehicle retail dealerships.

(1) Description of change. This change applies to a taxpayer that is engaged

in the trade or business of retail sales of new automobiles or new light-duty trucks

(“dealership”) that wants to discontinue capitalizing certain advertising costs as

acquisition costs under § 1.471-3(b). The change applies to advertising costs that meet

the following criteria: (a) the dealership must pay this advertising fee when acquiring

vehicles from the manufacturer; (b) the advertising costs are separately coded and

included in the manufacturer’s invoice cost of the new vehicle; (c) the advertising cost is

a flat fee per vehicle or a fixed percentage of the invoice price; and (d) the fees

collected by the manufacturer are paid to local advertising associations that promote

and advertise the manufacturer’s products in the dealership’s market area. Under the

proposed method, the dealership will exclude advertising costs that meet the above

criteria from the cost of new vehicles and deduct the advertising costs under § 162 as

the advertising services are provided to the dealership. See § 1.461-4(d)(2)(i).

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

 367

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.12 is “139.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.13 Rolling-average method of accounting for inventories.

(1) Description of change. This change applies to a taxpayer that uses a

rolling-average method to value inventories for financial accounting purposes and wants

to use the same rolling-average method to value inventories for federal income tax

purposes in accordance with Rev. Proc. 2008-43, 2008-30 C.B. 186, as modified by

Rev. Proc. 2008-52, 2008-2 C.B. 587 (see section 13).

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b). See, however, section 22.17

of this revenue procedure for certain changes.

(3) Manner of making change. This change is made on a cut-off basis and is

applied only to the computation of ending inventories after the beginning of the year of

change. However, if the taxpayer’s books and records contain sufficient information to

compute a § 481(a) adjustment, the taxpayer may choose to implement the change with

a § 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13,

2015-5 I.R.B. 419.

 368

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.13 is “114.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.14 Sales-Based Vendor Chargebacks.

(1) Description of change. This change, as described in Rev. Proc. 2014-33,

2014-22 I.R.B. 1060, applies to a taxpayer that wants to change its method of

accounting to treat sales-based vendor chargebacks as a reduction in cost of goods

sold in accordance with § 1.471-3(e)(1).

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Concurrent automatic changes. A taxpayer making both this change and

the change described in section 12.10 of this revenue procedure for the same taxable

year of change may file a single Form 3115 for both changes, provided the taxpayer

enters the designated automatic change numbers for both changes on the appropriate

line on the Form 3115, and complies with the ordering rules of § 1.263A-7(b)(2). See

section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making

concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in methods of

accounting under this section 22.14 is “203.”

 369

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.15 Certain changes to the cost complement of the retail inventory method.

(1) Description of change. This change, as described in Rev. Proc. 2014-48,

2014-36 I.R.B. 527, applies to a taxpayer using the retail inventory method that wants to

make one of the following changes:

(a) From adjusting to not adjusting the numerator of the cost complement

by the amount of an allowance, discount, or price rebate that is required under § 1.471-

3(e) to reduce only cost of goods sold;

(b) From adjusting to not adjusting the denominator of the cost

complement for temporary markups and markdowns;

(c) In the case of a retail LCM taxpayer, to computing the cost

complement using a method described in § 1.471-8(b)(3), including changes from a

method described in § 1.471-8(b)(3) to another method described in § 1.471-8(b)(3); or

(d) In the case of a retail cost taxpayer, from not adjusting to adjusting

the denominator of the cost complement for permanent markups and markdowns.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Effective date. This section 22.15 is effective for taxable years beginning

after December 31, 2014.

(4) Multiple changes. A taxpayer making multiple changes under this section

22.15 for the same year of change should file a single Form 3115.
 370

(5) Manner of making change. A taxpayer making a change under this

section 22.15 for its first or second taxable year beginning after December 31, 2014,

may use either a § 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev.

Proc. 2015-13 or implement the change on a cut-off basis. If the taxpayer uses a cut-off

basis, the change applies only to the computation of ending inventories after the

beginning of the year of change, and a § 481(a) adjustment is neither permitted nor

required if a change is made on a cut-off basis.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in methods of

accounting under this section 22.15 is “204.”

(7) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.16 Certain changes within the retail inventory method .

(1) Description of change. This change applies to a taxpayer using the retail

inventory method that wants to change from including to not including temporary

markups and markdowns in determining the retail selling prices of goods on hand at the

end of the taxable year.

(2) Inapplicability. This change does not apply to a taxpayer that accounts

for inventory, or proposes to account for inventory, under § 471(c), proposed § 1.471-

1(b), or § 1.471-1(b), as applicable. For taxable years beginning on or after January 5,

2021, a taxpayer is required to comply with § 1.471-1(b).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in methods of

accounting under this section 22.16 is “225.”

 371

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.17 Change from currently deducting inventories to permissible methods of

identification and valuation of inventories.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer that wants to change

from currently deducting inventories to a permissible method of identifying and valuing

inventories. For example, a taxpayer currently deducting inventories may change to

using the first-in, first-out (FIFO) method as its inventory-identification method and cost

or market, whichever is lower (LCM), as its inventory-valuation method.

(b) Inapplicability. This change does not apply to:

(i) any change for real property or improvements to the real property

because real property is not inventoriable property under § 1.471-1;

(ii) a taxpayer who meets the definition of a “dealer in securities”

under both § 1.471-5 and § 475 because such dealer is required to account for

securities, as defined in § 475, under § 475 and may not use the rules described in §

1.471-5 for those securities;

(iii) any change described in another section of this revenue

procedure or in other guidance published in the Internal Revenue Bulletin, or to any

change within the last-in, first-out (LIFO) inventory method. For example, this change

does not apply to a taxpayer that wants to change to a rolling-average method (but see

section 22.13 of this revenue procedure) or to a taxpayer that accounts for inventory, or

proposes to account for inventory, under § 471(c), proposed § 1.471-1(b), or § 1.471-

1(b), as applicable. For taxable years beginning on or after January 5, 2021, a taxpayer
 372

is required to comply with § 1.471-1(b). See, however, section 22.18, 22.19 or 22.20 of

this revenue procedure, as applicable; or

(iv) any change to a method of allocating costs to inventory under

§ 471 or any change to a method under § 263A (but see sections 12.01 and 12.02 of

this revenue procedure).

(c) Permissible method defined. For purposes of this change, a

permissible method is an inventory method of identification or valuation, or both,

specifically permitted for inventories by the Code, the regulations, or other guidance

published in the Internal Revenue Bulletin, or a decision of the United States Supreme

Court. However, an otherwise permissible inventory method is not permissible under

this section 22.17 for a specific taxpayer if that taxpayer is prohibited from using that

method or if that taxpayer is required to use a different method.

(d) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a method change under this section

22.17 if:

(i) the taxpayer made or requested to make a change during any of

the five taxable years ending with the year of change to recover inventory costs in a

taxable year prior to the taxable year in which ownership of the inventory is transferred

to the customer to offset inclusions under § 451(b) and/or 451(c), as applicable;

(ii) in the case of a taxpayer with an applicable financial statement

(AFS), as defined in section 16.10(1)(b) of this revenue procedure, the taxpayer makes,

for the same year of change, a change in method of accounting for income from the

sale of inventory under section 16.10(2)(a)(iii) of this revenue procedure and, to the

extent the taxpayer receives advance payments for the sale of inventory, section
 373

16.10(2)(a)(iv) of this revenue procedure, or in the case of a taxpayer that does not

have an AFS, the taxpayer concurrently changes its method of accounting for advance

payments from the sale of inventory under section 16.10(2)(b)(ii) of this revenue

procedure; and

(iii) the taxpayer makes the change under this section 22.17 for its

early application year, as defined in section 16.10(4)(c)(i) of this revenue procedure, or

if a taxpayer does not apply § 1.451-3 and/or § 1.451-8, as applicable, for a taxable

year beginning before January 1, 2021, for the taxpayer’s first taxable year beginning on

or after January 1, 2021.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for changes in methods of

accounting under this section 22.17 is “230.”

(3) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.18 Small business taxpayer § 471(c) inventory methods.

(1) Description of change. This change applies to a small business taxpayer,

as defined in section 22.18(2) of this revenue procedure, that wants to change its § 471

method of accounting for inventory to one of the following methods provided in this

section 22.18(1).

(a) Changes under § 471(c) or proposed § 1.471-1(b). For a taxable

year beginning after December 31, 2017, and before January 5, 2021, a change to:

(i) a method that treats inventory as non-incidental materials and

supplies (NIMS) under § 471(c)(1)(B)(i);

 374

(ii) a method that treats inventory as NIMS under proposed § 1.471-

1(b)(4);

(iii) a method that conforms to § 471(c)(1)(B)(ii) by using the

taxpayer’s method of accounting reflected in its applicable financial statements (AFS),

as defined in § 451(b)(3), with respect to the taxable year, or if the taxpayer does not

have an AFS for the taxable year, the books and records of the taxpayer prepared in

accordance with the taxpayer’s accounting procedures; or

(iv) the AFS section 471(c) method described in proposed § 1.471-

1(b)(5), or if the taxpayer does not have an AFS for the taxable year, the non-AFS

section 471(c) method described in proposed § 1.471-1(b)(6).

(b) Changes to a method under § 1.471-1(b). A change to:

(i) the section 471(c) NIMS inventory method provided in § 1.471-

1(b)(4);

(ii) the AFS section 471(c) inventory method provided in § 1.471-

1(b)(5), for taxpayers with an AFS, as defined in § 1.471-1(b)(5)(ii), or

(iii) the non-AFS section 471(c) inventory method provided in

§ 1.471-1(b)(6), for taxpayers that do not have an AFS, as defined in § 1.471-1(b)(5)(ii).

(2) Small business taxpayer defined. Small business taxpayer means a

taxpayer, other than a tax shelter under § 448(d)(3), proposed § 1.448-2(b)(2), or

§ 1.448-2(b)(2), as applicable, that meets the § 448(c) gross receipts test as provided in

§ 448(c), proposed § 1.471-1(b)(2), or § 1.471-1(b)(2), as applicable. The § 448(c)

gross receipts test is met if a taxpayer has average annual gross receipts for the three

prior taxable years of $25,000,000 or less (adjusted for inflation), as described in

§ 448(c), proposed §§ 1.448-2(c), or § 1.448-2(c), as applicable. For taxable years

 375

beginning in 2019, 2020 and 2021, the inflation-adjusted gross receipts test amount is

$26,000,000. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev. Proc. 2019-44, 2019-

47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46 I.R.B. 1016, as applicable. For a

taxable year beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev.

Proc. 2021-45, 2021-48 I.R.B. 764.

(3) Inapplicability. This change does not apply to:

(i) any change described in section 22.19 of this revenue procedure; or

(ii) any change from the LIFO inventory method under § 472. See

however, section 23.01 of this revenue procedure.

(4) Acceleration of § 481 adjustment. If a taxpayer making a change under

this section 22.18 has a § 481(a) adjustment remaining on a prior change in method of

accounting to account for inventory in accordance with § 1.471-1(a), then it must take

the remaining portion of such prior § 481(a) adjustment into account in the year of

change.

(5) Eligibility rules.

(a) Eligibility rule inapplicable. For a change described in section

22.18(1) of this revenue procedure, if the taxpayer changed from accounting for

inventory in accordance with § 471(c), proposed § 1.471-1(b) or § 1.471-1(b), as

applicable, to accounting for inventory in accordance with § 1.471-1(a) within the prior

five taxable years ending with the year of change, and such change was made in the

first taxable year that the taxpayer did not qualify as a small business taxpayer, then

such prior change is disregarded for purposes of section 5.01(1)(f) of Rev. Proc. 2015-

13, 2015-5 I.R.B. 419.

 376

(b) Eligibility rule temporarily inapplicable. The eligibility rule in section

5.01(1)(f) of Rev. Proc. 2015-13 does not apply to the changes described in this section

22.18 for a taxpayer's first, second, or third taxable year beginning after December 31,

2017. In addition, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not

apply to a taxpayer’s early application year, or, in the case of a taxpayer that does not

apply § 1.471-1(b) in the early application year, the taxpayer’s first taxable year

beginning on or after January 5, 2021. For purposes of this section 22.18 “early

application year” means the taxable year of change beginning before January 5, 2021,

in which a taxpayer first applies § 1.471-1(b).

(c) Certain changes with § 481(a) adjustment of zero disregarded for

eligibility rule. A change made under section 22.18(1)(b) of this revenue procedure will

be disregarded for purposes of section 5.01(1)(f) of Rev. Proc. 2015-13 if the change

meets the following requirements:

(i) the change is made for the taxpayer’s early application year, or,

in the case of a taxpayer that does not apply § 1.471-1(b) for a taxable year beginning

before January 5, 2021, for the taxpayer’s first taxable year beginning on or after

January 5, 2021, and

(ii) the § 481(a) adjustment required to implement the change is

zero.

(6) Manner of making change.

(a) Reduced filing requirement. A taxpayer is required to complete only

the following information on Form 3115 (Rev. December 2018) to make this change:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

 377

(iii) Part I;

(iv) Part II, all lines except line 16; and

(v) Part IV, all lines except line 25.

(b) Streamlined method change procedures for certain taxpayers.

(i) Applicability. The procedures described in this section 22.18(6)(b)

may be used by a taxpayer to make a change in method of accounting described in

section 22.18(1)(b) for the taxpayer’s early application year, as defined in section

22.18(5)(b) of this revenue procedure. Additionally, in the case of a taxpayer that does

not apply § 1.471-1(b) for a taxable year beginning before January 5, 2021, the

procedures described in this section 22.18(6)(b) may be used to make a change in

method of accounting described in section 22.18(1)(b) of this revenue procedure in the

taxpayer’s first taxable year beginning on or after January 5, 2021. A taxpayer that is

otherwise permitted to use the streamlined method change procedures in this section

22.18(6)(b) may use these streamlined procedures if the taxpayer is making a change

under section 22.18(1)(b) of this revenue procedure and the net § 481(a) adjustment

required by such change is zero. Notwithstanding any provisions of this section 22.18,

a taxpayer making more than one change in method of accounting under this revenue

procedure for the same year of change is not permitted to net the § 481(a) adjustments

to determine if the taxpayer meets the requirements to use the streamlined method

change procedures. See section 22.18(8) of this revenue procedure for more

information on making concurrent changes.

(ii) No Form 3115 required. 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 a taxpayer making

a change in method of accounting under this section 22.18 using the streamlined
 378

method change procedures. Thus, a taxpayer using the streamlined method change

procedures is not required to file a Form 3115 and is not required to attach a separate

statement when making a change under this section 22.18(6)(b).

(7) No ruling on certain method of accounting used. The consent granted

under section 9 of Rev. Proc. 2015-13 for a change made under section 22.18(1)(a)(i)

or (iii) of this revenue procedure is not a determination by the Commissioner that the

proposed inventory method of accounting is permissible, and does not create any

presumption that the proposed method is a permissible method of accounting under a

provision of the Code. The director will ascertain whether the proposed method is

permissible under the Code.

(8) Concurrent automatic changes. A taxpayer making a change under this

section 22.18 and a change under section 15.17 and/or 12.16 of this revenue procedure

for the same year of change may file a single Form 3115 for all changes provided the

taxpayer enters the designated automatic change numbers for the changes on the

appropriate line of Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13 for

information on making concurrent changes.

(9) Designated automatic accounting method change number.

(a) Change to apply section 471(c) NIMS inventory method, as provided

in section 22.18(1)(b)(i) of this revenue procedure. The designated automatic

accounting method change number for a change to apply the section 471(c) NIMS

inventory method as provided in section 22.18(1)(b)(i) of this revenue procedure is

“260.”

(b) Change to apply AFS section 471(c) inventory method or non-AFS

section 471(c) inventory method, as provided in section 22.18(1)(b)(ii) or (iii) of this

 379

revenue procedure. The designated automatic accounting method change number for a

change to apply the AFS section 471(c) method or the non-AFS section 471(c) method

provided in section 22.18(1)(b)(ii) or (iii) of this revenue procedure is “261.”

(c) All other changes to a method described in section 22.18(1)(a) of this

revenue procedure. The designated automatic accounting method change number for

all other changes to a method of accounting for inventory described in section

22.18(1)(a) of this revenue procedure is “235.”

(10) Contact information. For further information regarding a change under

this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

.19 Changes within a § 471(c) inventory method.

(1) Description of change. This change applies to a small business taxpayer,

as defined in section 22.18(2) of this revenue procedure, that:

(a) for a taxable year beginning after December 31, 2017, and before

January 5, 2021, treats its inventory as non-incidental materials and supplies (NIMS)

under § 471(c)(1)(B)(i) and wants to change from one permissible method, as defined in

section 22.10(1)(c) of this revenue procedure, of identifying or valuing inventories to

another permissible method of identifying or valuing inventories. For example, a

taxpayer that uses specific identification as its inventory identification method may

change to using the first-in, first-out (FIFO) method for purposes of its NIMS method

under § 471(c)(1)(B)(i) under this section 22.19;

(b) uses the section 471(c) NIMS inventory method as provided in

§ 1.471-1(b)(4) and wants to change:

(i) to a method of identification or valuation permitted by § 1.471-

1(b)(4)(ii) such as, for example, specific identification, FIFO, cost or average cost;
 380

(ii) its allocation method to a method permitted by § 1.471-1(b)(4)(iii);

or

(iii) to capitalize a direct cost of property produced or acquired for

resale, or to deduct an indirect cost of property produced or acquired for resale, as

provided in § 1.471-1(b)(4)(ii).

(c) for a taxable year beginning after December 31, 2017, and before

January 5, 2021, uses a method conforming to § 471(c)(1)(B)(ii) by using the taxpayer’s

method of accounting for inventory reflected in its applicable financial statements (AFS),

as defined in § 451(b)(3), with respect to the taxable year, or if the taxpayer does not

have an AFS for the taxable year, the books and records of the taxpayer prepared in

accordance with the taxpayer’s accounting procedures, and wants to change the

manner in which it accounts for inventory in its AFS or books and records, as

applicable; and is required to use such method of accounting for inventory in its AFS or

its books and records, as applicable, for purposes of applying § 471(c)(1)(B)(ii); or

(d) uses the AFS section 471(c) inventory method provided in § 1.471-

1(b)(5), or if the taxpayer does not have an AFS as defined in § 1.471-1(b)(5)(ii) for the

taxable year, the non-AFS section 471(c) inventory method provided in § 1.471-1(b)(6),

and wants to change the manner in which it accounts for inventory in its AFS or books

and records, as applicable; and is required to use such method of accounting for

inventory in its AFS or its books and records, as applicable, in applying the AFS section

471(c) inventory method in §1.471-1(b)(5), or the non-AFS section 471(c) inventory

method in § 1.471-1(b)(6), as applicable.

(2) Eligibility rules.

 381

(a) Eligibility rule inapplicable. The eligibility rule in section 5.01(f) of

Rev. Proc. 2015-13 does not apply to a change described in section 22.19(1)(c) or

22.19(1)(d) of this revenue procedure.

(3) Section 481(a) adjustment period. Beginning with the year of change, a

taxpayer making a change described in section 22.19(1)(c) or 22.19(1)(d) of this

revenue procedure must take any applicable net positive § 481(a) adjustment for such

change into account ratably over the same number of taxable years, not to exceed four,

that the taxpayer used its former method of accounting. Additionally, a taxpayer making

a change described in section 22.19(1)(c) or 22.19(1)(d) of this revenue procedure that

has a § 481(a) adjustment remaining on a prior change in method of accounting that is

described in section 22.19(1)(c) or section 22.19(1)(d) of this revenue procedure must

take the remaining portion of such prior § 481(a) adjustment into account in the year of

change.

(4) Reduced filing requirement. A taxpayer is required to complete only the

following information on Form 3115 (Rev. December 2018) to make this change:

(a) The identification section of page 1 (above Part I);

(b) The signature section at the bottom of page 1;

(c) Part I;

(d) Part II, all lines except lines 7, 16b and 16c. In the response to line

16a, include a statement that the taxpayer satisfies the § 448(c) gross receipts test for

the year of change.

(e) Part IV, all lines except line 25; and

(f) Schedule D, Part II, lines 1-3.

 382

(5) Concurrent automatic changes. A taxpayer that wants to make one or

more concurrent changes in method of accounting under this section 22.19 or wants to

make a change under this section 22.19 and a change under sections 15.17 or 12.16 of

this revenue procedure for the same year of change may file a single Form 3115 for

such changes, provided the taxpayer enters the designated automatic accounting

method change numbers for each change on the appropriate lines of the Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for more information on making

concurrent changes.

(6) No audit protection. A taxpayer making a change in method of

accounting for inventory under section 22.19(1)(c) or 22.19(1)(d) of this revenue

procedure does not receive audit protection under section 8.01 of Rev. Proc. 2015-13.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.19 is “262.”

(8) Contact information. For further information regarding a change under

this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

.20 Change from a small business taxpayer § 471(c) inventory method to an

inventory method under § 471(a).

(1) Description of change. This change applies to a taxpayer that wants to

change from using a small business taxpayer inventory method under § 471(c),

proposed § 1.471-1(b)(4), (5), or (6), or § 1.471-1(b)(4), (5) or (6), as applicable, to

accounting for inventory in accordance with § 471(a) and § 1.471-1(a).

(2) Inapplicability. This change does not apply to any change within the last-

in, first-out (LIFO) inventory method.

 383

(3) Eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f) of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a change described in section

22.20(1) of this revenue procedure if such change is being made in the first taxable year

that the taxpayer does not qualify as a small business taxpayer as defined in section

22.18(2) of this revenue procedure.

(4) Concurrent automatic changes. A taxpayer making a change under this

section 22.20 and a change under sections 12.01 or 12.02 and/or 15.01 of this revenue

procedure for the same year of change may file a single Form 3115 for such changes,

provided the taxpayer enters the designated automatic accounting method change

numbers for each change on the appropriate lines of the Form 3115. See section

6.03(1)(b) of Rev. Proc. 2015-13 for more information on making concurrent changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 22.20 is “263.”

(6) Contact information. For further information regarding a change under

this section, contact Livia Piccolo at (202) 317-7007 (not a toll-free number).

SECTION 23. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)

.01 Change from the LIFO inventory method.

(1) Description of change.

(a) In general. This change applies to a taxpayer that wants to:

(i) change from the LIFO inventory method for all its LIFO inventory

or for the entire content of one or more dollar-value pools; and

(ii) change to a permitted method or methods as determined in

section 23.01(1)(b) of this revenue procedure.

 384

(b) Method to be used.

(i) Determining the permitted method to be used. A taxpayer may

change to one or more non-LIFO inventory methods for the LIFO inventories that are

the subject of this accounting method change, but only if the selected non-LIFO method

is a permitted method for the inventory goods to which it will be applied. For example, a

heavy equipment dealer may change to the specific identification method for new heavy

equipment inventories and the replacement cost method, as described in Rev. Proc.

2006-14, 2006-1 C.B. 350, for heavy equipment parts inventories.

(ii) Permitted method defined. For purposes of this section 23.01, an

inventory method (identification or valuation, or both) is a permitted method if it is

specifically permitted for the inventory goods by the Code, the regulations, or other

guidance published in the Internal Revenue Bulletin, or a decision of the United States

Supreme Court and if the taxpayer is neither prohibited from using that method nor

required to use a different inventory method for those inventory goods. A permitted

method includes a method described in § 471(c), proposed § 1.471-1(b)(4), (5) or (6), or

§ 1.471-1(b)(4), (5) or (6), as applicable, provided the taxpayer is a small business

taxpayer as defined in section 22.18(2) of this revenue procedure.

(iii) Determining permitted method. Whether an inventory method is

a permitted method is determined without regard to the types and amounts of costs

capitalized under the taxpayer’s method of computing inventory cost. See § 263A and

the regulations thereunder, which govern the types and amounts of costs required to be

included in inventory cost for taxpayers subject to those provisions.

(2) Eligibility rules.

(a) Eligibility rules inapplicable.

 385

(i) The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, does not apply for the first taxable year that the taxpayer does not or

will not comply with the requirements of § 472(e)(2) because the taxpayer has applied

or will apply International Financial Reporting Standards in its financial statements or

because the taxpayer has been acquired by an entity that has not or will not use the

LIFO method in its financial statements.

(ii) For a change by a small business taxpayer to a permitted

method described in the last sentence of section 23.01(1)(b)(ii) of this revenue

procedure, if the taxpayer changed from accounting for inventory in accordance with

§ 471(c), proposed § 1.471-1(b) or § 1.471-1(b), as applicable, to accounting for

inventory in accordance with § 472 and the accompanying regulations within the prior

five taxable years ending with the year of change, and such change was made in the

first taxable year that the taxpayer did not qualify as a small business taxpayer, then

such change is disregarded for purposes of section 5.01(1)(f) of Rev. Proc. 2015-13.

(b) Eligibility rule temporarily inapplicable. The eligibility rule in

section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a taxpayer’s early application

year, or, in the case of a taxpayer that does not apply § 1.471-1(b) in the early

application year, the taxpayer’s first taxable year beginning on or after January 5, 2021.

For purposes of this section 23.01, “early application year” means the taxable year of

change beginning before January 5, 2021, in which a taxpayer first applies § 1.471-1(b).

(3) Limitation on LIFO election. The taxpayer may not re-elect the LIFO

inventory method for a period of at least five taxable years beginning with the year of

change unless, based on a showing of unusual and compelling circumstances, consent

is specifically granted by the Commissioner to change the method of accounting at an

 386

earlier time. A taxpayer that wants to re-elect the LIFO inventory method within a period

of five taxable years (beginning with the year of change) must file a Form 3115 in

accordance with the non-automatic change procedures in Rev. Proc. 2015-13. A

taxpayer that wants to re-elect the LIFO inventory method after a period of five taxable

years (beginning with the year of change) does not file a Form 3115 using the non-

automatic change procedures in Rev. Proc. 2015-13, but, rather, must file a Form 970,

Application To Use LIFO Inventory Method, in accordance with § 1.472-3.

(4) Effect of subchapter S election by corporation. See section 7.03(4)(b)

and (c) of Rev. Proc. 2015-13.

(5) Additional requirements. The taxpayer must complete the following

statements and attach them to its Form 3115. If the taxpayer will use different methods

for different inventory goods to which the change applies, the taxpayer must complete

the statements for each of those different types of inventory goods.

(a) “The proposed method of identifying [Insert description of inventory

goods] is the [Insert method, as appropriate; that is, specific identification; FIFO; retail;

etc.] method.”

(b) “The proposed method of valuing [Insert description of inventory

goods] is [Insert method, as appropriate; that is, cost; LCM; etc.].”

(6) Pool split and partial termination. If a taxpayer must remove goods from

a LIFO inventory pool because those goods are not within the scope of that pool (for

example, removing resale goods from a manufacturing pool), and if the taxpayer wants

to change from the LIFO inventory method for those removed goods, the taxpayer may

split the pool pursuant to section 23.10 of this revenue procedure and then may change

from the LIFO method pursuant to this section 23.01. See section 23.10(2) of this
 387

revenue procedure. The taxpayer must file a separate Form 3115 for each such

change.

(7) Section 481(a) adjustment required.

(a) General rule. A taxpayer changing from a LIFO inventory method

must compute a § 481(a) adjustment for the year of change. See section 7.02 of Rev.

Proc. 2015-13.

(b) Special rule for changes that would otherwise be implemented on a

cut-off basis. If a taxpayer is changing from the LIFO inventory method to a method of

accounting that is implemented on a cut-off basis under another section of this revenue

procedure (see, for example, sections 22.06, 22.07, and 22.13 of this revenue

procedure), the taxpayer’s § 481(a) adjustment is “the LIFO recapture amount” as

defined in § 312(n)(4)(B) and (C). A taxpayer computing the § 481(a) adjustment under

this special rule must then compute its ending inventory value for the year of change

using the proposed method (that is, treat the deemed change from the first-in, first-out

(FIFO) method to the proposed method on a cut-off basis).

(8) No ruling on certain method of accounting used. The consent granted

under section 9 of Rev. Proc. 2015-13 for a change made by a small business taxpayer

to an inventory method in accordance with § 471(c) under this section 23.01 is not a

determination by the Commissioner that the proposed inventory method of accounting is

permissible and does not create any presumption that the proposed method is a

permissible method of accounting under a provision of the Code. The director will

ascertain whether the proposed method is permissible under the Code. This section

23.01(8) does not apply to a small business taxpayer that is making a change to a

method of accounting permissible under proposed § 1.471-1(b) or § 1.471-1(b).

 388

(9) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.01 is “56.”

(10) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.02 Determining current-year cost under the LIFO inventory method.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using the LIFO

inventory method that wants to change its method of determining current-year cost to:

(i) the actual cost of the goods most recently purchased or produced

(most-recent-acquisitions method);

(ii) the actual cost of the goods purchased or produced during the

taxable year in the order of acquisition (earliest-acquisitions method);

(iii) the average unit cost equal to the aggregate actual cost of all the

goods purchased or produced throughout the taxable year divided by the total number

of units so purchased or produced. See § 1.472-8(e)(2)(ii);

(iv) the specific identification method; or

(v) a rolling-average method if the taxpayer uses that rolling-average

method in accordance with Rev. Proc. 2008-43, 2008-30 I.R.B. 186, as modified by

Rev. Proc. 2008-52, 2008-36 I.R.B. 587 (see section 13).

(b) Inapplicability. This change does not apply to a taxpayer using the

lower of cost or market method to determine current-year cost. A taxpayer using the

lower of cost or market method that valued inventory below cost may not change to a

proper cost valuation under this section 23.02.

 389

(2) Manner of making change. This change is made using a cut-off basis

and applies only to the computations of current-year cost after the beginning of the year

of change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(3) Concurrent change to a rolling-average method. A taxpayer making both

a change to a rolling-average method of determining current-year cost for its LIFO

inventory under this section 23.02 and a change to a rolling-average method of

accounting for non-LIFO inventories under Rev. Proc. 2008-43 (see section 22.13 of

this revenue procedure) should file a single Form 3115 for both changes, in which case

the taxpayer must enter the designated automatic accounting method change numbers

for both changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of

Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for information on making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.02 is “57.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.03 Alternative LIFO inventory method for retail automobile dealers.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer engaged in the trade

or business of retail sales of new automobiles or new light-duty trucks (“automobile

dealer”) that wants to change to the “Alternative LIFO method” described in section 4 of

Rev. Proc. 97-36, 1997-2 C.B. 450, as modified by Rev. Proc. 2008-23, 2008-1 C.B.

664, for its LIFO inventories of new automobiles and new light-duty trucks. Light-duty
 390

trucks are trucks with a gross vehicle weight of 14,000 pounds or less, which also are

referred to as class 1, 2, or 3 trucks.

(b) Inapplicability. This change does not apply to an automobile dealer

that uses the inventory price index computation (IPIC) method for goods other than new

automobiles, new light-duty trucks, parts and accessories, used automobiles, and used

trucks.

(2) Manner of making change.

(a) Cut-off basis. This change is made using a cut-off basis and applies

only to the computation of ending inventories after the beginning of the year of change.

See section 5.03(6) of Rev. Proc. 97-36 for more information regarding a cut-off basis.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) Concurrent change from IPIC method. An automobile dealer using

the IPIC method that also has parts and accessories, used automobiles, or used light-

duty trucks (other goods) inventory may incorporate a change, using a cut-off basis,

from IPIC to another acceptable LIFO method for those other goods into this change.

When changing from IPIC to a dollar-value LIFO method for its other goods, the

automobile dealer must establish separate inventory pools for new automobiles and

new light-duty trucks, unless the automobile dealer also concurrently changes to the

Vehicle-Pool Method (see section 23.08 of this revenue procedure). Further, the

automobile dealer must establish a separate inventory pool for the parts and

accessories. See section 6.03(1)(b) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for

information on making concurrent changes.

(c) Additional requirements. An automobile dealer also must comply with

the following:
 391

(i) the conditions in section 5.03 of Rev. Proc. 97-36; and

(ii) for an automobile dealer changing from the IPIC method under

this section 23.03, the automobile dealer also must attach to its Form 3115 a schedule

setting forth the classes of goods for which the automobile dealer has elected to use the

LIFO method and the accounting method changes being made under this section 23.03

for each class of goods.

(3) Concurrent change to the Vehicle-Pool Method. A taxpayer making both

a change to the Alternative LIFO Method under this section 23.03 and a change to the

Vehicle-Pool Method under Rev. Proc. 2008-23 (see section 23.08 of this revenue

procedure) should file a single Form 3115 for both changes, in which case the taxpayer

must enter the designated automatic accounting method change numbers for both

changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.03 is “58.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.04 Used vehicle alternative LIFO method.

(1) Description of change. This change applies to a taxpayer that sells used

automobiles and used light-duty trucks (“used vehicle dealers”) that wants to change to

the “Used Vehicle Alternative LIFO Method” as described in Rev. Proc. 2001-23, 2001-1

C.B. 784, as modified by Announcement 2004-16, 2004-1 C.B. 668, and Rev. Proc.

2008-23, 2008-1 C.B. 664.

 392

(2) Additional requirements. A taxpayer making this change must comply

with the additional conditions set forth in section 5.04 of Rev. Proc. 2001-23.

(3) Manner of making change.

(a) Cut-off basis. This change is made on a cut-off basis, which requires

that the value of the taxpayer’s used automobile and used light-duty truck inventory at

the beginning of the year of change must be the same as the value of that inventory at

the end of the preceding taxable year, plus cost restorations, if any, required by section

5.04(5) of Rev. Proc. 2001-23. Accordingly, a § 481(a) adjustment is neither permitted

nor required.

(b) Bargain purchase. If the taxpayer has previously improperly

accounted for a bulk bargain purchase, the taxpayer must, as part of this change, first

change its method of accounting to comply with Hamilton Industries, Inc. v.

Commissioner, 97 T.C. 120 (1991), and compute a § 481(a) adjustment for that part of

the change. See Announcement 91-173, 1991-47 I.R.B. 29. Upon examination, if a

taxpayer has properly changed under this section 23.04 except for complying with this

section 23.04(3)(b), an examining agent may not deny the taxpayer the change.

However, the taxpayer does not receive audit protection under section 8.01 of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, with respect to the improper method of accounting for

the bargain purchase. See section 8.02(2) of Rev. Proc. 2015-13. Accordingly, the

examining agent may make any necessary adjustments in any year for which the period

of limitations on assessment and collection of tax is open to effect compliance with

Hamilton Industries, Inc.

(c) New base year. In effecting a change to the Used Vehicle Alternative

LIFO Method under this revenue procedure, the taxpayer must retain any LIFO
 393

inventory cost increments previously determined and the value of those increments.

Instead of using the earliest taxable year for which the taxpayer adopted LIFO as the

base year, the taxpayer must use the year of change as the new base year in

determining the value of all existing LIFO cost increments for the year of change and

later taxable years. (The cumulative index at the beginning of the year of change is

1.00). The taxpayer must restate the base-year cost of all LIFO cost increments at the

beginning of the year of change in terms of new base-year costs, using the year of

change as the new base year, and must recompute the indexes for previously

determined inventory increments accordingly. The new base-year cost of a pool is

equal to the total current-year cost of all the vehicles in the pool.

(d) Form 3115. A completed Form 3115 includes the completion of Part I

of Schedule C.

(4) Concurrent change from IPIC method. A used vehicle dealer using the

IPIC method that also has parts and accessories, new automobiles, or new light-duty

trucks (other goods) inventory may incorporate a change, using a cut-off basis, from

IPIC to another acceptable LIFO method for those other goods into this change. When

changing from IPIC to a dollar-value LIFO method for its other goods, the used vehicle

dealer must establish separate inventory pools for new automobiles and new light-duty

trucks, unless the used vehicle dealer also concurrently changes to the Vehicle-Pool

Method (see section 23.08 of this revenue procedure). Further, the used vehicle dealer

must establish a separate inventory pool for the parts and accessories. See section

6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(5) Concurrent change to the Vehicle-Pool Method. A taxpayer making both

a change to the Used Vehicle Alternative LIFO Method under this section 23.04 and a
 394

change to the Vehicle-Pool Method under Rev. Proc. 2008-23 (see section 23.08 of this

revenue procedure) should file a single Form 3115 for both changes, in which case the

taxpayer must enter the designated automatic accounting method change numbers for

both changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.04 is “59.”

(7) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.05 Determining the cost of used vehicles purchased or taken as a trade-in.

(1) Description of change.

(a) Applicability. This change applies to a taxpayer using the LIFO

inventory method that wants to:

(i) determine the cost of used vehicles acquired by trade-in using the

average wholesale price listed by an official used vehicle guide on the date of the trade-

in. See Rev. Rul. 67-107, 1967-1 C.B. 115. The taxpayer must consistently use the

official used vehicle guide selected unless the taxpayer receives permission to use a

different guide;

(ii) use a different official used vehicle guide for determining the cost

of used vehicles acquired by trade-in;

(iii) determine the cost of used vehicles purchased for cash using the

actual purchase price of the vehicle; or

 395

(iv) reconstruct the beginning-of-the-year cost of used vehicles

purchased for cash using values computed by national auto auction companies based

on vehicles purchased for cash. The national auto auction company selected must be

consistently used.

(b) Inapplicability. This change does not apply to a taxpayer that

adopted or changed to the Used Vehicle Alternative LIFO Method (see section 23.04 of

this revenue procedure).

(2) Manner of making change. This change is made on a cut-off basis and

applies only to used vehicles acquired on or after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.05 is “60.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.06 Change to the inventory price index computation (IPIC) method.

(1) Description of change. This change applies to a taxpayer that wants to

change:

(a) from a non-IPIC LIFO inventory method to the IPIC method in

accordance with all relevant provisions of § 1.472-8(e)(3); or

(b) from the IPIC method as described in T.D. 7814, 1982-1 C.B. 84,

(March 15, 1982) (the old IPIC method) to the IPIC method as described in § 1.472-

8(e)(3) (see T.D. 8976, 2002-1 C.B. 421, (January 8, 2002)) (the new IPIC method),

which includes the following required changes (if applicable):

 396

(i) from using 80% of the inventory price index (IPI) to using 100% of

the IPI to determine the base-year cost and dollar-value of a LIFO pool(s);

(ii) from using a weighted arithmetic mean to using a weighted

harmonic mean to compute an IPI for a dollar-value pool(s); and

(iii) from using a components-of-cost method to define inventory

items to using a total-product-cost method to define inventory items.

(2) Manner of making change. This change is made on a cut-off basis and

applies only to the computation of ending inventories after the beginning of the year of

change. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(3) Bargain purchase. If the taxpayer has previously improperly accounted

for a bulk bargain purchase, the taxpayer must, as part of this change, first change its

method of accounting to comply with Hamilton Industries, Inc. v. Commissioner, 97 T.C.

120 (1991), and compute a § 481(a) adjustment for that part of the change. See

Announcement 91-173, 1991-47 I.R.B. 29. Upon examination, if a taxpayer has

properly changed under this section 23.06 except for complying with section 23.06(3) of

this revenue procedure, an examining agent may not deny the taxpayer the change.

However, the taxpayer does not receive audit protection under section 8.01 of Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, with respect to the improper method of accounting for

the bargain purchase. See section 8.02(2) of Rev. Proc. 2015-13. Accordingly, the

examining agent may make any necessary adjustments in any year for which the period

of limitations on assessment and collection of tax is open to effect compliance with

Hamilton Industries, Inc.

(4) Concurrent automatic changes.

 397

(a) A taxpayer making this change and to change its method of

determining current-year cost under section 23.02 of this revenue procedure for the

same year of change may file a single Form 3115 for both changes, provided the

taxpayer enters the designated automatic accounting method change numbers for both

changes on the appropriate line on that Form 3115. See section 6.03(1)(b) of Rev.

Proc. 2015-13 for information on making concurrent changes.

(b) A taxpayer making this change and to change its method of pooling

to IPIC-method pools described in § 1.472-8(b)(4) or § 1.472-8(c)(2) under section

23.07 of this revenue procedure for the same year of change may file a single Form

3115, provided the taxpayer enters the designated automatic accounting method

change numbers for both changes on the appropriate line on that Form 3115. See

section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(c) A taxpayer making this change and to change its method of pooling

under section 23.10 of this revenue procedure for the same year of change may file a

single Form 3115, provided the taxpayer enters the designated automatic accounting

method change numbers for both changes on the appropriate line on that Form 3115.

See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent

changes.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.06 is “61.”

(6) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.07 Changes within the inventory price index computation (IPIC) method.
 398

(1) Description of change. This change applies to a taxpayer using the IPIC

method described in § 1.472-8(e)(3) as revised by T.D. 8976, 2002-1 C.B. 421, (new

IPIC method) that wants to make one or more of the following changes:

(a) change from the double-extension IPIC method to the link-chain IPIC

method, or vice versa. See § 1.472-8(e)(3)(iii)(E) for principles concerning the

computation of the inventory price index under the double-extension IPIC method and

the link-chain IPIC method;

(b) change to or from the 10 percent method. See § 1.472-8(e)(3)(iii)(C)

for principles concerning the assignment of inventory items to Bureau of Labor Statistics

(BLS) categories under the IPIC method;

(c) change to IPIC-method pools described in § 1.472-8(b)(4) or § 1.472-

8(c)(2), including a change to begin or discontinue applying one or both of the 5 percent

pooling rules;

(d) change to combine or separate pools as a result of the application of

a 5 percent pooling rule described in § 1.472-8(b)(4) or § 1.472-8(c)(2);

(e) change its selection of BLS table from Table 3 (Consumer Price

Index for All Urban Consumers (CPI-U): U.S. city average, detailed expenditure

categories) of the monthly CPI Detailed Report to Table 9 (Producer price indexes (PPI)

and percent changes for commodity and service groupings and individual items, not

seasonally adjusted) of the monthly PPI Detailed Report (formerly, Table 6), or vice

versa. See § 1.472-8(e)(3)(iii)(B)(2) for principles concerning the selection of a BLS

table under the IPIC method;

(f) change the assignment of one or more inventory items to BLS

categories under either Table 3 (CPI-U): U.S. City average, detailed expenditure
 399

categories) of the monthly CPI Detailed Report or Table 9 (PPI and percent changes for

commodity and service groupings and individual items, not seasonally adjusted) of the

monthly PPI Detailed Report (formerly, Table 6). See § 1.472-8(e)(3)(iii)(C) for

principles concerning the assignment of inventory items to BLS categories under the

IPIC method. As part of this change, a taxpayer may separate a reassigned item from

an inappropriate pool and combine the reassigned item with items in an appropriate

pool. See § 1.472-8(g)(2) for principles concerning the manner of combining and

separating dollar-value pools;

(g) change the representative month when necessitated because of a

change in taxable year or a change in method of determining current-year cost made

pursuant to section 23.02 of this revenue procedure. See § 1.472-8(e)(3)(iii)(B) for

principles concerning the determination of a representative month under the IPIC

method. A change in method of determining current-year cost and a change of the

representative month may be made using a single Form 3115, provided the taxpayer

enters the designated automatic accounting method change numbers for both changes

on the appropriate line on that Form 3115;

(h) change from using preliminary BLS price indexes to using final BLS

price indexes to compute an inventory price index, or vice versa. See § 1.472-

8(e)(3)(iii)(D)(2) for principles concerning the selection of BLS price indexes under the

IPIC method; and

(i) change from using a representative appropriate month to using an

appropriate month. See § 1.472-8(e)(3)(iii)(B)(3) for principles concerning the selection

of an appropriate month.
 400

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to the changes described in

sections 23.07(1)(d), (f) in the case of a taxpayer using the 10 percent method

described in § 1.472-8(e)(3)(iii)(C)(2), and (g) of this revenue procedure.

(3) Manner of making change.

(a) Cut-off basis. These changes are made on a cut-off basis and apply

only to the computation of ending inventories after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) New base year. A taxpayer that changes pursuant to sections

23.07(1)(a), (b), and (e) of this revenue procedure must establish a new base year in

the year of change.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.07 is “62.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.08 Changes to the Vehicle-Pool Method.

(1) Description of change. This change applies to a retail dealer or

wholesale distributor (“reseller”) of cars and light-duty trucks that wants to change to the

“Vehicle-Pool Method” as described in Rev. Proc. 2008-23, 2008-1 C.B. 664.

(2) Manner of making change.

(a) Cut-off basis. This change is made on a cut-off basis and applies

only to the computation of ending inventories after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required. A reseller that

 401

changes its method of pooling under Rev. Proc. 2008-23 and this section 23.08 must

comply with § 1.472-8(g).

(b) New base year. Instead of using the earliest taxable year for which

the reseller adopted the LIFO method for any items in a pool, the reseller must use the

year of change as the base year when determining the LIFO value of that pool for the

year of change and subsequent taxable years (that is, the cumulative index at the

beginning of the year of change is 1.00). The reseller must restate the base-year cost

of all layers of increment in a pool at the beginning of the year of change in terms of

new base-year cost. For an example of establishing a new base year, see § 1.472-

8(e)(3)(iv)(B)(1)(ii).

(3) Concurrent change to the Alternative LIFO Method or the Used Vehicle

Alternative LIFO Method. A reseller making both a change to the Vehicle-Pool Method

under this section 23.08 and a change to the Alternative LIFO Method under Rev. Proc.

97-36 (see section 23.03 of this revenue procedure) or the Used Vehicle Alternative

LIFO Method under Rev. Proc. 2001-23 (see section 23.04 of this revenue procedure)

should file a single Form 3115 for both changes, in which case the taxpayer must enter

the designated automatic accounting method change numbers for both changes on the

appropriate line on that Form 3115. See section 6.03(1)(b) of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, for information on making concurrent changes.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.08 is “112.”

(5) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).
 402

.09 Changes within the used vehicle alternative LIFO method.

(1) Description of change. This change applies to a taxpayer using the

“Used Vehicle Alternative LIFO Method” as described in Rev. Proc. 2001-23, 2001-1

C.B. 784, as modified by Announcement 2004-16, 2004-1 C.B. 668, and Rev. Proc.

2008-23, 2008-1 C.B. 664, that wants to change the particular “official used vehicle

guide” utilized by the taxpayer in connection with the Used Vehicle Alternative LIFO

Method or any change in the precise manner of its utilization (for example, a change in

the specific guide category that a taxpayer uses to represent vehicles of average

condition for purposes of section 4.02(5)(a) of Rev. Proc. 2001-23).

(2) Manner of making change.

(a) Cut-off basis. This change is made on a cut-off basis and applies

only to the computation of ending inventories after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) New base year. A taxpayer that changes its method pursuant to this

section 23.09 must establish a new base year in the year of change.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.09 is “140.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).

.10 Changes to dollar-value pools of manufacturers.

(1) Description of change. This change applies to a manufacturer that:

 403

(a) purchases goods for resale (resale goods) and, thus, must reassign

resale goods from the pool(s) it maintains for the goods it manufactures to one or more

resale pools;

(b) wants to change from using multiple pools described in § 1.472-

8(b)(3) to using natural business unit (NBU) pools described in § 1.472-8(b)(1), or vice

versa; or

(c) wants to reassign items in NBU pools described in § 1.472-8(b)(1)

into the same number or a greater number of NBU pools.

(2) Manner of making change. This change is made on a cut-off basis and

applies only to the computation of ending inventories after the beginning of the year of

change. Accordingly, a § 481(a) adjustment is neither permitted nor required. A

taxpayer that changes its method of pooling pursuant to this section 23.10 must

combine or separate pools as required by § 1.472-8(g). If a taxpayer splits a pool into

two or more permissible pools pursuant to this section 23.10, which must be

implemented on a cut-off basis, the taxpayer then may file a separate Form 3115 to

change from the LIFO inventory method for one or more of the resulting pools pursuant

to section 23.01 of this revenue procedure, which must be implemented with a § 481(a)

adjustment.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 23.10 is “141.”

(4) Contact information. For further information regarding a change under

this section, contact Andrew Braden at (202) 317-7007 (not a toll-free number).
 404

SECTION 24. MARK-TO-MARKET ACCOUNTING METHODS (Including § 475 )

.01 Commodities dealers, securities traders, and commodities traders electing to

use the mark-to-market method of accounting under § 475(e) or (f).

(1) Description of change. This change applies to certain taxpayers that

have elected to use the mark-to-market method of accounting under § 475(e) or (f).

Under § 475(e) and (f) and Rev. Proc. 99-17, 1999-1 C.B. 503, if a taxpayer makes a

timely election under § 475(e) or (f), then beginning with the first taxable year for which

the election is effective (election year), mark to market is the only permissible method of

accounting for securities or commodities subject to the election. Thus, if the electing

taxpayer’s method of accounting for its taxable year immediately preceding the election

year is inconsistent with § 475, the taxpayer is required to change its method of

accounting to comply with the election. A taxpayer that makes a § 475(e) or (f) election

but fails to change its method of accounting to comply with that election is using an

impermissible method. See section 4 of Rev. Proc. 99-17.

(2) Applicability. This change applies to a taxpayer if all of the following

conditions are satisfied:

(a) the taxpayer is a commodities dealer, securities trader, or

commodities trader that has made a valid election under § 475(e) or (f) (see section

5.03(1) of Rev. Proc. 99-17) and that is required to change its method of accounting to

comply with the election;

(b) the method of accounting to which the taxpayer changes is in

accordance with its election under § 475(e) or (f); and

(c) the year of change is the election year.

 405

(3) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(4) Election under Rev. Proc. 99-17. In accordance with section 5.03(1) of

Rev. Proc. 99-17, to make a § 475(e) or (f) election, a taxpayer must file a statement

satisfying the requirements in section 5.04 of Rev. Proc. 99-17. The taxpayer must file

the statement not later than the due date (without regard to any extension) of the

original federal income tax return for the taxable year immediately preceding the

election year and must attach the statement either to that return or, if applicable, to a

request for an extension of time to file that return. For example, if a calendar year

individual taxpayer wants to make a § 475(e) or (f) election for 2018 (the election year),

the taxpayer must file the statement on or before April 18, 2018, with the taxpayer’s

timely filed (without regard to any extension) federal income tax return for 2017 or the

taxpayer’s timely filed request for an extension of time to file the 2017 federal income

tax return. On the Form 3115 filed for the year of change, a taxpayer should indicate

that the taxpayer has filed the statement in compliance with section 5.03(1) of Rev.

Proc. 99-17.

(5) Limited § 301.9100 relief. Section 301.9100-3 relief for failure to comply

with the requirements of this section 24.01 will be granted only in unusual and

compelling circumstances.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 24.01 is “64.”

(7) Contact information. For further information regarding a change under

this section, contact Marsha Sabin at (202) 317-6945 (not a toll-free number).
 406

.02 Taxpayers requesting to change their method of accounting from the mark-to-

market method of accounting described in § 475 to a realization method.

(1) Description of change. This change applies to any taxpayer requesting

permission to change its method of accounting for securities or commodities as defined

in § 475 from the mark-to-market method of accounting described in § 475 to a

realization method of accounting. For example, this section 24.02 applies when a

taxpayer is required to change its method of accounting to a realization method after

revoking an election under § 475(e), (f)(1), or (f)(2). This change is not limited to a

change required by § 475 (for example, this section 24.02 applies to a change from a

mark-to-market method of accounting for notional principal contracts providing for

nonperiodic payments even if the taxpayer is not subject to § 475) and, in such a case,

references to § 475 in this section 24.02 are interpreted accordingly. For purposes of

this section 24.02, a change to a realization method of accounting includes a change in

which the taxpayer also is required to use a mark-to-market method of accounting under

a specific Code section to account for all or some of the taxpayer’s securities or

commodities (for example, § 1256 for commodities).

(2) Exclusive procedure. The procedure set forth in this section 24.02 is the

exclusive procedure for changing a taxpayer’s method of accounting from the mark-to-

market method described in § 475 to a realization method. Thus, filing the Notification

Statement described in section 24.02(6) of this revenue procedure is the exclusive

manner of revoking a § 475(e), (f)(1), or (f)(2) election. Moreover, any taxpayer

requesting permission to change to a realization method must follow the procedures

described in this section 24.02 and other applicable provisions of Rev. Proc. 2015-13,

2015-5 I.R.B. 419, to request consent to change its method of accounting for securities
 407

described in § 475(c)(2) (Section 475 Securities), commodities described in § 475(e)(2)

(Section 475 Commodities), or both.

(3) Applicability. This change applies to a taxpayer if all of the following

conditions in paragraphs (a) through (c) below are satisfied:

(a) the taxpayer is using, properly or improperly, the mark-to-market

method of accounting described in § 475;

(b) the taxpayer is requesting permission to change to a realization

method of accounting and report gains or losses from the disposition of Section 475

Securities, Section 475 Commodities, or both, under § 1001; and

(c) the taxpayer meets the requirements of this section 24.02, including

the requirement that it timely file the Notification Statement described in section

24.02(6) of this revenue procedure.

(4) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(d)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(5) Manner of making change. This change is made using a cut-off basis

and applies only to Section 475 Securities, Section 475 Commodities, or both, that are

accounted for using the mark-to-market method of accounting described in § 475 and

for which a change in method is requested under this section 24.02. Accordingly, a

§ 481(a) adjustment is neither permitted nor required.

Under the cut-off basis, a taxpayer must make a final mark of all Section 475

Securities, Section 475 Commodities, or both, that are being marked to market and that

are the subject of the accounting method change being requested, on the last business

day of the year preceding the year of change. As a result of the final mark, gain or loss

attributable to those securities and commodities is also recognized on the last business
 408

day of the year preceding the year of change. In the case of any Section 475 Security

or Section 475 Commodity that a taxpayer holds on the first day of the year of change,

the taxpayer must make proper adjustment in the amount of any subsequently realized

gain or loss to take into account adjustments for the gain or loss recognized prior to the

first day of the year of change pursuant to the use of the mark-to-market method of

accounting described in § 475 in order to prevent amounts from being duplicated or

omitted. Any change in value on or after the first day of the year of change will be taken

into account using a realization method of accounting unless section 24.02(7) of this

revenue procedure permits the taxpayer to resume a mark-to-market method and the

taxpayer resumes a mark-to-market method.

(6) Notification Statement required. In addition to filing the Form 3115

required under section 6.03(1) of Rev. Proc. 2015-13, to change to a realization method

of accounting under this section 24.02, a taxpayer must also file a Notification

Statement that satisfies the requirements in section 24.02(6) of this revenue procedure.

The Notification Statement must be filed not later than the due date (without regard to

any extension) of the original federal income tax return for the taxable year immediately

preceding the year of change and must be attached either to that return or, if applicable,

to a request for an extension of time to file that return.

(a) Notification Statement contents. The Notification Statement must

contain (1) the name of the taxpayer that will change its method of accounting (that is,

the applicant), and, if applicable, the filer (for example, its parent corporation); (2) a

statement that the taxpayer is requesting to change its method of accounting from the

mark-to-market method of accounting described in § 475 to a realization method; (3) the

year of change (both the beginning and ending dates); and (4) the types of instruments
 409

subject to the method change, that is, Section 475 Securities, Section 475

Commodities, or both. If a taxpayer has made an election under § 475(e), (f)(1), or

(f)(2), the taxpayer must also include a statement revoking the taxpayer’s section 475

election or elections for the Section 475 Securities, Section 475 Commodities, or both,

for which a change in accounting method is sought.

(b) Effect of filing Notification Statement. Once the taxpayer files a

Notification Statement for the year of change, a realization method of accounting is the

only permissible method of accounting for Section 475 Securities, Section 475

Commodities, or both, described in the Notification Statement for the entire year of

change and all subsequent years (unless section 24.02(7)(a) of this revenue procedure

applies). A taxpayer that files the Notification Statement described in this section 24.02

but fails to change its method of accounting using the procedures described in Rev.

Proc. 2015-13 and this section 24.02 is using an impermissible method.

(c) Limited § 301.9100 relief. Section 301.9100 relief for failure to

comply with the requirements of this section 24.02(6) will be granted only in unusual

and compelling circumstances.

(7) Additional requirements.

(a) Resuming the mark-to-market method of accounting. A taxpayer may

not use the automatic change procedures in Rev. Proc. 2015-13 and section 24.01 of

this revenue procedure to resume using the mark-to-market method of accounting

described in § 475 for the Section 475 Securities, Section 475 Commodities, or both,

that are the subject of the method change being requested using this section 24.02

during any of the five taxable years beginning with the year of change. To resume

using the mark-to-market method of accounting described in § 475 during this 5-year
 410

period, a taxpayer must: (i) request the change using the non-automatic change

procedures in Rev. Proc. 2015-13, (ii) request the change by the date an election for the

year of change would be due under section 5.03 of Rev. Proc. 99-17, 1999-1 C.B. 503,

and (iii) include a statement that satisfies all applicable requirements of section 5.04 of

Rev. Proc. 99-17.

(b) Copy of Notification Statement. A taxpayer must attach a copy of the

Notification Statement required in section 24.02(6) of this revenue procedure to its Form

3115 filed under this section 24.02.

(c) No audit protection for valuation. A taxpayer does not receive audit

protection under section 8.01 of Rev. Proc. 2015-13 for the method of valuation used by

the taxpayer to determine the fair market value of the taxpayer’s Section 475 Securities,

Section 475 Commodities, or both, for a taxable year prior to the year of change, or for

a failure to comply with the requirements in Rev. Proc. 99-17 to properly elect the mark-

to-market method. See section 8.02(2) of Rev. Proc. 2015-13.

(8) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 24.02 is “218”.

(9) Contact information. For further information regarding a change under

this section, contact Marsha Sabin at (202) 317-6945 (not a toll-free number).

SECTION 25. BANK RESERVES FOR BAD DEBTS (§ 585)

.01 Changing from the § 585 reserve method to the § 166 specific charge-off

method.

(1) Description of change.

 411

(a) Applicability. This change applies to a bank (as defined in § 581,

including a bank for which a qualified subchapter S subsidiary (Qsub) election is filed)

that wants to change its method of accounting for bad debts from the § 585 reserve

method to the § 166 specific charge-off method.

(b) Inapplicability. This change does not apply to a large bank as defined

in § 585(c)(2).

(2) Certain eligibility rule inapplicable. A bank that changed from the § 593

reserve method under § 593(g) to the § 585 reserve method is not prohibited under

section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, from changing its method of

accounting for bad debts under this section 25.01 solely because of the § 593(g)

change. A bank for which a Qsub election is filed will not be prohibited under section

5.01(1)(f) of Rev. Proc. 2015-13 from changing its method of accounting for bad debts

under this section 25.01 solely because of the deemed liquidation of the bank arising

from a Qsub election.

(3) Section 481(a) adjustment. Generally, the amount of the § 481(a)

adjustment for a change in method of accounting under this section 25.01 is the amount

of the bank’s reserve for bad debts as of the close of the taxable year immediately

before the year of change. However, the amount of the § 481(a) adjustment does not

include the amount of a bank’s pre-1988 reserves (as described in § 593(g)(2)(A)(ii),

without taking into account § 593(g)(2)(B)) if the bank changed in a prior year from the

§ 593 reserve method to the § 585 reserve method and § 593(g) applied to that change.

The deemed liquidation of a bank occurring solely because its parent makes a Qsub

election does not accelerate the § 481(a) adjustment. In accordance with section
 412

7.03(4)(a) of Rev. Proc. 2015-13, a bank that ceases to be a bank under § 581 must

accelerate its § 481(a) adjustment.

(4) Change from § 585 required when electing S corporation status.

(a) General rule. A bank electing S corporation status (or a bank for

which a Qsub election is filed) cannot use the § 585 reserve method. The filing by a

bank of a Form 2553, Election by a Small Business Corporation, or the filing by a bank’s

parent of Form 8869, Qualified Subchapter S Subsidiary Election, with respect to the

bank will constitute an agreement by the bank to change its method of accounting for

bad debts from the § 585 reserve method to the § 166 specific charge-off method

effective as of the taxable year for which the S corporation election or Qsub election is

effective (year of change) in accordance with all of the automatic change procedures of

Rev. Proc. 2015-13 and this section 25.01. The resulting § 481(a) adjustment is

recognized built-in gain under § 1374, unless the bank elects under § 1361(g) and

section 25.01(4)(b) of this revenue procedure to take the § 481(a) adjustment into

account in determining taxable income for the taxable year immediately preceding the

year of change. See § 1.1374-4(d).

(b) Election to include § 481(a) adjustment in taxable year immediately

preceding the year of change.

(i) Election requirements. A bank that changes its method of

accounting for bad debts under this section 25.01, from the § 585 reserve method to the

§ 166 specific charge-off method for the first taxable year for which the bank’s S

corporation election is effective (year of change) may elect under § 1361(g) to take into

account the amount of the resulting § 481(a) adjustment in determining taxable income

for the taxable year immediately preceding the year of change. To make this election, a
 413

bank must (1) file an original and copy of Form 3115 under section 6.03(1) of Rev. Proc.

2015-13 (and any other copy required under section 6.03) for the year of change, (2) file

an additional copy of the Form 3115 with its original (or amended) federal income tax

return for the taxable year immediately preceding the year of change filed no later than

the date the original Form 3115 is properly filed under section 6.03(1) of Rev. Proc.

2015-13 (and any other copy required under section 6.03) and (3) include the amount of

the § 481(a) adjustment in gross income for the taxable year immediately preceding the

year of change. The bank must attach a statement to the original and both copies of

Form 3115 stating that the bank elects under § 1361(g) to take the § 481(a) adjustment

into account in determining taxable income for the taxable year immediately preceding

the year of change.

(ii) Special rule for Qsub banks. In the case of a Qsub bank, the S

corporation parent must file an original and copy of Form 3115 under section 6.03(1) of

Rev. Proc. 2015-13 for the year of change. The Qsub bank must file an additional copy

of the Form 3115 with its original (or amended) federal income tax return for the taxable

year immediately preceding the year of change filed no later than the date the original

Form 3115 is properly filed under section 6.03(1) of Rev. Proc. 2015-13, and include the

amount of the § 481(a) adjustment in gross income for the taxable year immediately

preceding the year of change. In the case of a Qsub bank, the Form 3115 should

indicate that the “filer” is the S corporation parent and the “applicant” is the Qsub bank.

(iii) The following example illustrates the principles of section

25.01(4)(b) of this revenue procedure.

Example. X, a calendar year taxpayer, is a calendar year bank as defined in

§ 581 and is not a large bank as defined in § 585(c)(2). For taxable years before 2015,
X accounted for its bad debts under the § 585 reserve method. By March 15, 2015, X
 414

properly filed a Form 2553 electing to be an S corporation effective January 1, 2015.

Pursuant to section 25.01(4)(a) of this revenue procedure, the filing of the Form 2553
constituted an agreement by X to change from the § 585 reserve method to the § 166
specific charge-off method for 2015 in accordance with all of the automatic change
procedures of Rev. Proc. 2015-13, and the applicable provisions of this section 25.01.
Thus, for example, X must file a Form 3115 for this 2015 change in duplicate, in
accordance with section 6.03(1) of Rev. Proc. 2015-13, by attaching the original Form
3115 to X’s timely filed (including any extension) original federal income tax return for
2015 and filing a duplicate copy of the Form 3115 with the Ogden, UT, office. The
amount of X’s § 481(a) adjustment for the change is the amount of X’s bad debt reserve
as of the close of December 31, 2014. X wishes to elect under § 1361(g) to include the
§ 481(a) adjustment in income in the taxable year ending December 31, 2014, the
taxable year immediately preceding the year of change. To make this election, X must
(1) file an original and copy of Form 3115 for the 2015 change under section 6.03(1) of
Rev. Proc. 2015-13, (2) file an additional copy of that Form 3115 with its original (or
amended) federal income tax return for 2014 filed no later than the date the original
Form 3115 is properly filed under section 6.03(1) of Rev. Proc. 2015-13, and (3) include
the amount of its § 481(a) adjustment in gross income in its return for 2014. X must
attach a statement to the original and both copies of Form 3115 stating that X elects
under § 1361(g) to take the § 481(a) adjustment into account in determining taxable
income for 2014, the taxable year immediately preceding the year of change.

(5) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 25.01 is “66.”

(6) Contact information. For further information regarding a change under

this section, contact K. Scott Brown at (202) 317-6945, Laura Fields at (202) 317-6850,

or Adrienne Mikolashek at (202) 317-6850 (not toll-free numbers).

SECTION 26. INSURANCE COMPANIES (§§ 807, 816, 832, 833)

.01 Safe harbor method of accounting for premium acquisition expenses.

(1) Description of change. Rev. Proc. 2002-46, 2002-2 C.B. 105, sets forth a

safe harbor method of accounting for premium acquisition expenses of certain non-life

insurance companies. Under this method, an insurance company is permitted to treat

as premium acquisition expenses incurred for the taxable year an amount equal to the

sum of (a) the amount of premium acquisition expenses paid during the taxable year;
 415

(b) the difference between the unpaid premium acquisition expenses shown on the

company’s annual statement for the taxable year and the unpaid premium acquisition

expenses shown on the company’s annual statement for the preceding taxable year;

and (c) the difference between the amount of the insurance company’s pro forma

premium acquisition expenses at the end of the taxable year and the company’s pro

forma premium acquisition expenses at the end of the preceding taxable year. The

amount taken into account as a net increase in the pro forma premium acquisition

expenses, however, cannot exceed the insurance company’s unearned premium

reserve offset amount for that year. A special rule applies to premium acquisition

expenses with respect to certain contracts with installment premiums. See Rev. Proc.

2002-46.

(2) Applicability. The automatic change in this section 26.01 applies to any

insurance company that is subject to tax under § 831(a) and determines its premiums

earned for insurance contracts during the taxable year under § 832(b)(4) in accordance

with the provisions of § 1.832-4. The automatic change does not apply to an existing

Blue Cross or Blue Shield organization or any other organization to which § 833 applies.

(3) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 26.01 is “67.”

(5) Contact information. For further information regarding a change under

this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).
 416

.02 Certain changes in method of accounting for organizations to which § 833

applies

(1) Description of change. This change applies to an existing Blue Cross or

Blue Shield organization within the meaning of § 833(c)(2), or an organization described

in § 833(c)(3), that is required to change its method of accounting for unearned

premiums by reason of failing to meet the Medical Loss Ratio (MLR) requirements of

§ 833(c)(5), or by reason of meeting the MLR requirements of § 833(c)(5) after failing to

meet those requirements in a prior year. See Notice 2011-4, 2011-2 I.R.B. 282.

(2) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change.

(3) Accelerated § 481(a) adjustment period in certain situations. In addition

to the circumstances set forth in section 7.03(4) of Rev. Proc. 2015-13, the § 481

adjustment period provided in section 7.03 of Rev. Proc. 2015-13 will be accelerated in

the event a taxpayer with a remaining balance of a § 481(a) adjustment that arose by

reason of a change in method of accounting described in this section 26.02 is required

to effect another change in method of accounting described in this section 26.02. Thus,

for example, a taxpayer that fails to satisfy the requirements of § 833(c)(5) and as a

result has a positive § 481(a) adjustment, is required to accelerate the remaining

balance, if any, of that adjustment in a subsequent taxable year in which the taxpayer

meets the requirements of § 833(c)(5).

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 26.02 is "155."

 417

(5) Contact information. For further information regarding this section,

contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).

.03 Change in qualification as life/nonlife insurance company under § 816.

(1) Description of change. This change applies to an insurance company

that changes from being taxed as a life insurance company under part I of subchapter L

to being taxed as a non-life insurance company under part II of subchapter L, or vice

versa. Whether an insurance company is taxed under § 801 as a life insurance

company under part I of subchapter L is determined under § 816.

(2) Certain eligibility rules inapplicable. The eligibility rules in sections

5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to this change.

(3) No audit protection or ruling on qualification as a life insurance company.

The taxpayer does not receive either: (a) any audit protection under section 8.01 of Rev.

Proc. 2015-13 or (b) ruling reliance under section 10 of Rev. Proc. 2015-13 in

connection with the consent granted under section 9 of Rev. Proc. 2015-13 for a change

under this section 26.03 regarding whether the taxpayer qualifies as a life insurance

company. The director will ascertain whether the taxpayer qualifies as a life insurance

company.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 26.03 is “219.”

(5) Contact information. For further information regarding a change under

this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).
 418

.04 Changes in basis of computing reserves under § 807(f).

(1) Description of change and applicability. This automatic change applies

to a change in basis of computing any item referred to in § 807(c), as described in

§ 807(f), by a life insurance company or by an insurance company that is not a life

insurance company (nonlife insurance company). See § 1.807-4.

(2) Manner of making change.

(a)(i) Life insurance companies. If a life insurance company changes

its basis of computing any item referred to in § 807(c) during a taxable year (year of

change), then for purposes of applying § 807(a) and (b) with respect to contracts issued

before the year of change, the amount of the item at the close of the year of change

attributable to those contracts is computed on the old basis and the amount of the item

at the opening of the succeeding taxable year attributable to those contracts is

computed on the new basis. The amount of such item attributable to contracts issued

during the year of change and thereafter must be computed on the new basis. See

§ 1.807-4(c)(1).

(ii) Nonlife insurance companies. If a nonlife insurance

company changes its basis of computing an item referred to in § 807(c)(1) (life

insurance reserves (as defined in § 816(b))) during a taxable year (year of change),

then for purposes of applying § 832(b)(4), (A) for the year of change, life insurance

reserves at the end of the year of change with respect to contracts issued before the

year of change are computed on the old basis and (B) for the year following the year of

change, life insurance reserves at the end of the preceding taxable year with respect to

contracts issued before the year of change are computed on the new basis. Life
 419

insurance reserves attributable to contracts issued during the year of change and

thereafter must be computed on the new basis. See § 1.807-4(c)(2).

(iii) Requirement to file Form 3115. A taxpayer that changes its

basis of computing any item referred to in § 807(c) is subject to the procedures that

apply to obtain the automatic consent of the Commissioner to change a method of

accounting. Under these procedures, (A) the taxpayer must file Form 3115 as provided

in this section 26.04, (B) the taxpayer will receive audit protection for taxable years prior

to the year of change as provided in section 8 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419,

in connection with the change, and (C) the § 481(a) adjustment period generally will be

one taxable year (year of change) for a negative § 481(a) adjustment and four taxable

years (year of change and next three taxable years) for a positive § 481(a) adjustment

in accordance with section 7.03(1) of Rev. Proc. 2015-13.

(iv) Examples. The following examples each illustrate the rules

of sections 26.04(2)(a)(i) and (ii) of this revenue procedure in two situations: (A) a
change in basis in computing life insurance reserves (reserves) for contracts issued
prior to the year of change that results in an increase in the reserves at the end of the
year of change (negative § 481(a) adjustment) and (B) a change in basis in computing
reserves for contracts issued prior to the year of change that results in a decrease in the
reserves at the end of the year of change (positive § 481(a) adjustment). The following
table summarizes the reserve amounts for contracts issued before the year of change.
 420

Reserve amounts.

Description Old Basis New Basis New Basis

(Negative § (Positive § 481(a)

481(a) Adjustment)
Adjustment)
End of Year Prior to 100
Year of Change
End of Year of 105 109 101
Change
End of Year 112 104
Following Year of
Change
Section 481(a) 105-109=(4) 105-101=4
Adjustment

A. Example 1. The taxpayer is a life insurance company.

Under section 26.04(2)(a)(i) of this revenue procedure, reserves for contracts issued
before the year of change are reported under the old basis at the close of the year of
change and under the new basis at the beginning of the year following the year of
change; reserves for contracts issued during the year of change and thereafter are
computed under the new basis. The remainder of this example describes only the
deductions and income inclusions relating to reserves for contracts issued before the
year of change.

Deduction for a net increase in reserves for the year of change. In both the
negative and positive § 481(a) adjustment situations, the company must take $105 of
reserves into account (on the old basis) at the end of the year of change, resulting in a
$5 increase in reserves ($105-$100) and a corresponding deduction for a net increase
in reserves for the year of change.

Negative § 481(a) adjustment situation. As described in section 26.04(2)(a)(iii) of

this revenue procedure, the negative § 481(a) adjustment of $4 ($109-$105) is taken
into account in the year of change, such that the company recognizes a deduction for
an increase in reserves under § 807(f) of $4 in the year of change. This results in total
deductions in the year of change of $9 ($5+$4).

At the beginning of the following year, the company must take $109 of reserves
into account (new basis) and the deduction for the net increase in reserves for that year
is $3 ($112-$109).

Positive § 481(a) adjustment situation. As described in section 26.04(2)(a)(iii) of

this revenue procedure, the positive § 481(a) adjustment of $4 ($101-$105) is taken into
account over four taxable years, such that the company recognizes additional income
from a decrease in reserves under § 807(f) of $1 (1/4th of the § 481(a) adjustment) in
 421

the year of change. This results in a net reduction in taxable income in the year of
change of $4 ($5-$1).

At the beginning of the following year, the company takes $101 of reserves into
account (new basis), and the deduction for the net increase in reserves for that year is
$3 ($104-$101). The company also recognizes another 1/4th of the § 481(a)
adjustment, resulting in a $1 increase in income due to a decrease in reserves under
§ 807(f) and a net reduction in taxable income of $2 ($3-$1) in that year. The remaining
$2 of the § 481(a) adjustment is recognized as a $1 increase in income due to a
decrease in reserves under § 807(f) in each of the two remaining years of the § 481(a)
adjustment period.

B. Example 2. The taxpayer is a nonlife insurance company.

Under section 26.04(2)(a)(ii) of this revenue procedure, reserves at the end of the year
of change with respect to contracts issued before the year of change are computed
under the old basis for the year of change and under the new basis for the taxable year
following the year of change; reserves for contracts issued during the year of change
and thereafter are computed under the new basis. The remainder of this example only
relates to reserves for contracts issued before the year of change.

Effect on premiums earned in year of change. In both the negative and positive
§ 481(a) adjustment situations, the company must add to the result obtained under §
832(b)(4)(A) the $100 of reserves on outstanding business at the end of the preceding
taxable year and then deduct the $105 of reserves (computed under the old basis) on
outstanding business at the end of the year of change.

Negative § 481(a) adjustment situation. As described in section 26.04(2)(a)(iii) of

this revenue procedure, the negative § 481(a) adjustment of $4 ($109-$105) is taken
into account in the year of change, such that the company recognizes an additional
reduction in premiums earned of $4 in the year of change. This results in a total
reduction in premiums earned of $9 ($5+$4).

In the taxable year after the year of change, the reserves on outstanding
business at the end of the preceding year are $109 (computed on the new basis) and
the net reduction in premiums earned is $3 ($109-$112).

Positive § 481(a) adjustment situation. As described in section 26.04(2)(a)(iii) of

this revenue procedure, the positive § 481(a) adjustment of $4 ($101-$105) is taken into
account over four taxable years, such that the company recognizes an additional $1
(1/4th of the § 481(a) adjustment) increase in premiums earned in the year of change.
This results in a net reduction in premiums earned in the year of change of $4 ($5-$1).

In the taxable year after the year of change, the reserves on outstanding
business at the end of the preceding year are $101 (computed on the new basis) and
the net reduction in premiums earned is $3 ($101-$104). The company also recognizes
another 1/4th of the § 481(a) adjustment, resulting in an additional $1 increase in
premiums earned and a net reduction in premiums earned of $2 ($3-$1) in that year.
 422

The remaining $2 of the § 481(a) adjustment is recognized as a $1 increase in

premiums earned in each of the two remaining years of the § 481(a) adjustment period.

(b) Section 481(a) adjustment.

(i) Computation of § 481(a) adjustment at end of year. In general, a

change in basis of computing any item referred to in § 807(c) requires an adjustment

under § 481(a). The § 481(a) adjustment is computed as of the end of the year of

change and is only with respect to contracts issued before the year of change. See

§ 1.807-4(b)(1).

(ii) Number of § 481(a) adjustments. Multiple changes during the

same taxable year in methods, assumptions, or factors, each of which alone would

constitute a change in basis of computing any item referred to in § 807(c), are

considered a single change in basis, and the effects of such multiple changes are

netted and treated as a single net negative § 481(a) adjustment or net positive § 481(a)

adjustment. A separate § 481(a) adjustment must be determined for each item referred

to in § 807(c) and each such § 481(a) adjustment must be taken into account

separately.

(iii) Loss of company status. If for any taxable year a taxpayer that

was an insurance company for the year of change is no longer an insurance company,

then the taxpayer must take into account in the preceding taxable year (that is, the last

taxable year it was an insurance company) the balance of any § 481(a) adjustment. A

taxpayer that was an insurance company for the year of change does not accelerate the

balance of any § 481(a) adjustment merely because it changes from a life insurance

company to a nonlife insurance company or because it changes from a nonlife

insurance company to a life insurance company. See § 1.807-4(b)(2).

 423

(c) No ruling protection for year of change or subsequent years. The

consent granted under section 9 of Rev. Proc. 2015-13 for a change under this section

26.04 is not a determination by the Commissioner that the new basis of computing any

item referred to in § 807(c) is a permissible basis of computing such item and does not

create any presumption that the new basis is a permissible basis of computing such

item. The director may ascertain whether the new method of accounting is a

permissible method of accounting. Thus, a taxpayer that changes its basis of

computing any item referred to in § 807(c) under this section 26.04 may be required to

change or modify that basis of computing such item for the year of change or any

subsequent year if it is determined by the Commissioner that the basis to which the

taxpayer changed does not meet the requirements of federal income tax law.

(d) Information required to be furnished. A taxpayer that files a Form 3115

under this section 26.04 is required to complete or provide only the following information

on Form 3115:

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I;

(iv) Part II, lines 4, 5, 6a-d, 7a-b, 8a-d, 9, 11a-c, 12, 17, and 18;

(v) The following information, in lieu of completing Part II, line 14:

• The item in § 807(c) to which the change in basis

relates,
• The type of contract to which the change relates,
• If a life insurance reserve, a description of the
applicable tax reserve method (e.g., Commissioners’
Reserve Valuation Method or Commissioners’ Annuity
Reserve Valuation Method),
• A description of the change in basis,
 424

• A description of the reason for the change in basis,

including (i) whether the change results from a change in the
method prescribed by the National Association of Insurance
Commissioners or from another change (such as a change
in assumption for mortality, morbidity, or interest rate),
regardless of whether the change is reflected on an annual
statement and (ii) whether the change results from a prior
incorrect application of federal income tax law and the nature
of such incorrect application.

(vi) Part IV. (The taxpayer may indicate that the § 481(a)

adjustment is an estimate or is to be determined.)

(e) Concurrent automatic changes. A taxpayer that makes multiple changes

in basis under this section 26.04 may file a single Form 3115 that includes all the

changes in basis for the year of change. Likewise, a single Form 3115 may be filed for

all changes in basis for members of a group filing a consolidated return. The

information required by section 26.04(2)(d) of this revenue procedure is required for

each separate change for each member of the group.

(f) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13 does not apply to a change under this section 26.04.

(3) Designated automatic accounting method change number. The designated

automatic accounting method change number for a change under this section 26.04 is

“240.”

(4) Contact information. For further information regarding a change under this

section, contact Dan Phillips at (202) 317-6995 (not a toll-free number).

SECTION 27. DISCOUNTED UNPAID LOSSES (§ 846)

.01 Composite method for discounting unpaid losses.

(1) Description of change. Section 846 defines “discounted unpaid losses”

for purposes of computing the insurance company taxable income of certain insurance
 425

companies. Notice 88-100, 1988-2 C.B. 439, section V, sets forth a composite method

for computing unpaid losses with respect to accident years not separately stated on the

NAIC annual statement. Rev. Proc. 2002-74, 2002-2 C.B. 980, section 3.01, clarifies

that the composite method of Notice 88-100, section V, is permitted, but not required;

section 3.02 sets forth an alternative method for those taxpayers that do not use the

composite method of section 3.01. An insurance company using a method provided in

section 3.01 or 3.02 of Rev. Proc. 2002-74 to compute discounted unpaid losses, must

use the same method to compute discounted estimated salvage recoverable. An

insurance company that currently uses a permissible method of accounting for

discounted unpaid losses may change its method of accounting to or from the

composite method of Notice 88-100, section V, without the consent of the

Commissioner. This change applies to insurance companies that are required to

discount unpaid losses under § 846. See Rev. Proc. 2002-74.

(2) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 27.01 is “68.”

(3) Contact information. For further information regarding a change under

this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).

SECTION 28. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC)

(§§ 860A-860G)
.01 REMIC inducement fees.

(1) Description of change. A taxpayer that receives an inducement fee in

connection with becoming the holder of a noneconomic residual interest in a REMIC

must take that fee into account over the remaining expected life of the applicable
 426

REMIC in accordance with § 1.446-6. This change applies to a taxpayer that seeks to

change from any method of accounting for such inducement fees to one of the safe

harbor methods provided under § 1.446-6(e)(1)-(2). See Rev. Proc. 2004-30, 2004-1

C.B. 950, for additional guidance relating to this change.

(2) Manner of making change. A taxpayer making this change must identify

the specific safe harbor method under § 1.446-6(e) to which the taxpayer is changing.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 28.01 is “79.”

(4) Contact information. For further information regarding a change under

this section, contact John W. Rogers, III at (202) 317-6895 (not a toll-free number).

SECTION 29. FUNCTIONAL CURRENCY (§ 985)

.01 Change in functional currency.

(1) Description of change. This change applies to a taxpayer that wants to

change its functional currency or the functional currency of a qualified business unit

(QBU) of the taxpayer. The preceding sentence does not apply to a QBU of a taxpayer

described in § 1.985-1(b)(1)(iii).

(2) Manner of making change. A taxpayer making this change must make all

necessary adjustments required by such change. See §§ 1.985-5, 1.985-8(c). A

taxpayer must attach a statement to the Form 3115 representing that it has made the

adjustments set forth in § 1.985-5 or § 1.985-8(c). The statement must also provide the

amount of any unrealized exchange gain or loss required to be taken into account

pursuant to § 1.985-5 or § 1.985-8(c) and the date on which a taxpayer took such
 427

amount into account. Finally, the statement must provide a detailed and complete

description of any other adjustments required pursuant to § 1.985-5 or § 1.985-8(c).

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 29.01 is “70.”

(4) Contact information. For further information regarding a change under

this section, contact Peter Merkel at (202) 317-4919 (not a toll-free number).

SECTION 30. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)

.01 De minimis original issue discount (OID).

(1) Description of change. This change applies to a taxpayer that wants to

change to the principal-reduction method of accounting described in section 5 of Rev.

Proc. 97-39, 1997-2 C.B. 485. The principal-reduction method of accounting is an

aggregate method of accounting for de minimis OID (discount) on certain loans

originated by the taxpayer.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(3) Description. The principal-reduction method of accounting is a

permissible method for use by taxpayers to account for discount on one or more

categories of loans described in section 4.02 or 4.03 of Rev. Proc. 97-39. If the

principal-reduction method is used to account for any loans in a category of loans, the

method must be used for the entire category of loans. The principal-reduction method

applies only to loans described in section 3 of Rev. Proc. 97-39.

(4) Manner of making change.

 428

(a) This change is made on a cut-off basis and applies only to loans

described in section 3 of Rev. Proc. 97-39 that were acquired on or after the beginning

of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor

required.

(b) The taxpayer must maintain books and records sufficient to satisfy

the director that old and new loans have been adequately segregated.

(5) Additional requirements. On a statement attached to the Form 3115, the

taxpayer must:

(a) identify the categories of loans to which the proposed method will

apply; and

(b) describe any “additional categories” permitted under section 4.03 of

Rev. Proc. 97-39.

(6) No audit protection. A taxpayer does not receive audit protection under

section 8.01 of Rev. Proc. 2015-13 in connection with this change. See section 8.02(2)

of Rev. Proc. 2015-13.

(7) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 30.01 is “72.”

(8) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

.02 Proportional method of accounting for OID on a pool of credit card

receivables.

(1) Description of change. This change applies to a taxpayer that wants to

change to the proportional method of accounting for OID on a pool of credit card
 429

receivables as described in Rev. Proc. 2013-26, 2013-22 I.R.B. 1160, as modified by

Rev. Proc. 2021-35, 2021-35 I.R.B. 355, to reflect changes made to the treatment of

certain credit card fees by § 451(b), as amended by Public Law 115-97, 131 Stat. 2054

(Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), and §§

1.451-3 and 1.1275-2(l). The proportional method of accounting applies to OID and

certain amounts that would not otherwise be treated as OID (for example, market

discount or bond premium). Under § 1.1275-2(l), OID does not include items that are

subject to the timing rules in § 1.451-3, such as credit card late fees, credit card cash

advance fees, and interchange fees (specified credit card fees). Therefore, items

subject to the timing rules in § 1.451-3, such as specified credit card fees, are excluded

from the proportional method. See section 16.10 of this revenue procedure for the

procedures by which a taxpayer, including a taxpayer using the proportional method of

accounting, can change its method of accounting for specified credit card fees to

comply with § 451(b), as amended by the TCJA, and §§ 1.451-3 and 1.1275-2(l).

(2) Manner of making change.

(a) This change is made on a cut-off basis. Accordingly, a § 481(a)

adjustment is neither required nor permitted.

(b) The unaccrued OID for the pool as of the beginning of the first period

in the year of change is equal to the unaccrued OID for the pool as of the end of the

preceding taxable year under the taxpayer’s previous method of accounting for OID on

the pool, reduced by any amounts representing charges or fees that are not properly

treated as OID (for example, specified credit card fees).

 430

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 30.02 is "183."

(4) Contact information. For further information regarding this section, please

contact Deepan Patel at (202) 317-3423 (not a toll-free number).

SECTION 31. MARKET DISCOUNT BONDS (§ 1278)

.01 Revocation of § 1278(b) election.

(1) Description of change. This change applies to a taxpayer that wants to

change its method of accounting for market discount bonds by revoking its § 1278(b)

election. Under § 1278(b), a taxpayer may elect a method of accounting under which

market discount is currently included in gross income for the taxable years to which the

discount is attributable. See Rev. Proc. 92-67, 1992-2 C.B. 429, for the procedures to

make a § 1278(b) election (including a deemed § 1278(b) election for certain taxable

years). For purposes of this section 31.01, a taxpayer also is treated as having made a

deemed § 1278(b) election for a taxable year if, for one or more market discount bonds

that were acquired by the taxpayer during that taxable year, the taxpayer includes in

gross income on the tax return for that taxable year and on the tax return for the

following taxable year the market discount attributable to each taxable year, other than

as a result of a disposition of the bond or a partial principal payment on the bond. The

procedures for revoking a § 1278 election were formerly provided in section 7 of Rev.

Proc. 92-67.

(2) Revocation of election. The revocation of a § 1278(b) election (or a

deemed § 1278(b) election) applies to all market discount bonds that are held by the

taxpayer on the first day of the first taxable year for which the revocation is effective
 431

(year of change), and to all market discount bonds that are subsequently acquired by

the taxpayer. If a § 1278(b) election (or a deemed § 1278(b) election) is revoked, then

for purposes of § 1278(a), accrued market discount with respect to any bond previously

subject to the election means accrued market discount as defined in § 1276(b) less any

market discount included in income while the bond was subject to the § 1278(b) election

(or the deemed § 1278(b) election).

(3) Manner of making change. This change is made on a cut-off basis and

applies only to market discount accruing on or after the beginning of the year of change.

Accordingly, a § 481(a) adjustment is neither permitted nor required. Market discount

accruing on a bond prior to the year of change was currently included in income and

market discount accruing on the bond on and after the first day of the year of change is

included in income generally upon disposition of the bond. See § 1276(a). Because a

cut-off basis is prescribed for this change, the basis of any bond, adjusted for amounts

previously included in income during the period of the election, is not affected by the

revocation.

(4) Additional requirements. On a statement attached to the Form 3115, the

taxpayer must provide:

(a) the reason(s) for revoking the § 1278(b) election (or deemed

§ 1278(b) election);

(b) a description of the method by which, and the date on which, the

taxpayer made the § 1278(b) election (or deemed § 1278(b) election) that is being

revoked; and

(c) a statement that, after the revocation, the taxpayer will not make a

constant interest rate election for any bond that has been subject to the § 1278(b)
 432

election (or deemed § 1278(b) election) being revoked and for which a constant interest

rate election was not effective in the year of acquisition.

(5) Audit protection. A taxpayer may receive audit protection, as provided in

section 8.01 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, in connection with this change.

Any audit protection applicable to this change under section 8.01 of Rev. Proc. 2015-13

does not preclude the Commissioner from examining the method used by the taxpayer

to determine the amount of accrued market discount under § 1276(b) for a taxable year

prior to the year of change.

(6) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 31.01 is “73.”

(7) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

SECTION 32. SHORT-TERM OBLIGATIONS (§ 1281)

.01 Interest income on short-term obligations.

(1) Description of change.

(a) This change applies to a taxpayer that wants to change its method of

accounting to comply with § 1281 for interest income on short-term obligations.

(b) Under § 1281, a holder of certain short-term obligations, including a

bank as defined in § 581, must include in gross income any accrued interest income on

such obligations, regardless of the holder’s overall method of accounting. Section 1281

applies to all types of interest income, including acquisition discount, original issue

discount (OID), and stated interest. See S. Rep. No. 99-313, 99th Cong., 2d Sess. 903

(1986), 1986-3 (Vol. 3) C.B. 903.

 433

(c) Section 1283(a)(1) generally defines a short-term obligation as any

bond, debenture, note, certificate, or other evidence of indebtedness that matures in

one year or less from its issue date.

(d) Under §§ 1281(a) and 1283(c), a holder of a short-term obligation

subject to § 1281 must include in gross income an amount equal to the sum of the daily

portions of the acquisition discount or OID, whichever is applicable, on the obligation for

each day during the taxable year that the obligation is held by the holder. See

§ 1283(b), as modified by § 1283(c), to determine the daily portions of acquisition

discount or OID. In addition, § 1281(a) requires the holder to include in gross income

any stated interest that is payable on the short-term obligation (other than stated

interest taken into account to determine the amount of the acquisition discount or OID)

as it accrues.

(2) Section 481(a) adjustment period. A taxpayer must take the entire

§ 481(a) adjustment into account in computing taxable income for the year of change.

(3) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 32.01 is “74.”

(4) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

.02 Stated interest on short-term loans of cash method banks.

(1) Description of change. This change applies to a bank that uses the cash

receipts and disbursements (cash) method of accounting as its overall accounting

method and that wants to change its method of accounting from accruing stated interest

on short-term loans made in the ordinary course of business to using the cash method
 434

for that interest. For example, see Security State Bank v. Commissioner, 214 F.3d

1254 (10th Cir. 2000), aff’g 111 T.C. 210 (1998), acq., 2001-1 C.B. xix; and Security

Bank Minnesota v. Commissioner, 994 F.2d 432 (8th Cir. 1993), aff’g 98 T.C. 33 (1992),

in which the courts held that § 1281 does not apply to short-term loans made by a cash

method bank in the ordinary course of its business.

(2) Certain eligibility rule inapplicable. The eligibility rule in section 5.01(1)(f)

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to this change.

(3) Section 481(a) adjustment period. A taxpayer making this change must

take the entire § 481(a) adjustment into account in computing taxable income for the

year of change.

(4) Designated automatic accounting method change number. The

designated automatic accounting method change number for a change under this

section 32.02 is “75.”

(5) Contact information. For further information regarding a change under

this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

EFFECTIVE DATE
.01 In general. Except as otherwise provided under this EFFECTIVE DATE

section, this revenue procedure is effective for a Form 3115 filed on or after January 31,

2022, for a year of change ending on or after May 31, 2021, that is filed under the

automatic change procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and

modified by Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc.

2021-34, 2021-35 I.R.B. 337, Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, Rev. Proc.

2017-59, 2017-48 I.R.B. 543, and section 17.02(b) and (c) of Rev. Proc. 2016-1, 2016-1

I.R.B. 1.
 435

.02 Transition rules. The following transition rules apply:

(1) Limited time period to convert a Form 3115 filed under the non-automatic

change procedures in Rev. Proc. 2015-13. Except as provided in section 6.22 of this

revenue procedure, section 5.02 of Rev. Proc. 2021-34, or section 7.02 of Rev. Proc.

2022-09, as applicable, if before January 31, 2022, 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 this

revenue procedure, and the Form 3115 is pending with the national office on January

31, 2022, the taxpayer may choose to make the change in method of accounting under

the automatic change procedures in 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 (if unknown,

fax the notification to 855-574-9031 or send the notification to the attention of Control

Clerk, CC:ITA, Room 4512 at the address specified in section 9.08(6) of Rev. Proc.

2022-1, 2022-1 I.R.B. 1 (or its successor)) for the Form 3115 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) March 2, 2022, 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

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 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.

 436

A taxpayer converting a Form 3115 to the automatic change procedures in Rev.

Proc. 2015-13 for a change in method of accounting described in this revenue

procedure must resubmit a Form 3115 that conforms to the automatic change

procedures, with a copy of the national office letter sent acknowledging the taxpayer’s

request attached, to the IRS in Ogden, UT by the earlier of (a) the 30th calendar day

after the date of the national office’s letter acknowledging the taxpayer’s request, or (b)

the date the taxpayer is required to file the duplicate copy of the Form 3115 under

SECTION 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13. See SECTION 6.03(3) of Rev. Proc.

2015-13 regarding additional required copies of Form 3115.

For purposes of the eligibility rules in SECTION 5 of Rev. Proc. 2015-13, the

duplicate copy of the timely resubmitted Form 3115 will be considered filed as of the

date the taxpayer originally filed the converted Form 3115 under the non-automatic

change procedures in Rev. Proc. 2015-13. This paragraph (1) does not extend the date

the taxpayer must file the original (converted) Form 3115 under SECTION

6.03(1)(a)(i)(A) of Rev. Proc. 2015-13.

A Form 3115 filed under the non-automatic change procedures in Rev. Proc.

2015-13 before January 31, 2022, for a change in method of accounting described in

this revenue procedure, will be disregarded for purposes of the prior five year change

rules in SECTIONS 5.04 and 5.05 of Rev. Proc. 2015-13 if the taxpayer converts the

Form 3115 pursuant to this paragraph (1).

(2) Forms 3115 for changes in methods of accounting that can no longer be

filed under the automatic change procedures. Except as provided in subsection

.02(2)(a) of this EFFECTIVE DATE section, section 5.03 of Rev. Proc. 2021-34, or

section 7.02 of Rev. Proc. 2022-09, as applicable, the following transition rules apply to
 437

the changes in methods of accounting that can no longer be filed under the automatic

change procedures in Rev. Proc. 2015-13 because of changes made in this revenue

procedure. An example of such changes in methods of accounting is described in

subsection .01(10) of the SIGNIFICANT CHANGES section of this revenue procedure.

(a) If before January 31, 2022, a taxpayer properly filed the original, or the

duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc.

2015-13 for a change in method of accounting that can no longer be filed under the

automatic change procedures in Rev. Proc. 2015-13, the taxpayer may continue to

make that change in method of accounting under the automatic change procedures in

Rev. Proc. 2015-13 for the year of change. The taxpayer is not required to resubmit a

duplicate copy of the Form 3115 to the IRS in Ogden, UT under section 6.03(1)(a)(i)(B)

of Rev. Proc. 2015-13.

(b) If before January 31, 2022, a taxpayer did not properly file the original, or

the duplicate copy, of a Form 3115 under the automatic change procedures in Rev.

Proc. 2015-13 for a change in method of accounting that can no longer be filed under

the automatic change procedures in Rev. Proc. 2015-13, the taxpayer must make that

change in method of accounting under the non-automatic change procedures in Rev.

Proc. 2015-13. Notwithstanding § 1.446-1(e)(3)(i), the taxpayer may file a Form 3115 to

request the Commissioner’s consent to change the method of accounting under the

non-automatic change procedures in Rev. Proc. 2015-13 for the taxpayer’s last taxable

year ending before January 31, 2022, on or before the due date of the federal income

tax return for that taxable year. Solely for purposes of this paragraph (2)(b), the due

date of the taxpayer’s federal income tax return includes extensions, notwithstanding

that the taxpayer may not have extended the due date.
 438

(3) Transition rule for taxpayers that properly filed the duplicate copy of Form

3115 before January 31, 2022, for a change that continues to qualify under the

automatic change procedures.

(a) Option to implement change as described in Rev. Proc. 2019-43 or under this

revenue procedure. If, before January 31, 2022, a taxpayer properly filed the duplicate

copy of the Form 3115, pursuant to section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13,

requesting consent to change its method of accounting for a change described in Rev.

Proc. 2019-43, 2019-48 I.R.B. 1107, as modified prior to January 31, 2022, that

continues to be eligible for the automatic change procedures in this revenue procedure,

but has not filed its timely filed (including extensions) original Federal income tax return

for the year of change implementing the change, the taxpayer may choose to implement

the change as described in either Rev. Proc. 2019-43 or this revenue procedure, but not

both.

(b) Procedures to implement change as described Rev. Proc. 2019-43. A taxpayer

who meets the requirements of paragraph (3)(a) and chooses to implement the change

as described in Rev. Proc. 2019-43 is not required to resubmit a duplicate copy of the

Form 3115 to the IRS in Ogden, UT. However, if requested by the Director, the

taxpayer must provide written substantiation that the duplicate copy of the Form 3115

was filed before January 31, 2022, pursuant to section 6.03(1)(a)(i)(B) of Rev. Proc.

2015-13. Such written substantiation may include proof of mailing or faxing, as

appropriate, of the duplicate copy of the Form 3115.

(c) Procedures to implement the change as described in this revenue procedure. A

taxpayer who meets the requirements of paragraph (3)(a) and chooses to implement

the change as described in this revenue procedure, must resubmit a duplicate copy
 439

(with signature) of the Form 3115 to the IRS in Ogden, UT for the year of change under

this revenue procedure, pursuant to the requirements of section 6.03(1)(a)(i)(B) of Rev.

Proc. 2015-13. The resubmitted duplicate copy must include the following statement on

the top of page 1 of the Form 3115: “FILED UNDER REV. PROC. 2022-14, AS

PROVIDED IN SECTION .02(3)(c) OF THE EFFECTIVE DATE SECTION OF REV.

PROC. 2022-14”. For purposes of the eligibility rules in section 5 of Rev. Proc. 2015-

13, the duplicate copy of the resubmitted Form 3115 will be considered filed as of the

date the taxpayer originally filed the duplicate copy of the Form 3115 requesting the

change under Rev. Proc. 2019-43. This paragraph (3)(c) does not extend the date the

taxpayer must file either the resubmitted duplicate copy or original Form 3115 under

section 6.03(1)(a) of Rev. Proc. 2015-13. If requested by the Director, the taxpayer

must provide written substantiation that the duplicate copy of the Form 3115 requesting

the change under Rec. Proc. 2019-43 was filed before January 31, 2022, pursuant to

section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13. Such written substantiation may include

proof of mailing or faxing, as appropriate, of the duplicate copy of the Form 3115.

EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure amplifies and modifies Rev. Proc. 2019-43, 2019-48

I.R.B. 1107. Rev. Proc. 2019-43, as amplified and modified is superseded in part. The

second sentence in the subsection .01 under the EFFECT ON OTHER DOCUMENTS

section of Rev. Proc. 2019-43 remains in effect (that is, the second sentences in

sections 14.01 and 14.02, and sections 14.04, 14.05, 14.06, and 14.07 of Rev. Proc.

2011-14, 2011-4 I.R.B. 330, remain in effect). All other sections of Rev. Proc. 2019-43

are superseded.
 440

.02 Rev. Proc. 2011-46, 2011-42 I.R.B. 518, is modified as follows:

(1) Section 5.02(3)(a) is modified to remove the first two sentences in the

Manner of Making Change section and to substitute the following three new sentences

in its place:

(a) In accordance with § 1.446-1(e)(3)(ii), the requirement under § 1.446-

1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is

authorized for this change. Notwithstanding the definition of Form 3115 in section 3.07

of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in lieu of a Form 3115 that is

permitted under this paragraph 5.02(3)(a) is considered a Form 3115 for purposes of

the automatic consent procedures in Rev. Proc. 2015-13. However, the requirement to

file the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived.

(2) Section 5.03(2)(a) is modified to remove the first two sentences in the

Manner of Making Change section and to substitute the following three new sentences

in its place:

(a) In accordance with § 1.446-1(e)(3)(ii), the requirement under § 1.446-

1(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is

authorized for this change. Notwithstanding the definition of Form 3115 in section 3.07

of Rev. Proc. 2015-13, the statement in lieu of a Form 3115 that is permitted under this

paragraph 5.03(2)(a) is considered a Form 3115 for purposes of the automatic consent

procedures in Rev. Proc. 2015-13. However, the requirement to file the duplicate copy,

under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived.

.03 Rev. Rul. 2004-62, 2004-1 C.B. 1072, is modified to remove the second

sentence in the CHANGE IN METHOD OF ACCOUNTING section and to substitute the

following new two sentences in its place:

 441

A taxpayer that wants to change its method of accounting to comply with this

revenue ruling must follow the automatic change procedures in Rev. Proc. 2015-13,

2015-5 I.R.B. 419, (or successor) if the taxpayer is eligible to request such consent

under the automatic change procedures therein. The eligibility rules in section 5.01(1)

of Rev. Proc. 2015-13 (or successor) apply to a change in method of accounting

described in section 3.04 of Rev. Proc. 2022-14, 2022-7 I.R.B. ___ (or successor).

.04 Rev. Rul. 2000-7, 2000-9 C.B. 712, is modified to remove the fourth sentence

of the paragraph in the APPLICATION section and to substitute the following new fourth

sentence:

A taxpayer that wants to change its method of accounting to conform with the

holding in this revenue ruling must follow the automatic change procedures in Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, (or successor) if the taxpayer is eligible to request

such consent under the automatic change procedures therein, except that the eligibility

rule in section 5.01(1)(f) of Rev. Proc. 2015-13 (or successor) does not apply to a

change described in section 11.03 of Rev. Proc. 2022-14, 2022-7 I.R.B. ___ (or

successor).

.05 Rev. Rul. 2000-4, 2000-1 C.B. 331, is modified to remove the second

sentence of the paragraph in the APPLICATION section, and to substitute the following

two new sentences in that paragraph in its place:

A taxpayer that wants to change its method of accounting to conform with the

holding in this revenue ruling must follow the automatic change procedures in Rev.

Proc. 2015-13, 2015-5 I.R.B. 419, (or successor) if the taxpayer is eligible to request

such consent under the automatic change procedures therein. The eligibility rules in
 442

section 5.01(1) of Rev. Proc. 2015-13 (or successor) apply to a change in method of

accounting under section 3.02 of Rev. Proc. 2022-14, 2022-7 I.R.B. ___ (or successor).

.06 Rev. Proc. 2007-48, 2007-2 C.B. 110, is modified to remove section 5.06(1)

and to substitute it with the following sentence:

The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419,

(or successor) does not apply to a change in method of accounting described in section

5.06 of Rev. Proc. 2007-48, and made under section 22.08 of Rev. Proc. 2022-14,

2022-7 I.R.B. ___ (or successor).

. 07 Rev. Proc. 2007-16, 2007-1 C.B. 358, is modified as follows:

(1) The second sentence in section 4.01 is modified by substituting “and Rev.

Proc. 2015-13, 2015-5 I.R.B. 419” for “and, as applicable, Rev. Proc. 97-27 or Rev.

Proc. 2002-9.”

(2) The first sentence in section 4.02 is modified by:

(a) Substituting “the non-automatic change or automatic change

procedures of Rev. Proc. 2015-13” for “Rev. Proc. 97-27 or Rev. Proc. 2002-9, as

applicable,”; and

(b) Substituting “(as defined in section 3.19 of Rev. Proc. 2015-13)” for

“(as defined in section 5.02(2) of Rev. Proc. 97-27 or section 5.02 of Rev. Proc. 2002-9,

as applicable)”.

(c) Section 4.03 is modified by substituting “Rev. Proc. 2015-13,” for

“Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable,”.

PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been

reviewed and approved by the Office of Management and Budget under OMB control
 443

numbers 1545-0074 for individual filers, 1545-0123 for business filers, and 1545-0047

for tax-exempt filers, in accordance with the Paperwork Reduction Act (44 U.S.C.

3507(d)). An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information unless the collection of information displays a

valid OMB control number. The collections of information in this revenue procedure are

in sections 3, 5, 6, 7, 8, 9, 11, 12, 15, 16, 17, 18, 20, 21, 22, 23, 24, 25, 26, 29, 30, 31,

and .02(3) of the Effective Date. This information is necessary and will be used to

determine whether the taxpayer properly changed to a permitted method of accounting.

The collections of information are required for the taxpayer to obtain consent to change

its method of accounting.

SIGNIFICANT CHANGES
.01 Significant changes made by this revenue procedure to the List of Automatic

Changes in Rev. Proc. 2019-43 include:

(1) Section 20.01, relating to a taxpayer changing its timing of incurring

liabilities for employee compensation, is modified to add new paragraph (4) which

allows a taxpayer using an overall accrual method of accounting to change its method

of accounting for taking into account certain employee commission liabilities;

(2) Section 6.01, relating to impermissible to permissible depreciation

method changes, is modified by removing language in paragraph (1)(c)(viii) and

paragraph (1)(c)(xvii) allowing a Form 3115 to be filed under 6.01 for certain changes

described in sections 6.04, 6.05 and/or 6.19 of this revenue procedure if the original

Form 3115 was filed between specified dates beginning and ending before January 31,

2022, because this language is obsolete;

 444

(3) Section 6.18, relating to late elections or revocation of elections under

§ 168(k)(5), (7), and (10), is modified to clarify the waiver of the eligibility rules in

sections 5.01(1)(d) and (f) of Rev. Proc. 2015-13 applies for the taxpayer’s first, second,

or third taxable year succeeding the taxpayer’s taxable year beginning in 2016 or 2017

and ending on or after September 28, 2017;

(4) Section 6.19, relating to changes for qualified improvement property

placed in service after December 31, 2017, is modified by removing language in

paragraph (2) providing for a waiver of the eligibility rules in section 5.01(d) and section

5.01(f) of Rev. Proc. 2015-13 for changes made under section 6.19 for a taxable year

for which the original Form 3115 was filed between specified dates beginning and

ending before January 31, 2022, because this language is obsolete;

(5) Section 6.20, relating to certain late elections or revocations of elections

under sections 168 and 1502, is modified by removing language in paragraph (2)

requiring a changes under 6.20(1)(a)(i) and (a)(ii) and (b)(i) and (b)(ii) to be made for a

taxable year for which the taxpayer timely files an original federal income tax return

between specified dates beginning and ending before January 31, 2022, because this

language is obsolete. Section 6.20 is further modified by removing language in

paragraph (3) providing for a waiver of the eligibility rules under section 5.01(d) and

section 5.01(f) of Rev. Proc. 2015-13 for changes made under section 6.20(1)(a)(i) and

(a)(ii) and (b)(i) and (b)(ii) for a taxable year for which the taxpayer timely files an

original federal income tax return between specified dates beginning and ending before

January 31, 2022, because this language is obsolete;

(6) Section 6.21, relating to changes in depreciation as a result of applying

the additional first year depreciation regulations, is modified by removing language in

 445

paragraph (2)(b) providing of a waiver of the eligibility rule in section 5.01(f) of Rev.

Proc. 2015-13 for a change for the property or specified plant within the scope of

section 4 of Rev. Proc. 2020-50 as modified by section 6.21(1)(b) of this revenue

procedure, where the taxpayer files an original federal income tax return between

specified dates beginning and ending before January 31, 2022, because this language

is obsolete;

(7) Section 6.21, relating to a change in depreciation as a result of applying

the additional first year depreciation regulations, is modified to clarify paragraph (3)(b)

as follows. First, an amended federal income tax return, or AAR, as applicable, to

change from the impermissible method of determining depreciation to the permissible

method of determining depreciation for the 1-year Property or 1-year Plant must be filed

prior to the date the taxpayer files its federal income tax return for the taxable year

succeeding the 1-year Property’s placed-in-service year or 1-year Plant’s planting or

grafting year, as applicable. Second, if the 1-year Property or 1-year Plant is within the

scope of section 4.03 of Rev. Proc. 2020-50, as modified by section 6.21(1)(b) of this

revenue procedure, the taxpayer may change from the impermissible method of

determining depreciation to the permissible method of determining depreciation for the

1-year Property or 1-year Plant by filing an amended federal income tax return, or AAR,

as applicable, in accordance with section 4.03(4)(a) of Rev. Proc. 2020-50;

(8) Section 6.22, relating to depreciation of tangible property under § 168(g)

by controlled foreign corporations, is modified to require any § 481(a) adjustment (or

component of a § 481(a) adjustment) from a change under this section that shares all of

the same characteristics as any other § 481(a) adjustment (or component) from a

change under this section included in the same Form 3115 to be provided as a single
 446

§ 481(a) adjustment on the Form 3115, and any § 481(a) adjustment (or component)

from a change under this section that does not share all of the same characteristics as

any other § 481(a) adjustment (or component) from a change under this section

included in the same Form 3115 to be provided as a separate § 481(a) adjustment on

the Form 3115;

(9) Section 7.01, relating to a change in method of accounting for the

treatment of expenditures that qualify as research and experimental expenditures under

§ 174 as in effect prior to amendment by § 13206 of Public Law 115-97, 131 Stat. 2054

(Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), is

modified to provide that section 7.01 does not apply to any amount paid or incurred in

any taxable year for which § 174 as amended by § 13206 of the TCJA is in effect;

(10) Section 9.01, relating to a change in method of accounting for the costs

of computer software to a method described in Rev. Proc. 2000-50, 2000-2 C.B. 601, as

modified by Rev. Proc. 2007-16, 2007-1 C.B. 358, is modified to provide that section 5

of Rev. Proc. 2000-50 (costs of developing computer software) does not apply to any

amount paid or incurred in any taxable year for which § 174 as amended by § 13206 of

Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax

Cuts and Jobs Act (TCJA) is in effect;

(11) Section 12.01, relating to certain uniform capitalization (UNICAP)

methods used by resellers and reseller-producers, is modified as follows. First, to

provide that section 12.01 applies to a taxpayer that uses a historic absorption ratio

election with the simplified production method, the modified simplified production

method, or the simplified resale method and wants to change to a different method for

determining the additional section 263A costs that must be capitalized to ending
 447

inventories or other eligible property on hand at the end of the taxable year (that is, to a

different simplified method or a facts-and-circumstances method). Second, to remove

the transition rule in section 12.01(1)(b)(ii)(B) because this language is obsolete;

(12) Section 12.02, relating to certain uniform capitalization (UNICAP)

methods used by producers and reseller-producers, is modified as follows. First, to

provide that section 12.02 applies to a taxpayer that uses a historic absorption ratio

election with the simplified production method or the modified simplified production

method and wants to change to a different method for determining the additional section

263A costs that must be capitalized to ending inventories or other eligible property on

hand at the end of the taxable year (that is, to a different simplified method or a facts-

and-circumstances method). Second, to remove the transition rule in section

12.02(1)(b)(ii)(B) because this language is obsolete;

(13) Section 12.14, relating to interest capitization, is modified to provide that

section 12.14 does not apply to a taxpayer that wants to change its method of

accounting for interest from either capitalizing interest to not capitalizing interest or not

capitalizing interest to capitalizing interest for improvements that involve the associated

property rules in § 1.263A-11(e)(1)(ii)(B);

(14) Section 13.01, relating to a taxpayer changing its method of accounting

to comply with § 267, is clarified to provide such section also applies to a taxpayer that,

by reason of the exception in § 1.267(a)-3(c)(4), wants to change its method of

accounting with respect to the deduction of amounts owed to a controlled foreign

corporation (as defined in § 957) (CFC) that does not have any United States

shareholders (as defined in § 951(b)) owning stock of the CFC within the meaning of §

958(a);
 448

(15) Section 15.10, relating to a specified transportation industry taxpayer

that wants to change to the overall cash receipts and disbursement (cash) method, has

been modified to provide that such taxpayer must have average annual gross receipts

of more than the inflation-adjusted amount provided in § 448(c)(4) and not in excess of

$50,000,000;

(16) Section 15.17, relating to a change to the overall cash method or to a

method of accounting in which a small business taxpayer uses an accrual method for

purchases and sales of inventories and uses the cash method for computing all other

items of income and expense, is modified to clarify that the acceleration of a § 481(a)

adjustment remaining on a prior overall change in method of accounting to an accrual

method, as provided in section 15.17(7)(a) of this revenue procedure, applies to a

taxpayer making a change described in section 15.17(2)(a) or (b) of this revenue

procedure;

(17) Section 16.10 (formerly section 16.12 of Rev. Proc. 2019-43, as

modified by Rev. Proc. 2021-34), relating to changes in the timing of income recognition

under § 451(b) and (c), is modified as follows. First, paragraph 16.10(4)(b)(ii)(C) is

modified to provide that a taxpayer making a change to the full inclusion method under

proposed section 1.451-8(a) is not permitted to make the change on a cut-off basis.

Second, paragraph 16.10(5) is modified to provide that a change made under section

16.10(2)(a)(iii)(A), (B), (F) and/or (G), section 16.10(2)(a)(iv)(A), (B), (C), (G) and/or (H),

or section 16.10(2)(b)(ii)(A), (B), and/or (F) will be disregarded for purposes of section

5.01(1)(f) of Rev. Proc. 2015-13 if: (i) the change is made for the taxpayer’s early

application year, as defined in section 16.10(4)(c)(i) or, in the case of a taxpayer that

does not apply § 1.451-3 and/or § 1.451-8 for a taxable year beginning before January
 449

1, 2021, for the taxpayer’s first taxable year beginning on or after January 1, 2021, and

(ii) the § 481(a) adjustment required to implement the change is zero;

(18) Section 16.10 (formerly section 16.12 of Rev. Proc. 2019-43, as

modified by Rev. Proc. 2021-34) is clarified to provide (i) an example on how the 5-year

item eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 applies to changes made

under section 16.10 and (ii) the situations in which the cost-offset related inventory

method changes in sections 16.10(2)(a)(iii)(E), 16.10(2)(a)(iv)(F), and 16.10(2)(b)(ii)(E)

apply, and to provide guidance regarding the ordering of concurrent cost-offset and

cost-offset related inventory method changes;

(19) Section 20.01, relating to a taxpayer changing its timing of incurring

liabilities for employee compensation, is modified to provide paragraph (1) does not

include any amounts for medical services that are deferred compensation under § 404;

(20) Section 20.12, relating to an accrual method taxpayer changing its

treatment of Ratable Service Contracts to conform to the safe harbor method provided

by Rev. Proc. 2015-39, is modified to remove paragraph (2), relating to the temporary

waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because the

paragraph is obsolete;

(21) Section 22.18, relating to a small business taxpayer, as defined in

section 22.18(2) of this revenue procedure, that wants to change its § 471 method of

accounting for inventory, is modified to add paragraph 22.18(5)(c), providing that a

change made under section 22.18(1)(b) of this revenue procedure will be disregarded

for purposes of section 5.01(1)(f) of Rev. Proc. 2015-13 if: (i) the change is made for the

taxpayer’s early application year, as defined in section 16.10(4)(c)(i) or, in the case of a

taxpayer that does not apply § 1.471-1(b) for a taxable year beginning before January 5,
 450

2021, for the taxpayer’s first taxable year beginning on or after January 5, 2021, and

(ii) the § 481(a) adjustment required to implement the change is zero; and

(22) Section 26.04, relating to a change in basis of computing reserves under

§ 807(f), is modified as follows. First, paragraphs (2)(a) and (b) are modified to clarify

the manner in which a nonlife insurance company implements a change in basis of

computing life insurance reserves, to require the netting of § 481(a) adjustments at the

level of each item referred to in § 807(c), and to provide that a taxpayer that was an

insurance company for the year of change does not accelerate a § 481(a) adjustment

merely because it changes from a life insurance company to a nonlife insurance

company or vice versa. Second, paragraph (2)(d)(i), relating to the information required

to be furnished with a taxpayer’s return or on Form 3115, is removed because § 1.801-

5(c) has been removed by T.D. 9911, 2020-45 I.R.B. 966 (November 2, 2020).

DRAFTING INFORMATION
The principal author of this revenue procedure is Bruce Chang of the Office of

Associate Chief Counsel (Income Tax and Accounting). For further information

regarding this revenue procedure, contact Mr. Chang at (202) 317-4870 (not a toll-free

number).

For further information regarding a specific change in method of accounting in

this revenue procedure, contact the individual listed in the “Contact Person(s)” section

located at the end of each section of the revenue procedure (numbers are not toll-free)

or see the CONTACT LIST at the end of this revenue procedure. The contact person is

with one of the following Offices of Associate Chief Counsel: Corporate (CORP),

Financial Institutions and Products (FI&P), Income Tax & Accounting (IT&A),
 451

International (INTL), Passthroughs and Special Industries (P&SI), or Employee Benefits,

Exempt Organizations, and Employment Taxes (EEE).

 452

LIST OF AUTOMATIC CHANGES CONTACT LIST

Designated
Automatic
Section Accounting
Number Change Number Contact Name Telephone Number Office
1.01 91 William E. Blanchard (202) 317-3900 FI&P
2.01 1 William Ruane (202) 317-4718 IT&A
3.01 2 Alicia Lee-Won (202) 317-7003 IT&A
3.02 3 Justin Grill (202) 317-7003 IT&A
3.03 4 Renay France (202) 317-7003 IT&A
3.04 86 Alexa Dubert (202) 317-7003 IT&A
3.05 See § 11.08 See § 11.08 See § 11.08 IT&A
3.06 See § 11.08 See § 11.08 See § 11.08 IT&A
3.07 158 Ian Heminsley (202) 317-5100 IT&A
3.08 159 Sophia Wang (202) 317-5100 IT&A
3.09 160 Natasha Mulleneaux (202) 317-5100 IT&A
3.10 182 Morgan Lawrence (202) 317-7011 IT&A
3.11 208, 209 Merrill Feldstein (202) 317-5100 IT&A
4.01 5 Renay France (202) 317-7003 IT&A
4.02 211 K. Scott Brown (202) 317-6945 FI&P
5.01 16 William E. Blanchard (202) 317-3900 FI&P
5.02 212 Anisa Afshar (202) 317-6934 INTL
6.01 7 James Liechty (202) 317-7005 IT&A
6.02 8 Bruce Chang (202) 317-7005 IT&A
6.03 10 Edward Schwartz (202) 317-7006 IT&A
6.04 87 Elizabeth Binder (202) 317-7005 IT&A
6.05 88 Elizabeth Binder (202) 317-7005 IT&A
6.06 89 Bernard Harvey (202) 317-7005 IT&A
6.07 107 James Liechty (202) 317-7005 IT&A
6.08 145 Elizabeth Binder (202) 317-7005 IT&A
6.09 157 Charles Magee (202) 317-7005 IT&A
6.10 198 Patrick Clinton (202) 317-7005 IT&A
 453

6.11 199 Patrick Clinton (202) 317-7005 IT&A

6.12 200 Patrick Clinton (202) 317-7005 IT&A
6.13 205 Patrick Clinton (202) 317-7005 IT&A
6.14 206 Patrick Clinton (202) 317-7005 IT&A
6.15 207 Patrick Clinton (202) 317-7005 IT&A
Summary of changes
related to dispositions of
6.16 MACRS property
6.17 210 Charles Magee (202) 317-7005 IT&A
6.18 241 Elizabeth Binder (202) 317-7005 IT&A
6.19 244 Elizabeth Binder (202) 317-7005 IT&A
6.20 245 Elizabeth Binder (202) 317-7005 IT&A
6.21 246, 247 Elizabeth Binder (202) 317-7005 IT&A
6.22 248 Natalie Punchak (202) 317-6934 INTL
7.01 17 Martha M. Garcia (202) 317-6853 P&SI
John M. Deininger (202) 317-6853 P&SI
8.01 152 Charles Hyde (202) 317-5214 P&SI
9.01 18 Bruce Chang (202) 317-7005 IT&A
10.01 223 Elizabeth Binder (202) 317-7005 IT&A
10.02 228 Sharon Horn (202) 317-7003 IT&A
10.03 229 Meghan Howard (202) 317-5055 P&SI

11.01 19 Alexa Dubert (202) 317-7003 IT&A

11.02 20 Douglas Kim (202) 317-7003 IT&A

11.03 21 Douglas Kim (202) 317-7003 IT&A

11.04 47 Alexa Dubert (202) 317-7003 IT&A

11.05 78 Alicia Lee-Won (202) 317-7003 IT&A

11.06 109 Stephen Rothandler (202) 317-7003 IT&A

11.07 121 Stephen Rothandler (202) 317-7003 IT&A
11.08 184-193 Douglas Kim (202) 317-7003 IT&A
11.09 213 Douglas Kim (202) 317-7003 IT&A
 454

11.10 222 Merrill Feldstein (202) 317-5100 IT&A

12.01 22 Megan McLaughlin (202) 317-7007 IT&A
12.02 23 Megan McLaughlin (202) 317-7007 IT&A
12.03 25 Megan McLaughlin (202) 317-7007 IT&A
12.04 77 Megan McLaughlin (202) 317-7007 IT&A
12.05 92 Megan McLaughlin (202) 317-7007 IT&A
12.06 150, 151 Megan McLaughlin (202) 317-7007 IT&A
12.07 181 Patrick Clinton (202) 317-7005 IT&A
12.08 194 Megan McLaughlin (202) 317-7007 IT&A
12.09 195 Roy Hirschhorn (202) 317-7007 IT&A
12.10 201 Andrew Braden (202) 317-7007 IT&A
12.11 202 Andrew Braden (202) 317-7007 IT&A
12.12 214 Megan McLaughlin (202) 317-7007 IT&A
12.13 215 Andrew Braden (202) 317-7007 IT&A
12.14 224 Megan McLaughlin (202) 317-7007 IT&A
12.15 232 Megan McLaughlin (202) 317-7007 IT&A
12.16 234 Livia Piccolo (202) 317-7007 IT&A
12.17 237 Megan McLaughlin (202) 317-7007 IT&A
12.18 238 Tom McElroy (202) 317-7007 IT&A
12.19 243 Anna Gleysteen (202) 317-7007 IT&A
13.01 26 Megan McLaughlin (202) 317-7007 IT&A
Anisa Afshar (202) 317-6934 INTL
14.01 28 Thomas Scholz (202) 317-5600 EEE
14.02 29 John Ricotta (202) 317-4102 EEE
Joyce Kahn (202) 317-4148 EEE
15.01 122, 123, 257, 258 Megan McLaughlin (202) 317-7007 IT&A
15.02 31 David Sill (202) 317-7011 IT&A
15.03 34, 35 Livia Piccolo (202) 317-7007 IT&A
15.04 71 William E. Blanchard (202) 317-3900 FI&P
15.05 85 Bernard Harvey (202) 317-7005 IT&A
15.06 90 Rebecca L. Baxter (202) 317-6995 FI&P
 455

15.07 108 K. Scott Brown (202) 317-6945 FI&P

15.08 124 Douglas Kim (202) 317-7003 IT&A
15.09 125 Dave Christensen (202) 317-7011 IT&A
15.10 126 Megan McLaughlin (202) 317-7007 IT&A
15.11 127 K. Scott Brown (202) 317-6945 FI&P
15.12 128 Sophia Wang (202) 317-5100 IT&A
15.13 129 David H. McDonnell (202) 317-4137 P&SI
15.14 148 Charles W. Culmer (202) 317-6945 FI&P
15.15 226 Barbara Campbell (202) 317-4137 P&SI
15.16 227 Grace Cho (202) 317-6945 FI&P
15.17 233,259 Anna Gleysteen (202) 317-7007 IT&A
16.01 36 K. Scott Brown (202) 317-6945 FI&P
16.02 37 Daniel Cassano (202) 317-7011 IT&A
16.03 38 Daniel Cassano (202) 317-7011 IT&A
16.04 39 Bill Ruane (202) 317-4718 IT&A
16.05 80, 81 Kate Sleeth (202) 317-7053 FI&P
16.06 83, 84 Maria Castillo-Valle (202) 317-7003 IT&A
16.07 130, 217 Peter Cohn (202) 317-7011 IT&A
16.08 153 Maria Castillo-Valle (202) 317-7003 IT&A
16.09 231 Sharon Horn (202) 317-7003 IT&A
16.10 239, 242, 250-255 Sharon Horn (202) 317-7003 IT&A
Deepan Patel (202) 317-3423 FI&P
17.01 131 William E. Blanchard (202) 317-3900 FI&P
18.01 132 Patrick Clinton (202) 317-7005 IT&A
19.01 236 Innessa Glazman (202) 317-7006 IT&A
20.01 42, 133, 134, 249 Maria Castillo-Valle (202) 317-7003 IT&A
Alicia Lee-Won (202) 317-7003 IT&A
20.02 43 Christine Merson (202) 317-5100 IT&A
20.03 44 Christine Merson (202) 317-5100 IT&A
20.04 45, 113 James Williford (202) 317-5100 IT&A
20.05 46 Vincent Brodbeck (202) 317-5100 IT&A
 456

20.06 106 Sharon Horn (202) 317-7003 IT&A

20.07 135 Hyowon Lee (202) 317-5100 IT&A
20.08 149 Daniel Cassano (202) 317-7011 IT&A
20.09 154 Sharon Horn (202) 317-7003 IT&A
20.10 156 Alicia Lee-Won (202) 317-7003 IT&A
20.11 161 Justin Grill (202) 317-7003 IT&A
20.12 220 Douglas Kim (202) 317-7003 IT&A
David Christensen (202) 317-7011 IT&A
20.13 256 Douglas Kim (202) 317-7003 IT&A
21.01 136 William Ruane (202) 317-4718 IT&A
22.01 48 Andrew Braden (202) 317-7007 IT&A
22.02 49 Andrew Braden (202) 317-7007 IT&A
22.03 53 Andrew Braden (202) 317-7007 IT&A
22.04 54 Andrew Braden (202) 317-7007 IT&A
22.05 55 Andrew Braden (202) 317-7007 IT&A
22.06 63 Andrew Braden (202) 317-7007 IT&A
22.07 96 Andrew Braden (202) 317-7007 IT&A
22.08 110 Stephen Rothandler (202) 317-7003 IT&A
22.09 111 Andrew Braden (202) 317-7007 IT&A
22.10 137 Andrew Braden (202) 317-7007 IT&A
22.11 138 Andrew Braden (202) 317-7007 IT&A
22.12 139 Andrew Braden (202) 317-7007 IT&A
22.13 114 Andrew Braden (202) 317-7007 IT&A
22.14 203 Andrew Braden (202) 317-7007 IT&A
22.15 204 Andrew Braden (202) 317-7007 IT&A
22.16 225 Andrew Braden (202) 317-7007 IT&A
22.17 230 Andrew Braden (202) 317-7007 IT&A
22.18 235, 260, 261 Livia Piccolo (202) 317-7007 IT&A
22.19 262 Livia Piccolo (202) 317-7007 IT&A
22.20 263 Livia Piccolo (202) 317-7007 IT&A
23.01 56 Andrew Braden (202) 317-7007 IT&A
 457

23.02 57 Andrew Braden (202) 317-7007 IT&A

23.03 58 Andrew Braden (202) 317-7007 IT&A
23.04 59 Andrew Braden (202) 317-7007 IT&A
23.05 60 Andrew Braden (202) 317-7007 IT&A
23.06 61 Andrew Braden (202) 317-7007 IT&A
23.07 62 Andrew Braden (202) 317-7007 IT&A
23.08 112 Andrew Braden (202) 317-7007 IT&A
23.09 140 Andrew Braden (202) 317-7007 IT&A
23.10 141 Andrew Braden (202) 317-7007 IT&A
24.01 64 Marsha Sabin (202) 317-6945 FI&P
24.02 218 Marsha Sabin (202) 317-6945 FI&P
25.01 66 K. Scott Brown (202) 317-6945 FI&P
Laura Fields (202) 317-6850 P&SI
Adrienne Mikolashek (202) 317-6850 P&SI
26.01 67 Rebecca L. Baxter (202) 317-6995 FI&P
26.02 155 Rebecca L. Baxter (202) 317-6995 FI&P
26.03 219 Rebecca L. Baxter (202) 317-6995 FI&P
26.04 240 Dan Phillips (202) 317-6995 FI&P
27.01 68 Rebecca L. Baxter (202) 317-6995 FI&P
28.01 79 John W. Rogers, III (202) 317-6895 FI&P
29.01 70 Peter Merkel (202) 317-4919 INTL
30.01 72 William E. Blanchard (202) 317-3900 FI&P
30.02 183 Deepan Patel (202) 317-3423 FI&P
31.01 73 William E. Blanchard (202) 317-3900 FI&P
32.01 74 William E. Blanchard (202) 317-3900 FI&P
32.02 75 William E. Blanchard (202) 317-3900 FI&P