Internal Revenue Bulletin 2011-4 (PDF rendition): IRS Revenue Procedures

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 201
1-4
January 24, 2011
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Proc. 2011–11, page 329.
Maximum vehicle values.This procedure provides the max-
imum vehicle values for use with the special valuation rules un-
der regulations sections 1.61–21(d) and (e). These values are
adjusted for inflation and must be adjusted annually by refer-
ence to the Consumer Price Index.
Rev. Proc. 2011–14, page 330.
This document provides current procedures for obtaining
automatic consent for a change in method of accounting
as described in its APPENDIX. The document also modifies
the procedures for requesting and obtaining non-automatic
advance consent for a change in method of accounting. Rev.
Proc. 97–27 clarified and modified. Rev. Procs. 2001–10,
2002–28, 2004–34, and 2006–56 modified. Rev. Procs.
2008–52 and 2009–39 superseded, in part.
EMPLOYEE PLANS
Rev. Rul. 2011–3, page 326.
2011 covered compensation tables; permitted disparity.
The covered compensation tables under section 401 of the
Code for the year 2011 are provided for use in determining
contributions to defined benefit plans and permitted disparity.
ADMINISTRATIVE
Rev. Proc. 2011–11, page 329.
Maximum vehicle values.This procedure provides the max-
imum vehicle values for use with the special valuation rules un-
der regulations sections 1.61–21(d) and (e). These values are
adjusted for inflation and must be adjusted annually by refer-
ence to the Consumer Price Index.
Announcement 2011–5, page 430.
This announcement provides an opportunity for small busi-
ness/self employed taxpayers to use Fast Track Settlement
(FTS) to expedite case resolution within the IRS’s Small Busi-
ness/Self Employed (SB/SE) organization in the following
locations: Chicago, IL; Houston, TX; St. Paul, MN; Philadel-
phia, PA; central New Jersey; and San Diego, Laguna Niguel,
and Riverside, CA.
Announcement 2011–6, page 433.
This announcement extends the two-year test of the mediation
and arbitration procedures for Offer in Compromise (OIC) and
Trust Fund Recovery Penalty (TFRP) cases that are under the
jurisdiction of the Office of Appeals until December 31, 2012.
Announcement 2008–111 modified. Rev. Procs. 2006–44
and 2009–44 modified.
Announcements of Disbarments and Suspensions begin on page 424.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
January 24, 20112011–4 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 401.—Qualified
Pension, Profit-Sharing,
and Stock Bonus Plans
26 CFR 1.401(l)–1: Permitted disparity in employer-
provided contributions or benefits.
2011 covered compensation tables;
permitted disparity.The covered com-
pensation tables under section 401 of the
Code for the year 2011 are provided for
use in determining contributions to de-
fined benefit plans and permitted disparity.
Rev. Rul. 2011–3
This revenue ruling provides ta-
bles of covered compensation under
§ 401(l)(5)(E) of the Internal Revenue
Code (the “Code”) and the Income Tax
Regulations thereunder, for the 2011 plan
year.
Section 401(l)(5)(E)(i) defines covered
compensation with respect to an employee
as the average of the contribution and ben-
efit bases in effect under section 230 of the
Social Security Act (the “Act”) for each
year in the 35-year period ending with the
year in which the employee attains social
security retirement age.
Section 401(l)(5)(E)(ii) states that the
determination forany year preceding the
year in which the employee attains social
security retirement age shall be made by
assuming that there is no increase in cov-
ered compensation after the determination
year and before the employee attains social
security retirement age.
Section 1.401(l)–1(c)(34) defines the
taxable wage base as the contribution and
benefit base under section 230 of the Act.
Section 1.401(l)–1(c)(7)(i) defines cov-
ered compensation for an employee as the
average (without indexing) of the taxable
wage bases in effect for each calendar year
during the 35-year period ending with the
last day of the calendar year in which the
employee attains (or will attain) social
security retirement age. A 35-year pe-
riod is used for all individuals regardless
of the year of birth of the individual. In
determining an employee’s covered com-
pensation for a plan year, the taxable wage
base for all calendar years beginning after
the first day of the plan year is assumed
tobethesameasthetaxablewagebasein
effect as of the beginning of the plan year.
An employee’s covered compensation for
a plan year beginning after the 35-year pe-
riod applicable under §1.401(l)–1(c)(7)(i)
is the employee’s covered compensation
for a plan year during which the 35-year
period ends. An employee’s covered
compensation for a plan year beginning
before the 35-year period applicable under
§1.401(l)–1(c)(7)(i) is the taxable wage
base in effect as of the beginning of the
plan year.
Section 1.401(l)–1(c)(7)(ii) provides
that, for purposes of determining the
amount of an employee’s covered com-
pensation under §1.401(l)–1(c)(7)(i), a
plan may use tables, provided by the Com-
missioner, that are developed by rounding
the actual amounts of covered compensa-
tion for different years of birth.
For purposes of determining covered
compensation for the 2011 year, the tax-
able wage base is $106,800.
The following tables provide covered
compensation for 2011.
ATT
ACHMENT I
201
1 COVERED COMPENSATION TABLE
CAL
ENDAR
YEA
ROF
BIRT
H
CAL
ENDAR YEAR OF
SOC
IAL SECURITY
RETI
REMENT AGE
201
1 COVERED
COM
PENSATION
TABL
EII
19071972
$4,488
190819734,704
19091974
5,0
04
191
0
19755,316
19111976
5,664
191219776,060
19
13
19
78
6,
480
191419797,044
19
15
19807,692
1
916
1
981
8
,460
191719829,300
1918198310,236
1
919
1
984
1
1,232
1920
1985
12,276
1921198613,368
19221987
14,520
19231988
15,708
1924198916,968
1925
199018,312
1926199119,728
2011–4 I.R.B.326January 24, 2011

ATTACHMENT I
2011 COVERED COMPENSATION TABLE
CALENDAR
YEAR OF
BIRTH
CALENDAR YEAR OF
SOCIAL SECURITY
RETIREMENT AGE
2011 COVERED
COMPENSATION
TABLE II
1927199221,192
1928199322,716
1929199424,312
1930
199525,920
19311996
27,576
1932199729,304
1933199831,128
1934199933,060
1935
2000
35,100
1936200137,212
1937200239,444
1938200443,992
1939
2005
46,344
1940200648,816
19412007
51,348
19422008
53,952
19432009
56,628
19442010
59,268
1945
201161,884
1946201264,464
1947201367,008
1948201469,408
1949
2015
71,724
1950
201673,920
1951
201776,044
1952
201878,084
1953
2019
80,052
1954
202081,972
1955
2022
85,620
1956
202387,384
1957
202489,064
19582025
90,660
1959
202692,184
1960202793,648
19612028
95,052
1962202996,372
1963203097,680
1964203198,940
1965
2032100,116
19662033101,220
19672034102,192
1968
2035
103,068
19692036103,824
19702037104,448
19712038
105,012
19722039
105,552
19732040106,032
19742041106,392
1975
2042
106,656
1976 and Later2043 and Later106,800
January 24, 20113272011–4 I.R.B.

ATTACHMENT II
2011 ROUNDED COVERED COMPENSATION TABLE
CALENDAR
YEAR OF
BIRTH
2011 COVERED
COMPENSATION
ROUNDED
1937
$ 39,000
1938–1939
45,000
194048,000
1941
51,000
1942
54,000
1943
57,000
194460,000
1945–1946
63,000
194766,000
194869,000
194972,000
1950 – 195175,000
1952
78,000
1953–1954
81,000
1955–1956
87,000
1957–1958
90,000
1959–1960
93,000
1961 – 196296,000
1963–1965
99,000
1966 – 1968102,000
1969–1972
105,000
1973 – and Later106,800
DRAFTING INFORMATION
The principal author of this revenue
ruling is Michael Spaid of the Employee
Plans, Tax Exempt and Government Enti-
ties Division. For further information re-
garding this revenue ruling, please contact
the Employee Plans taxpayer assistance
telephone service at 1–877–829–5500,
between the hours of 8:30 a.m. and
4:30 p.m.Eastern time, Monday
through Friday (a toll-free number).
Mr. Spaid may be reached via e-mail at
RetirementPlanQuestions@irs.gov.
2011–4 I.R.B.328January 24, 2011

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 1.61–21: Taxation of fringe benefits
(Also: §§ 61, 280F.)
Rev. Proc. 2011–11
SECTION 1. PURPOSE
.01 This revenue procedure provides:
(1) the maximum value of employer-pro-
vided vehicles first made available to em-
ployees for personal use in calendar year
2010 for which the vehicle cents-per-mile
valuation rule provided under section
1.61–21(e) of the Income Tax Regula-
tions may be applicable is $15,300 for a
passenger automobile and $16,200 for a
truck or van; (2) the maximum value of
employer-provided vehicles first made
available to employees for personal use in
calendar year 2010 for which the fleet-av-
erage valuation rule provided under sec-
tion 1.61–21(d) of the regulations may
be applicable is $20,300 for a passenger
automobile and $21,200 for a truck or van.
SECTION 2. BACKGROUND
.01 If an employer provides an em-
ployee with a vehicle that is available
to the employee for personal use, the
value of the personal use must generally
be included in the employee’s income
and wages. Internal Revenue Code § 61;
Treas. Reg. § 1.61–21.
.02 For employer-provided passen-
ger automobiles (including trucks and
vans) made available to employees for
personal use that meet the requirements
of section 1.61–21(e)(1) of the regula-
tions, generally the value of the personal
use may be determined under the vehicle
cents-per-mile valuation rule of section
1.61–21(e). However, regulations section
1.61–21(e)(1)(iii)(A) provides that for a
passenger automobile first made avail-
able after 1988 to any employee of the
employer for personal use, the value of
the personal use may not be determined
under the vehicle cents-per-mile valuation
rule for a calendar year if the fair market
value of the passenger automobile (de-
termined pursuant to regulations section
1.61–21(d)(5)(i) through (iv)) on the first
date the passenger automobile is made
available to the employee exceeds a spec-
ified dollar limit.
.03 For employer-provided vehicles
available to employees for personal use for
an entire year, generally the value of the
personal use may be determined under the
automobile lease valuation rule of section
1.61–21(d) of the regulations. Under this
valuation rule, the value of the personal
use is the Annual Lease Value. Provided
the requirements of regulation section
1.61–21(d)(5)(v) are met, an employer
with a fleet of 20 or more automobiles
may use a fleet-average value for purposes
of calculating the Annual Lease Values of
the automobiles in the employer’s fleet.
The fleet-average value is the average
of the fair market values of all the auto-
mobiles in the fleet. However, section
1.61–21(d)(5)(v)(D) of the regulations
provides that for an automobile first made
available after 1988 to an employee of the
employer for personal use, the value of the
personal use may not be determined under
the fleet-average valuation rule for a cal-
endar year if the fair market value of the
automobile (determined pursuant to reg-
ulations section 1.61–21(d)(5)(i) through
(v)) on the first date the passenger auto-
mobile is made available to the employee
exceeds a specified dollar limit.
.04 The maximum passenger automo-
bile values for applying the vehicle cents-
per-mile and the fleet-average value rules
reflect the automobile price inflation ad-
justment of Code section 280F(d)(7). The
method of calculating this price inflation
amount for automobiles other than trucks
and vans uses the “new car” component of
the CPI “automobile component”. When
calculating this price inflation adjustment
for trucks and vans, the “new trucks” com-
ponent of the CPI is used. This results
in somewhat higher maximum values for
trucks and vans. This change reflects the
higher rate of price inflation that trucks and
vans have been subject to since 1988, and
is consistent with the change announced
in Rev. Proc. 2003–75, 2003–2 C.B.
1018, for purposes of calculating depre-
ciation deductions.See alsoRev. Proc.
2010–18, 2010–9 I.R.B. 427. For purposes
of this revenue procedure, the term “trucks
and vans” refers to passenger automobiles
that are built on a truck chassis, including
minivans and sport utility vehicles (SUVs)
that are built on a truck chassis.
SECTION 3. PROCEDURE
.01 Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
An employer providing a passenger auto-
mobile for the first time in calendar year
2011 for the personal use of any employee
may determine the value of the personal
use by using the vehicle cents-per-mile
valuation rule in section 1.61–21(e) of the
regulations if its fair market value on the
date it is first made available does not
exceed $15,300 for a passenger automo-
bile other than a tuck or van, or $16,200
foratruckorvan. Ifthefairmarket
value of the passenger automobile exceeds
this amount, the employer may determine
the value of the personal use under the
general valuation rules of regulations sec-
tion 1.61–21(b) or under the special valua-
tion rules of section 1.61–21(d) (Automo-
bile lease valuation) or section 1.61–21(f)
(Commuting valuation) if the applicable
requirements are met.SeeRev. Proc.
2009–12, 2009–3 I.R.B. 321, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year2009, and Rev. Proc.
2010–10, 2010–3 I.R.B. 300, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year 2010.
.02 Maximum Automobile Value for
Using the Fleet-Average Valuation Rule.
An employer with a fleet of 20 or more
automobiles providing an automobile for
the first time in calendar year 2011 for
the personal use of any employee for an
entire year may determine the value of
the personal use by using the fleet-aver-
age valuation rule in regulations section
1.61–21(d)(5)(v) to calculate the Annual
Lease Values of the automobiles in the
fleet. The fleet-average valuation rule may
not be used to determine the Annual Lease
Value of any automobile if its fair market
value on the date it is first made available
exceeds $20,300 for a passenger automo-
bile other than a truck or van, or $21,200
for a truck or van. If all other appli-
cable requirements are met, an employer
with a fleet of 20 or more vehicles consist-
ing of passenger automobiles other than
trucks or vans as well as trucks and vans
may use the fleet-average valuation rule
as long as none of the vehicles exceed
January 24, 20113292011–4 I.R.B.

their respective maximum allowable val-
ues. If the fair market value of any passen-
ger automobile in the fleet exceeds these
amounts, the employer may determine the
value of the personal use under regulations
section 1.61–21(f) (Commuting valuation
rule) or the general valuation rules of sec-
tion 1.61–21(b) or may determine the An-
nual Lease Value of such automobile sepa-
rately under the automobile lease valuation
rule of section 1.61–21(d)(2) if the applica-
ble requirements are met.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to em-
ployer-provided passenger automobiles
first made available to employees for per-
sonal use in calendar year 2011.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Don M. Parkinson of the
Office of the Division Counsel/Associate
Chief Counsel (Tax Exempt & Govern-
ment Entities). For further information
regarding the maximum automobile val-
ues for applying the valuation rules of
regulations section 1.61–21(e)(1)(iii)(A)
(the vehicle cents-per-mile valuation
rule), and section 1.61–21(d)(5)(v)(D)
(the fleet average valuation rule), contact
Don M. Parkinson at (202) 622–6040 (not
atollfreecall).
26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 56, 61, 77, 118, 162, 1.162–12, 166, 167, 168, 171, 174, 179D, 194, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467,
471, 472, 475, 481, 585, 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, 1.166–4, 1.167(a)–2, 1.167(a)–3(b), 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(k)–1, 1.171–4, 1.174–1, 1.174–3, 1.174–4, 1.179–5, 1.194–1, 1.197–2, 1.263(a)–1, 1.263(a)–2,
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,
1.448–2, 1.467–1, 1.471–4, 1.471–5, 1.471–8, 1.448–1T, 1.451–1, 1.454–1, 1.455–6, 1.460–1, 1.460–4, 1.461–1, 1.461–4, 1.461–5, 1.471–1, 1.471–2, 1.471–3,
1.471–4, 1.472–1, 1.472–2, 1.472–6, 1.472–8, 1.481–1, 1.481–4, 1.832–4, 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,
1.1363–2, 1.1374–4, 1.1400L(b)–1.)
Rev. Proc. 2011–14
TABLE OF CONTE
NTS
SECTION 1. PURPOSE
............................................................................................ 337
SECTION 2. BACKGROUND....................................................................................... 337
.01Changeinmethodofaccountingdefined........................................................................ 337
.02Securingpermissiontomakeamethodchange. ................................................................. 338
.03Termsandconditionsofamethodchange....................................................................... 338
.04Noretroactivemethodchange................................................................................. 338
.05Methodchangewitha§481(a)adjustment...................................................................... 338
(1)Needforadjustment....................................................................................... 338
(2)Adjustmentperiod........................................................................................ 338
.06Methodchangeusingacut-offbasis............................................................................ 338
.07Consistencyandclearreflectionofincome...................................................................... 338
.08Separatetradesorbusinesses.................................................................................. 338
.09Penalties.................................................................................................... 339
.10Changemadeaspartofanexamination......................................................................... 339
SECTION 3. DEFINITIONS......................................................................................... 339
.01Application. ................................................................................................ 339
.02Applicableprovisions. ....................................................................................... 339
.03Taxpayer.................................................................................................... 339
(1)Ingeneral................................................................................................ 339
(2)Consolidatedgroup....................................................................................... 339
.04Timelymailingastimelyfiling................................................................................ 339
.05Timelyperformanceofacts. .................................................................................. 339
.06Yearofchange............................................................................................... 339
.07Section481(a)adjustmentperiod. ............................................................................. 339
.08Underexamination........................................................................................... 339
(1)Ingeneral................................................................................................ 339
(2)PartnershipssubjecttoTEFRA............................................................................. 340
(3)Certainforeigncorporations. .............................................................................. 340
(4)TaxpayerbeforeJointCommitteeonTaxation................................................................ 340
(5)TaxpayerinComplianceAssuranceProcess.................................................................. 340
.09Issueunderconsideration..................................................................................... 340
2011–4 I.R.B.330January 24, 2011

(1)Underexamination........................................................................................ 340
(2)Beforeanappealsoffice................................................................................... 340
(3)Beforeafederalcourt..................................................................................... 340
(4)Certainforeigncorporations. .............................................................................. 341
.10ChangewithintheLIFOinventorymethod...................................................................... 341
.11Director..................................................................................................... 341
SECTION 4. SCOPE............................................................................................... 341
.01Applicability. ............................................................................................... 341
.02Inapplicability............................................................................................... 341
(1)Underexamination........................................................................................ 341
(2)Consolidatedgroupmember. .............................................................................. 341
(3)PartnershipsandScorporations. ........................................................................... 341
(4)Section381(a)transaction. ................................................................................ 341
(a)Nodifferencesinmethods.............................................................................. 341
(b)Separatetradesorbusinesses. .......................................................................... 341
(5)Finalyearoftradeorbusiness.............................................................................. 341
(6)Priorfive-yearoverallmethodchange....................................................................... 342
(7)Priorfive-yearitemchange. ............................................................................... 342
(a)Ingeneral............................................................................................. 342
(b)Exceptions. .......................................................................................... 342
(c)Examples............................................................................................. 342
.03Nonautomaticchanges........................................................................................ 342
SECTION 5. TERMS AND CONDITIONS OF CHANGE................................................................ 343
.01Ingeneral................................................................................................... 343
.02Yearofchange............................................................................................... 343
.03Section481(a)adjustment..................................................................................... 343
.04Section481(a)adjustmentperiod. ............................................................................. 343
(1)Ingeneral................................................................................................ 343
(2)Shortperiodasaseparatetaxableyear....................................................................... 343
(3) Shortened or accelerated §481(a) adjustment periods......................................................... 343
(a)Deminimisrule....................................................................................... 343
(b)Cooperatives.......................................................................................... 343
(c)Ceasingtoengageinthetradeorbusinessorterminatingexistence.......................................... 343
(i)Ingeneral.......................................................................................... 343
(ii)Examplesoftransactionsthataretreatedasthecessationofatradeorbusiness............................ 343
(iii)ConversiontoorfromScorporationstatus........................................................... 343
(iv)Certaintransferstowhich§381(a)applies. .......................................................... 343
(v)Certaintransferspursuantto§351withinaconsolidatedgroup.......................................... 343
(A)Ingeneral..................................................................................... 343
(B)Exception. .................................................................................... 344
.05NOLcarrybacklimitationfortaxpayersubjecttocriminalinvestigation. ........................................... 344
.06Certainforeigncorporations................................................................................... 344
.07Foreigndivisionofadomesticcorporationtaxpayer.............................................................. 345
.08Foreignpartnerships.......................................................................................... 345
.09Changetreatedasinitiatedbythetaxpayer...................................................................... 345
SECTION 6. GENERAL APPLICATION PROCEDURES............................................................... 345
.01Consent..................................................................................................... 345
.02Filingrequirements. ......................................................................................... 346
(1)Applications. ............................................................................................ 346
(a)Form................................................................................................. 346
(b)Separateapplications. ................................................................................. 346
(i)Ingeneral.......................................................................................... 346
(ii)Singleapplicationfortwoormorechanges. .......................................................... 346
(c)Contents.............................................................................................. 346
(2)Waiveroftaxableyearfilingrequirement.................................................................... 346
January 24, 20113312011–4 I.R.B.

(3)Timelyduplicatefilingrequirements........................................................................ 346
(a)Ingeneral............................................................................................. 346
(i)Originalapplication................................................................................. 346
(ii)Copyofapplication................................................................................ 346
(A)Nationalofficecopyofapplication............................................................... 346
(B)Ogdencopyofapplicationinlieuofthenationalofficecopy......................................... 346
(b)Certainforeigncorporations............................................................................ 346
(c) Additional copies required for a taxpayer under examination, before an appeals office, or
beforeafederalcourt...................................................................................... 347
(d)Limitedreliefforlateapplication........................................................................ 347
(i)Automaticextension................................................................................ 347
(ii)Otherextensions................................................................................... 347
(4) Designated automatic accounting method change number...................................................... 347
(5)Signaturerequirements.................................................................................... 347
(6)Authorizedrepresentative.................................................................................. 347
(7)Wheretofilecopy........................................................................................ 348
(a)Nationalofficecopyofapplication. ..................................................................... 348
(b)Ogdencopyofapplicationinlieuofthenationalofficecopy................................................ 348
(8) No acknowledgement of receipt............................................................................ 348
(9)Nouserfee. ............................................................................................. 348
(10)Singleapplicationforcertaintaxpayers..................................................................... 348
.03Taxpayerunderexamination................................................................................... 348
(1)Ingeneral................................................................................................ 348
(2)90-daywindowperiod..................................................................................... 348
(3)120-daywindowperiod. .................................................................................. 348
(4)Consentofdirector........................................................................................ 349
(5)Changeslackingauditprotection. .......................................................................... 349
(6)IssuePending............................................................................................ 349
.04Taxpayerbeforeanappealsoffice.............................................................................. 349
.05Taxpayerbeforeafederalcourt................................................................................ 349
.06Compliancewithprovisions................................................................................... 349
SECTION 7. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE............................... 350
.01Ingeneral................................................................................................... 350
.02Exceptions.................................................................................................. 350
(1)Changenotmadeormadeimproperly....................................................................... 350
(2)Changeinsub-method..................................................................................... 350
(3)PrioryearService-initiatedchange.......................................................................... 350
(4)Criminalinvestigation..................................................................................... 350
SECTION 8. EFFECT OF CONSENT................................................................................ 350
.01Ingeneral................................................................................................... 350
.02Retroactivechangeormodification............................................................................. 350
SECTION 9. REVIEW BY DIRECTOR............................................................................... 350
.01Ingeneral................................................................................................... 350
.02Changesnotmadeincompliancewithallapplicableprovisions.................................................... 350
.03Nationalofficeconsideration.................................................................................. 351
SECTION 10. REVIEW BY NATIONAL OFFICE...................................................................... 351
.01Ingeneral................................................................................................... 351
.02Incompleteapplication........................................................................................ 351
(1)30-dayrule. ............................................................................................. 351
(2)Failuretoprovideadditionalinformation.................................................................... 351
.03Nationalofficedetermination.................................................................................. 351
(1)Conferenceinthenationaloffice. .......................................................................... 351
(2)Consentnotgranted....................................................................................... 351
(3)Applicationchanged...................................................................................... 351
2011–4 I.R.B.332January 24, 2011

SECTION 11. APPLICABILITY OF REV. PROCS. 2011–1 AND 2011–4................................................... 351
SECTION 12. CHANGES TO REV. PROC. 97–27....................................................................... 352
.01Changestosection3.07,Underexamination..................................................................... 352
(1)Changetosection3.07(1)(a)............................................................................... 352
(2)Changetosection3.07(1)(c)............................................................................... 352
(3)Changetosection3.07(2),PartnershipsandScorporationssubjecttoTEFRA.................................... 352
(4)Changetosection3.07(3),TaxpayerbeforeJointCommitteeonTaxation........................................ 352
.02Changestosection3.08,Issueunderconsideration............................................................... 352
(1)Changetosection3.08(2),Beforeanappealsoffice........................................................... 352
(2)Changetosection3.08(3),Beforeafederalcourt............................................................. 352
.03Changetosection4.02,Scope,“Inapplicability”. ............................................................... 352
.04 Changes to section 6, PROCEDURES FOR TAXPAYERS UNDER EXAMINATION, BEFORE AN
APPEALSOFFICE,ORBEFOREAFEDERALCOURT. ....................................................... 352
(1)Changetosection6.02,Taxpayerbeforeanappealsoffice..................................................... 353
(2)Changetosection6.03,Taxpayerbeforeafederalcourt. ...................................................... 353
SECTION 13. EFFECTIVE DATE................................................................................... 353
.01Ingeneral................................................................................................... 353
(1)Rev.Proc.2011–14....................................................................................... 353
(2)Rev.Proc.97–27......................................................................................... 353
.02Transitionrules.............................................................................................. 353
(1)Forms3115filedunderRev.Proc.97–27.................................................................... 353
(2)ApplicationfiledunderRev.Proc.2008–52. ................................................................ 353
(a)Generalrule. ......................................................................................... 353
(b)Optiontofileanamendedapplication.................................................................... 354
(i)Ingeneral.......................................................................................... 354
(ii)AddresstosendtheamendedapplicationtothenationalofficeorOgden,asapplicable..................... 354
(3)NoapplicationfiledbeforeJanuary10,2011................................................................. 354
SECTION 14. EFFECT ON OTHER DOCUMENTS.................................................................... 354
SECTION 15. PAPERWORK REDUCTION ACT...................................................................... 355
SECTION 16. SIGNIFICANT CHANGES............................................................................. 355
DRAFTING INFORMATION........................................................................................ 357
APPENDIX....................................................................................................... 357
SECTION 1. GROSS INCOME (§ 61)................................................................................ 357
.01 Up-front Payments for NetworkUpgrades received by Utilities.................................................... 357
.02Reserved.................................................................................................... 358
SECTION 2. COMMODITY CREDIT LOANS (§ 77).................................................................... 358
.01 Treating amounts received as loans............................................................................. 358
.02Reserved.................................................................................................... 358
SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)................................................................ 358
.01Advancesmadebyalawyeronbehalfofclients................................................................. 358
.02ISO9000costs. ............................................................................................. 358
.03Restaurantortavernsmallwarespackages....................................................................... 358
.04Timbergrowerfertilizationcosts............................................................................... 358
.05Materialsandsupplies........................................................................................ 358
.06Repairandmaintenancecosts. ................................................................................ 359
SECTION 4. BAD DEBTS (§ 166).................................................................................... 360
.01Changefromreservemethodtospecificcharge-offmethod. ...................................................... 360
.02Reserved.................................................................................................... 360
SECTION 5. AMORTIZABLE BOND PREMIUM (§ 171)................................................................ 360
January 24, 20113332011–4 I.R.B.

.01Revocationof§171(c)election................................................................................ 360
.02Reserved.................................................................................................... 360
SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(A)(1), 56(G)(4)(A), 167, 168, 197, 280F(A), 1400I,
1400L, OR 1400N(D), OR FORMER § 168)
................................................................. 361
.01 Impermissible to permissible method ofaccounting for depreciation or amortization................................. 361
.02Permissibletopermissiblemethodofaccountingfordepreciation.................................................. 365
.03Sale,lease,orfinancingtransactions. .......................................................................... 366
.04Moderngolfcoursegreens.................................................................................... 367
.05 Original and replacement tire costs............................................................................. 368
.06Depreciationofgaspumpcanopies............................................................................. 368
.07Depreciationofutilityassets. ................................................................................. 368
.08DepreciationofcableTVfiberoptics........................................................................... 369
.09 Change in general asset account treatment due to a change in the use of MACRS property............................ 369
.10ChangeinmethodofaccountingfordepreciationduetoachangeintheuseofMACRSproperty...................... 370
.11Depreciationofqualifiednon-personalusevansandlighttrucks................................................... 370
.12Depreciationofqualifiedrevitalizationbuildingintheexpandedareaofarenewalcommunity. ....................... 370
.13 Loss disallowance rule upon a disposition of an insurance contract acquired in an assumption
re-insurancetransaction....................................................................................... 371
.14Reserved.................................................................................................... 371
.15Reserved.................................................................................................... 371
.16Reserved.................................................................................................... 371
.17 Impermissible to permissible method of accounting for depreciation or amortization for disposed
depreciableoramortizableproperty. ........................................................................... 371
.18 Depreciation of MACRS property acquired in a like-kind exchangeor as a result of an involuntary
conversion. ................................................................................................. 372
.19Lessorimprovementsabandonedatterminationoflease.......................................................... 372
.20Repairableandreusablespareparts. ........................................................................... 373
.21Land. ...................................................................................................... 374
.22Kansasadditionalfirstyeardepreciation........................................................................ 375
.23Tenantconstructionallowances................................................................................ 375
.24Dispositionsofstructuralcomponentsofabuilding(section168).................................................. 376
.25 Dispositions of tangible depreciable assets (other than a building or its structural components)
(section168). ............................................................................................... 377
SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)............................................... 378
.01Changestoadifferentmethodordifferentamortizationperiod. ................................................... 378
.02Reserved.................................................................................................... 379
SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)........................................................... 379
.01Reserved.................................................................................................... 379
.02Reserved.................................................................................................... 379
.03Reserved.................................................................................................... 379
.04DeductionforEnergyEfficientCommercialBuildings(§179D)................................................... 379
SECTION 9
. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197)
........................
.................. 380
.01 Comp
utersoftwareexpenditures.............................................................
.................. 380
.02 Rese
rved. ................................................................................
.................. 380
SECTION 10. CAPITAL EXPENDITURES (§ 263)...................................................................... 380
.01Packagedesigncosts......................................................................................... 380
.02Linepackgasorcushiongas.................................................................................. 381
.03Removalcosts............................................................................................... 381
.04Distributorcommissions...................................................................................... 381
.05Intangibles.................................................................................................. 381
.06Rotablespareparts........................................................................................... 382
.07Repairableandreusablespareparts. ........................................................................... 382
SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)............................................. 383
2011–4 I.R.B.334January 24, 2011

.01Certainuniformcapitalization(UNICAP)methodsusedbyresellersandreseller-producers........................... 383
.02Certainuniformcapitalization(UNICAP)methodsusedbyproducersandreseller-producers.......................... 386
.03Changetonolongercapitalizeresearchandexperimentalexpendituresunder§263A................................ 387
.04Impactfees.................................................................................................. 387
.05Changetocapitalizingenvironmentalremediationcostsunder§263A.............................................. 387
.06Changeinallocatingenvironmentalremediationcostsunder§263A............................................... 388
.07Safeharbormethodsunder§263Aforcertaindealershipsofmotorvehicles. ....................................... 388
SECTION 12. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)
.......................................................................... 388
.01Changetocomplywith§267.................................................................................. 388
.02Reserved.................................................................................................... 388
SECTION 13. DEFERRED COMPENSATION (§ 404)................................................................... 388
.01Changetocomplywith§404(a)(11). .......................................................................... 388
.02Deferredcompensation....................................................................................... 389
.03Graceperiodcontributions.................................................................................... 389
SECTION 14. METHODS OF ACCOUNTING (§ 446)................................................................... 389
.01 Change in overall method from the cash method to an accrual method.............................................. 389
.02Multi-yearinsurancepoliciesformulti-yearservicewarrantycontracts............................................. 391
.03Taxpayerschangingtooverallcashmethod. .................................................................... 392
.04 Nonaccrual-experience method................................................................................ 392
.05 Interest accruals on short-term consumer loans-Rule of 78’s method................................................ 393
.06Filmproducer’streatmentofcertaincreativepropertycosts....................................................... 393
.07Deductionofincentivepaymentstohealthcareproviders......................................................... 393
.08Changebybankforuncollectedinterest. ....................................................................... 393
.09 Change from the cash method to anaccrual method for specific items.............................................. 394
.10Multi-yearservicewarrantycontracts........................................................................... 395
.11Overallcashmethodforspecifiedtransportationindustrytaxpayers................................................ 395
.12Changetooverallcash/hybridmethodforcertainbanks........................................................... 396
.13Changetooverallcashmethodforfarmers...................................................................... 397
.14Nonshareholdercontributionstocapitalunder§118.............................................................. 397
.15Debtissuancecosts........................................................................................... 398
SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451)................................................................ 398
.01Accrualofinterestonnonperformingloans. .................................................................... 398
.02Advancerentals.............................................................................................. 398
.03Stateorlocalincomeorfranchisetaxrefunds.................................................................... 398
.04CapitalCostReductionPayments.............................................................................. 398
.05Creditcardannualfees. ...................................................................................... 398
.06Creditcardlatefees.......................................................................................... 399
.07Advancepayments........................................................................................... 399
.08Creditcardcashadvancefees.................................................................................. 399
.09Reserved.................................................................................................... 400
.10Retainages.................................................................................................. 400
.11Advancepayments—changeinapplicablefinancialstatements(AFS)............................................. 400
SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)........................................................... 402
.01SeriesE,EEorIU.S.savingsbonds. .......................................................................... 402
.02Reserved.................................................................................................... 402
SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455)............................................................. 402
.01Prepaidsubscriptionincome................................................................................... 402
.02Reserved.................................................................................................... 402
SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)................................................ 402
.01Changefromexempt-contractmethodtopercentage-of-completionmethod......................................... 402
.02Reserved.................................................................................................... 402
January 24, 20113352011–4 I.R.B.

SECTION 19. TAXABLE YEAR OF DEDUCTION (§ 461)............................................................... 403
.01Timingofincurringliabilitiesforemployeecompensation. ....................................................... 403
(1)Self-insuredemployeemedicalbenefits. .................................................................... 403
(2)Bonuses................................................................................................. 403
(3) Vacation pay............................................................................................. 403
.02 Timing of incurring liabilities for real propertytaxes, personal property taxes, state income taxes,
andstatefranchisetaxes. ..................................................................................... 404
.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or
violationoflaw.............................................................................................. 404
.04Timingofincurringcertainliabilitiesforpayrolltaxes............................................................ 405
.05Cooperativeadvertising....................................................................................... 405
.06Timingofincurringcertainliabilitiesforservicesorinsurance..................................................... 406
.07Rebatesandallowances....................................................................................... 406
.08 Ratable accrual of real property taxes........................................................................... 406
.09CaliforniaFranchiseTaxes.................................................................................... 406
.10Giftcardsissuedasarefundforreturnedgoods.................................................................. 406
SECTION 20. RENT (§ 467)......................................................................................... 407
.01 Change from an improper method of inclusion of rental income or expense to inclusion in accordance
withtherentallocation........................................................................................ 407
.02Reserved.................................................................................................... 407
SECTION 21. INVENTORIES (§ 471)................................................................................. 407
.01Cashdiscounts............................................................................................... 407
.02Estimatinginventory“shrinkage”.............................................................................. 408
.03 Small taxpayer exception from requirement to account for inventories under § 471................................... 408
.04Qualifyingvolume-relatedtradediscounts. ..................................................................... 408
.05Impermissiblemethodsofidentificationandvaluation............................................................ 409
.06CoreAlternativeValuationMethod............................................................................. 409
.07 Replacement cost for automobile dealers’ parts inventory......................................................... 409
.08 Replacement cost for heavy equipment dealers’ parts inventory.................................................... 409
.09Rotablespareparts........................................................................................... 410
.10AdvanceTradeDiscountMethod. ............................................................................. 410
.11Permissiblemethodsofidentificationandvaluation.............................................................. 410
.12Changeintheofficialusedvehicleguideutilizedinvaluingusedvehicles. ......................................... 410
.13Invoicedadvertisingassociationcostsfornewvehicleretaildealerships............................................ 411
.14 Rolling-average method of accounting for inventories............................................................ 411
SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)...................................................... 411
.01ChangefromtheLIFOinventorymethod....................................................................... 411
.02Determiningcurrent-yearcostundertheLIFOinventorymethod. ................................................. 412
.03AlternativeLIFOinventorymethodforretailautomobiledealers. ................................................. 413
.04UsedvehiclealternativeLIFOmethod.......................................................................... 413
.05Determiningthecostofusedvehiclespurchasedortakenasatrade-in.............................................. 414
.06Changetotheinventorypriceindexcomputation(IPIC)method................................................... 414
.07Changeswithintheinventorypriceindexcomputation(IPIC)method.............................................. 415
.08ChangestotheVehicle-PoolMethod........................................................................... 415
.09ChangeswithintheusedvehiclealternativeLIFOmethod......................................................... 416
.10Changestodollar-valuepoolsofmanufacturers.................................................................. 416
SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES (§ 475)..................... 416
.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market
methodofaccountingunder§475(e)or(f)...................................................................... 416
.02Reserved.................................................................................................... 417
SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585)............................................................. 417
.01Changingfromthe§585reservemethodtothe§166specificcharge-offmethod.................................... 417
.02Reserved.................................................................................................... 418
2011–4 I.R.B.336January 24, 2011

SECTION 25. INSURANCE COMPANIES (§§ 832, 833)................................................................. 418
.01 Safe harbor method of accountingfor premium acquisition expenses............................................... 418
.02Certainchangesinmethodofaccountingfororganizationstowhich§833applies................................... 418
SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846)................................................................. 418
.01Compositemethodfordiscountingunpaidlosses................................................................. 418
.02Reserved.................................................................................................... 419
SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A–860G)............................ 419
.01REMICinducementfees...................................................................................... 419
.02Reserved.................................................................................................... 419
SECTION 28. RESERVED.......................................................................................... 419
SECTION 29. FUNCTIONAL CURRENCY (§ 985)..................................................................... 419
.01Changeinfunctionalcurrency................................................................................. 419
.02Reserved.................................................................................................... 419
SECTION 30. RESERVED.......................................................................................... 419
SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)............................................................ 419
.01Deminimisoriginalissuediscount(OID)....................................................................... 419
.02Reserved.................................................................................................... 420
SECTION 32. MARKET DISCOUNT BONDS (§ 1278).................................................................. 420
.01Revocationof§1278(b)election............................................................................... 420
.02Reserved.................................................................................................... 420
SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281).................................................................. 420
.01Interestincomeonshortobligations............................................................................ 420
.02Statedinterestonshort-termloansofcashmethodbanks.......................................................... 420
APPENDIX CONTACT LIST........................................................................................ 421
SECTION 1. PURPOSE
This revenue procedure provides the
procedures by which a taxpayer may ob-
tain automatic consent for a change in
method of accounting described in the
APPENDIX of this revenue procedure.
This revenue procedure amplifies, clari-
fies, modifies, and supersedes Rev. Proc.
2008–52, 2008–2 C.B. 587, as amplified,
clarified, and modified by Rev. Proc.
2009–39, 2009–38 I.R.B. 371, and pro-
vides additional changes in methods of
accounting for which a taxpayer may ob-
tain automatic consent.
A taxpayer complying with all the ap-
plicable provisions of this revenue proce-
dure obtains the consent of the Commis-
sioner of Internal Revenue to change its
method of accounting under § 446(e) of the
Internal Revenue Code and the Income Tax
Regulations thereunder.
This revenue procedure also modifies
Rev. Proc. 97–27, 1997–1 C.B. 680,
as amplified and modified by Rev. Proc.
2002–19, 2002–1 C.B. 696, as amplified
and clarified by Rev. Proc. 2002–54,
2002–2 C.B. 432, as modified by Rev.
Proc. 2007–67, 2007–2 C.B. 1072, and
as clarified and modified by Rev. Proc.
2009–39, which provides the general pro-
cedures for obtainingthe advance (non-au-
tomatic) consent of the Commissioner to
change a method of accounting.
Section 16 of this revenue procedure
lists the significant changes to Rev. Proc.
2008–52 and Rev. Proc. 97–27.
S
ECTION 2. BACKGROUND
.01Change in method of accounting
defined.
(1) Section 1.446–1(e)(2)(ii)(a)pro-
vides that a change in method of account-
ing includes a change in the overall plan
of accounting for gross income or deduc-
tions, or a change in the treatment of any
material item. A material item is any item
that involves the proper time for the inclu-
sion of the item in income or the taking
of the item as a deduction. In determining
whether a taxpayer’s accounting practice
for an item involves timing, generally the
relevant question is whether the practice
permanently changes the amount of the
taxpayer’s lifetime taxable income. If
the practice does not permanently affect
the taxpayer’s lifetime taxable income,
but does or could change the taxable year
in which income is reported, it involves
timing and is therefore a method of ac-
counting.SeeRev. Proc. 91–31, 1991–1
C.B. 566.
(2) Although a method of accounting
may exist under this definition without a
pattern of consistent treatment of an item,
a method of accounting is not adopted in
most instances without consistent treat-
ment. The treatment of a material item
in the same way in determining the gross
income or deductions in two or more con-
secutively filed federal income tax returns
(without regard to any change in status of
the method as permissible or impermissi-
ble) represents consistent treatment of that
item for purposes of § 1.446–1(e)(2)(ii)(a).
If a taxpayer treats an item properly in the
first return that reflects the item, however,
January 24, 20113372011–4 I.R.B.

it is not necessary for the taxpayer to treat
the item consistently in two or more con-
secutive returns to have adopted a method
of accounting. If a taxpayer has adopted
a method of accounting under these rules,
the taxpayer may not change the method
by amending its prior income tax return(s).
SeeRev. Rul. 90–38, 1990–1 C.B. 57.
(3) A change in method of accounting
does not include correction of mathe-
matical or posting errors, or errors in
the computation of tax liability (such
as errors in computation of the foreign
tax credit, net operating loss, percent-
age depletion, or investment credit).See
§ 1.446–1(e)(2)(ii)(b).
.02Securing permission to make a
method change.Section 446(e) and
§ 1.446–1(e)(2)(i) state that, except as
otherwise provided, a taxpayer must se-
cure the consent of the Commissioner
before changing a method of accounting
for federal income tax purposes. Section
1.446–1(e)(3)(i) requires that, in general,
in order to obtain the Commissioner’s con-
sent to a method change, a taxpayer must
fileaForm3115,Application for Change
in Accounting Method, during the taxable
year for which the taxpayer wants to make
the proposed change.
.03Terms and conditions of a method
change. Section 1.446–1(e)(3)(ii) pro-
vides that the Commissioner may pre-
scribe administrative procedures setting
forth the limitations, terms, and conditions
deemed necessary to permit a taxpayer to
obtain consent to change a method of ac-
counting in accordance with § 446(e). The
terms and conditions the Commissioner
may prescribe include the year of change,
whether the change is to be made with a
§ 481(a) adjustment or on a cut-off basis,
and the § 481(a) adjustment period.
.04No retroactive method change.Un-
less specifically authorized by the Com-
missioner, a taxpayer may not request,
or otherwise make, a retroactive change
in method of accounting, regardless of
whether the change is from a permissible
or an impermissible method.See gener-
allyRev. Rul. 90–38.But seesection
6.02(3)(d)(i) of this revenue procedure.
.05Method change with a § 481(a) ad-
justment.
(1)Need for adjustment. Section 481(a)
requires those adjustments necessary to
prevent amounts from being duplicated or
omitted to be taken into account when the
taxpayer’s taxable income is computed
under a method of accounting different
from the method used to compute taxable
income for the preceding taxable year.
When there is a change in method of ac-
counting to which § 481(a) is applied,
income for the taxable year preceding the
year of change must be determined under
the method of accounting that was then
employed, and income for the year of
change and the following taxable years
must be determined under the new method
of accounting as if the new method had
always been used. The § 481(a) adjust-
ment is computed notwithstanding that the
period of limitations on assessment and
collection of tax may have closed on the
years (closed years) in which the events
giving rise to the need for an adjustment
occurred.See Superior Coach of Fla., Inc.
v. Commissioner, 80 T.C. 895, 912 (1983).
In computing the net § 481(a) adjustment,
a taxpayer must take into account all rele-
vant accounts. For example, the § 481(a)
adjustment for a change in the proper time
for deducting salary bonuses under § 461
reflects any necessary adjustments for
amounts of salary bonuses capitalized to
inventory under § 263A.
Example. A taxpayer that is not required to
use inventories uses the overall cash receipts and
disbursements method and changes to an overall
accrual method. The taxpayer has $120,000 of
income earned but not yet received (accounts
receivable) and $100,000of expenses incurred
but not yet paid (accounts payable) as of the end
of the taxable year preceding the year of change.
A positive § 481(a) adjustment of $20,000
($120,000 accounts receivable less $100,000
accounts payable) is required as a result of the
change.
(2)Adjustment period. Section 481(c)
and §§ 1.446–1(e)(3)(ii) and 1.481–4
provide that the adjustment required by
§ 481(a) may be taken into account in
determining taxable income in the manner
and subject to the conditions agreed to
by the Commissioner and the taxpayer.
Generally, in the absence of such an agree-
ment, the § 481(a) adjustment is taken
into account completely in the year of
change, subject to § 481(b), which lim-
its the amount of tax where the § 481(a)
adjustment is substantial. However,
under the Commissioner’s authority in
§ 1.446–1(e)(3)(ii) toprescribe terms and
conditions for changes in methods of ac-
counting, this revenue procedure provides
specific adjustment periods that are in-
tended to achieve an appropriate balance
between the goals of mitigating distortions
of income that result from accounting
method changes and providing appropriate
incentives for voluntary compliance.
.06Method change using a cut-off ba-
sis. The Commissioner may determine
that certain changes in methods of ac-
counting will be made without a § 481(a)
adjustment, using a cut-off basis. When a
change in method of accounting is made
on a cut-off basis, in general, only the
items arising on or after the beginning of
the year of change (or other operative date)
are accounted for under the new method of
accounting. Any items arising before the
year of change (or other operative date)
continue to be accounted for under the
taxpayer’s former method of accounting.
See, for example, sections 2.01, 10.04 and
22.02 of the APPENDIX of this revenue
procedure. Becauseno amounts are dupli-
cated or omitted when a change in method
of accounting is made on a cut-off basis,
no § 481(a) adjustment is necessary.
.07Consistency and clear reflection of
income. Methods of accounting should
clearly reflect income on a continuing ba-
sis, and the Commissioner exercises dis-
cretion under §§ 446(e) and 481(c) in a
manner that generally minimizes distor-
tions of income across taxable years and
on an annual basis.
.08Separate trades or businesses.
(1) Sections 1.446–1(d)(1) and (2) pro-
vide that when a taxpayer has two or more
separate and distinct trades or businesses,
the taxpayer may use a different method of
accounting for each trade or business pro-
vided the method of accounting used for
each trade or business clearly reflects the
overall income of the taxpayer as well as
that of each particular trade or business.
No trade or business is separate and dis-
tinct unless the taxpayer keeps a complete
and separable set of books and records for
that trade or business.
(2) Section 1.446–1(d)(3) provides that
if, by reason of maintaining different meth-
ods of accounting, there is a creation or
shifting of profits or losses between the
taxpayer’s trades or businesses (for exam-
ple, through inventory adjustments, sales,
purchases, or expenses) so that the tax-
payer’s income is not clearly reflected, the
2011–4 I.R.B.338January 24, 2011

taxpayer’s trades or businesses are not sep-
arate and distinct.
.09Penalties. Any otherwise applica-
ble penalty, addition to the tax, or addi-
tional amount for the failure of a taxpayer
to change its method of accounting (for ex-
ample, the accuracy-related penalty under
§ 6662 or the fraud penalty under § 6663)
may be imposed if the taxpayer does not
timely file a request to change a method of
accounting.See§ 446(f). Additionally, the
taxpayer’s return preparer may also be sub-
ject to the preparer penalty under § 6694.
However, penalties, additions to the tax,
or additional amounts will not be imposed
when a taxpayer changes from an imper-
missible method of accounting to a permis-
sible one by complying with all applicable
provisions of this revenue procedure.
.10Change made as part of an
examination.Section 446(b) and
§ 1.446–1(b)(1) provide that if a taxpayer
does not regularly employ a method of
accounting that clearly reflects its income,
the computation of taxable income must
be made in a manner that, in the opinion
of the Commissioner, does clearly reflect
income. If a taxpayer under examination
is not eligible to change a method of ac-
counting under this revenue procedure, the
director may make the change. A change
resulting in a positive § 481(a) adjustment
ordinarily will be made in the earliest
taxable year under examination with a
one-year § 481(a) adjustment period.See
Rev. Proc. 2002–18, 2002–1 C.B. 678.
SECTION 3. DEFINITIONS
.01Application. The term “applica-
tion” means a Form 3115 or any statement
that is authorized in the APPENDIX of this
revenueproceduretobefiledinlieuofa
Form 3115, and any attachments.
.02Applicable provisions.Theterm
“applicable provisions” means all provi-
sions and requirements of this revenue pro-
cedure pertinent to the taxpayer or its re-
quested change, including but not limited
to:
(1) the scope requirements and limita-
tions in section 4 of this revenue proce-
dure;
(2) the terms and conditions of change
in section 5 of this revenue procedure;
(3) the requirements regarding the form
and content of an application in section 6
of this revenue procedure;
(4) the filing requirements in section 6
of this revenue procedure, including (but
not limited to) the timely duplicate filing
requirements of section 6.02(3); and
(5) the APPENDIX of this revenue pro-
cedure, including:
(a) the available changes in method of
accounting;
(b) any restrictions on the availability of
a requested change that is applicable to the
taxpayer (including provisions that render
the change inapplicable to the taxpayer);
and
(c) any special terms, conditions, and
requirements applicable to a change, such
as the use of a cut-off basis or a § 481(a)
adjustment, the spread period for any
§ 481(a) adjustment, the year of change,
and any special filing requirement.
.03Taxpayer.
(1)In general. The term “taxpayer”
has the same meaning as the term “person”
defined in § 7701(a)(1) (rather than the
meaning of the term “taxpayer” defined in
§ 7701(a)(14)).
(2)Consolidated group. For purposes
of the following sections of this revenue
procedure, the term “taxpayer” includes a
consolidated group: (a) sections 3.08(1),
3.09(1), and 4.02(1) (taxpayer under ex-
amination), (b) section 3.09(2) (taxpayer
before an appeals office), and (c) section
3.09(3) (taxpayer before a federal court).
.04Timely mailing as timely filing.
Under the provisions of § 7502, any ap-
plication, statement, or other document
requiredtobefiledunderthisrevenue
procedure is considered timely filed if it
is timely postmarked and mailed, postage
prepaid, to the proper address (or an
address similar enough to complete de-
livery). If these requirements are met,
the date of filing is the date of the U.S.
postmark or the applicable date recorded
or marked by a designated private deliv-
ery service.SeeNotice 2004–83, 2004–2
C.B. 1030. If the requirements of § 7502
are not met, the application, statement, or
other document is considered filed on the
date it is delivered to the Service.
.05Timely performance of acts.The
rules of § 7503 apply when the last day
for the taxpayer’s timely performance of
any act (for example, filing an application
or submitting additional information) falls
on a Saturday, Sunday, or legal holiday.
The performance of any act is timely if the
act is performed on the next succeeding
day that is not a Saturday, Sunday, or legal
holiday.
.06Year of change. The year of change
is the taxable year for which a change in
method of accounting is effective, that is,
the first taxable year the new method is to
be used, even if no affected items are taken
into account for that year.
.07Section 481(a) adjustment period.
The § 481(a) adjustment period is the ap-
plicable number of taxable years for taking
into account the § 481(a) adjustment re-
quired as a result of the change in method
of accounting. The year of change is the
first taxable year in the adjustment period
and the § 481(a) adjustment is taken into
account ratably over the number of taxable
years in the adjustment period. The ap-
plicable adjustment periods are set forth in
section 5.04 of this revenue procedure.
.08Under examination.
(1)In general.
(a) Except as provided in sections
3.08(2), 3.08(3) and 3.08(5) of this rev-
enue procedure, an examination of a
taxpayer with respect to a federal income
tax return begins on the date the taxpayer
is contacted in any manner by a repre-
sentative of the Internal Revenue Service
(Service) for the purpose of scheduling
any type of examination of the return.
Except as provided in sections 3.08(1)(b),
3.08(1)(c), 3.08(2), 3.08(3) and 3.08(4)
of this revenue procedure, an examination
ends:
(i) in a case in which the Service ac-
cepts the return as filed, on the date the “no
change” letter is sent to the taxpayer;
(ii) in a fully agreedcase, on the earliest
of the date the taxpayer executes a waiver
of restrictions on assessment or acceptance
of overassessment (for example, Form
870,Waiver of Restrictions on Assess-
ment and Collection of Deficiency in Tax
and Acceptance of Overassessment,Form
4549,Income Tax Examination Changes,
or Form 4605,Examination Changes —
Partnerships, Fiduciaries, S Corporations,
and Interest Charge Domestic Interna-
tional Sales Corporations),thedatethe
taxpayer makes a payment of tax that
equals or exceeds the proposed deficiency,
or the date of the “closing” letter (for ex-
January 24, 20113392011–4 I.R.B.

ample, Letter 987 —Agreed Income Tax
Change) sent to the taxpayer; or
(iii) in an unagreed ora partially agreed
case, on the earliest of the date the taxpayer
(or its representative) is notified by Ap-
peals that the case has been referred by the
examining agent(s) to Appeals, the date the
taxpayer files a petition in the Tax Court,
the date on which the period for filing a
petition with the Tax Court expires, or the
date of the notice of claim disallowance.
(b)Anexaminationdoesnotendasa
result of the early referral of an issue to
Appeals under the provisions of Rev. Proc.
99–28, 1999–2 C.B. 109.
(c) An examination resumes on the
date the taxpayer (or its representative)
is notified by Appeals (or otherwise) that
the case has been referred to the examin-
ing agent(s) for reconsideration. Further,
notwithstanding sections 3.08(1)(a)(iii)
and 6.03(3), if the taxpayer is within the
120-daywindowperiodprovidedinsec-
tion 6.03(3) of this revenue procedure, that
120-day window period ends as of the date
the taxpayer is notified, ordinarily by Ap-
peals, that the case hasbeen referred to the
examining agent(s) for reconsideration.
The 120-day window period in section
6.03(3) will be available to the taxpayer in
its entirety when the resumed examination
ends.
(2)Partnerships subject to TEFRA.Ex-
cept as provided in sections 3.08(4) and
(5) of this revenue procedure, for an en-
tity (including a limited liability company)
treated as a partnership for federal income
tax purposes that is subject to the TEFRA
unified audit and litigation provisions for
partnerships, an examination begins on the
date of the notice of the beginning of an
administrative proceeding sent to the Tax
Matters Partner (TMP), and ends:
(a) in a case in which the Service ac-
cepts the partnership return as filed, on the
date of the “no adjustments” letter or the
“no change” notice of final administrative
adjustment sent to the TMP;
(b) in a fully agreed case, when all
the partners or members execute a Form
870–P,Agreement to Assessment and Col-
lection of Deficiency in Tax for Partnership
Adjustments, 870–L,Agreement to Assess-
ment and Collection of Deficiencies in Tax
for Partnership Adjustments, Additions to
Tax, and Affected Items;or
(c) in an unagreed or a partially agreed
case, on the earliest of the date the TMP (or
its representative) is notified by Appeals
that the case has been referred by the ex-
amining agent(s) to Appeals, the date the
TMP (or a partner or member) requests ju-
dicial review, or the date on which the pe-
riod for requesting judicial review expires.
But see section 4.02(3) of this revenue pro-
cedure for certain rules that preclude an en-
tity from requesting a change in account-
ing method.
(3)Certain foreign corporations.Afor-
eign corporation that is not required to file
a federal income tax return is under ex-
amination if any of its controlling domes-
tic shareholders, as defined in § 6.02(3)(b)
of this revenue procedure, is under ex-
amination for a taxable year(s) in which
it was a United States shareholder of the
foreign corporation. For purposes of this
revenue procedure, a foreign corporation
is no longer under examination when the
controlling domestic shareholders are no
longer under examination, as defined in
section 3.08 of this revenue procedure.
(4)Taxpayer before Joint Committee on
Taxation. If a taxpayer is under exami-
nation (including an examination that be-
gins on the date a taxpayer is contacted
in any manner for additional information
as a result of a Joint Committee on Tax-
ation inquiry pursuant to § 6405) then,
notwithstanding the performance of an act
described in section 3.08(1), (2), or (3),
for purposes of this revenue procedure, the
taxpayer continues to be under examina-
tion while the taxpayer has a refund or
credit under review by the Joint Commit-
tee on Taxation. The examination ends on
the later of (i) the performance of the ap-
plicable act described in section 3.08(1),
(2), or (3); or (ii) the date of the Ser-
vice’s written notification to the taxpayer
that the Joint Committee on Taxation has
completed its consideration (for example,
Letter 1574 (P)), or that the case has been
withdrawn from consideration by the Joint
Committee on Taxation.SeeRev. Proc.
2005–32, 2005–1 C.B. 1206.
(5)Taxpayer in Compliance Assurance
Process. For purposes of this revenue
procedure, a taxpayer participating in the
Compliance Assurance Process (CAP) is
considered to be underexamination as of
the date the taxpayer executes the Memo-
randum of Understanding for the CAP.
.09Issue under consideration.
(1)Under examination. A taxpayer’s
method of accounting for an item is an
issue under consideration for the taxable
years under examination if the taxpayer re-
ceives written notification (for example,
by examination plan,information docu-
ment request (IDR), or notification of pro-
posed adjustments or income tax examina-
tion changes) from the examining agent(s)
specifically citing the treatment of the item
as an issue under consideration. For exam-
ple, a taxpayer’s method of pooling under
the dollar-value, last-in, first-out (LIFO)
inventory method is an issue under consid-
eration as a result of an examination plan
that identifies LIFO pooling as a matter to
be examined, but it is not an issue under
consideration as a result of an examina-
tion plan that merely identifies LIFO in-
ventories as a matter to be examined. Sim-
ilarly, a taxpayer’s method of determin-
ing inventoriable costs under § 263A is
an issue under consideration as a result of
an IDR that requests documentation sup-
porting the costs included in inventoriable
costs, but it is not an issue under considera-
tion as a result of an IDR that requests doc-
umentation supporting the amount of costs
of goods sold reported on the return. The
question of whether a method of account-
ing is an issue under consideration may be
referred to the national office as a request
for technical advice under the provisions
of Rev. Proc. 2011–2, 2011–1 I.R.B. 90
(or successor).
(2)Before an appeals office.Atax-
payer’s method of accounting for an item
is an issue under consideration for the tax-
able years before an appeals office if the
treatment of the item is included as an item
of adjustment in the examination report re-
ferred to Appeals or is specifically identi-
fied in writing to the taxpayer by Appeals.
If an appeals office submits to the Joint
Committee on Taxation pursuant to § 6405
a report of a refund or credit that includes a
method of accounting for an item that is an
issue under consideration, that method of
accounting continues to be an issue under
consideration by the appeals office while
the refund or credit is under review by the
Joint Committee on Taxation.
(3)Before a federal court. A taxpayer’s
method of accounting for an item is an
issue under consideration for the taxable
years before a federal court if the treat-
2011–4 I.R.B.340January 24, 2011

ment of the item is included in the statutory
notice of deficiency, the notice of claim
disallowance, the notice of final adminis-
trative adjustment, the pleadings (for ex-
ample, the petition, complaint, or answer)
or amendments thereto, or is specifically
identified in writing to the taxpayer by the
counsel for the government. If a settle-
ment stipulation that includes a method
of accounting for an item that is an is-
sue under considerationissubmittedtothe
Joint Committee on Taxation pursuant to
§ 6405, that method of accounting contin-
ues to be an issue under consideration by
the federal court while the settlement stip-
ulation is under review by the Joint Com-
mittee on Taxation.
(4)Certain foreign corporations.In
the case of a controlled foreign corpora-
tion (CFC) as defined in § 953(c)(1)(B)
or § 957 or a noncontrolled section 902
corporation as defined in § 904(d)(2)(E)
(10/50 corporation), a foreign corpora-
tion’s method of accounting for an item
is an issue under consideration if any of
the corporation’s controlling domestic
shareholders receives notification de-
scribed in section 3.09(1), (2) or (3) that
the treatment of a distribution or deemed
distribution from the foreign corporation,
or the amount of its earnings and profits
or foreign taxes deemed paid, is an issue
under consideration.
.10Change within the LIFO inventory
method. A change within the LIFO inven-
tory method is a change from one LIFO in-
ventory method or sub-method to another
LIFO inventory method or sub-method. A
change within the LIFO inventory method
does not include a change in method of
accounting that could be made by a tax-
payer that does not use the LIFO inventory
method (for example, a method governed
by § 471 or § 263A).
.11Director. The term “director” has
the same meaning as this term has in Rev.
Proc. 2011–1, 2011–1 I.R.B. 1 (or succes-
sor).
SECTION 4. SCOPE
.01Applicability. This revenue proce-
dure applies to a taxpayer requesting the
Commissioner’s consent to change to a
method of accounting described in the AP-
PENDIX of this revenue procedure. This
revenue procedure is the exclusive proce-
dure for a taxpayer within its scope to ob-
tain the Commissioner’s consent.
.02Inapplicability. Except as other-
wise provided in the APPENDIX of this
revenue procedure (see, for example, sec-
tion 2.01 of the APPENDIX of this rev-
enue procedure), this revenue procedure
does not apply in the following situations:
(1)Under examination.If,onthedate
the taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) would otherwise file a copy
of the application with the national office,
or, if applicable, with the Ogden office,
pursuant to section 6.02(3) of this revenue
procedure, the taxpayer is under examina-
tion (as provided in section 3.08 of this
revenue procedure), except as provided in
sections 6.03(2) (90-day window), 6.03(3)
(120-day window), 6.03(4) (consent of di-
rector), 6.03(5) (changes lacking audit pro-
tection), 6.03(6) (issue pending), 6.04 (is-
sue under consideration by an appeals of-
fice), and 6.05 (issue under consideration
by a federal court) of this revenue proce-
dure;
(2)Consolidated group member.Acor-
poration that is (or was formerly) a mem-
ber of a consolidated group is under exam-
ination, for purposes of section 4.02(1) of
this revenue procedure, if the consolidated
group is under examination for a taxable
year(s) that the corporation was a member
of the group;
(3)Partnerships and S corporations.
For an entity (including a limited liabil-
ity company) treated as a partnership or an
S corporation for federal income tax pur-
poses, if, on the date the entity would oth-
erwise file a copy of the application with
the national office or, if applicable, the
Ogden office, pursuant to section 6.02(3)
of this revenue procedure, the entity’s ac-
counting method to be changed is an issue
under consideration in an examination of a
partner, member, or shareholder’s federal
income tax return;
(4)Section 381(a) transaction.Ex-
cept as otherwise provided in this section
4.02(4) or in final regulations issued under
§ 381, if the taxpayer engages in a trans-
action to which § 381(a) applies within
the proposed taxable year of change (de-
termined without regard to any potential
closing of the year under § 381(b)(1)):
(a)No differences in methods.An
acquiring corporation may change its
method of accounting pursuant to this
revenue procedure if the acquiring corpo-
ration would be permitted to continue to
use its prior method of accounting under
the rules of §§ 1.381(c)(4)–1(b)(1) and
(3)(i) (taking into account the third sen-
tence of § 1.381(c)(4)–1(b)(4) relating to
no prior method established by a party to
the transaction) or §§ 1.381(c)(5)–1(b)(1)
and (3)(i) (taking into account the sec-
ond sentence of § 1.381(c)(5)–1(b)(4)(i)
relating to no prior inventory method es-
tablishedbyapartytothetransaction)
because all of the parties to the transaction
used the same method of accounting on
the date of distribution or transfer. The
change pursuant to this revenue procedure
is ignored for purposes of determining
whether on the date of distribution or
transfer the parties to the transaction used
the same methods of accounting under
§ 1.381(c)(4)–1(b) or § 1.381(c)(5)–1(b),
and thus §§ 1.381(c)(4)–1(b)(3)(ii) and (c)
and §§ 1.381(c)(5)–1(b)(3)(ii) and (c) will
not apply.
(b)Separate trades or businesses.An
acquiring corporation may change pur-
suant to this revenue procedure a method
of accounting used by a trade or business
operated by such corporation if the trade
or business would be permitted to con-
tinue to use its prior method of accounting
under the rules of § 1.381(c)(4)–1(b)(2)
or § 1.381(c)(5)–1(b)(2). The change
pursuant to this revenue procedure is
ignored for purposes of determining
whether on the date of distribution or
transfer the parties to the transaction used
the same methods of accounting under
§ 1.381(c)(4)–1(b) or § 1.381(c)(5)–1(b),
and thus §§ 1.381(c)(4)–1(b)(3) and (c)
and §§ 1.381(c)(5)–1(b)(3) and (c) will
not apply.
(5)Final year of trade or business.If,in
the year of change, a taxpayer requesting a
change in method of accounting ceases to
engage in the trade or business to which the
change in accounting method relates or ter-
minates its existence, as described in sec-
tion 5.04(3)(c) of this revenue procedure.
For purposes of this section 4.02(5), a tax-
payer is treated as ceasing to engage in the
trade or business or terminating its exis-
tence without regard to whether the tax-
payer’s change in method of accounting re-
January 24, 20113412011–4 I.R.B.

quest would result in either a positive or
negative § 481(a) adjustment or be made
on a cut-off basis.
(6)Prior five-year overall method
change. Except as provided in section
13.02(1) and the APPENDIX of this
revenue procedure, if during any of the
five taxable years ending with the year
of change a taxpayer changed its over-
all method of accounting, or applied for
consent to change its overall method of
accounting, regardless of whether it im-
plemented that change, the taxpayer may
not obtain automatic consent to change
its overall method of accounting under
this revenue procedure. However, a tax-
payer that changed its overall method of
accounting during the five taxable years
ending with the year of change may obtain
automatic consent to change a method of
accounting for an item when that change
may otherwise be implemented under the
provisions of this revenue procedure. For
purposes of this section 4.02(6), a change
in overall method of accounting does
not include the use of an overall method
of accounting when computing taxable
income for the taxable year that the tax-
payer first files a federal income tax return
(“adopts an overall method of account-
ing”) or a change in method of accounting
imposedbytheServicepursuanttoRev.
Proc. 2002–18 (or any successor). The
five-year change prohibition in this sec-
tion 4.02(6) applies regardless of whether
the taxpayer’s current or prior method is a
permissible method orclearly reflects the
taxpayer’s income and regardless of the
administrative guidance used to request
consent or to change the prior method of
accounting.
Example.A, an attorney, began business in
2003 and adopted the overall cash method of ac-
counting. For 2008,Achanged to an overall ac-
crual method of accounting using the then appro-
priate administrative guidance.Amay not use
the provisions of this revenue procedure for 2010
to change to the overall cash method because
of the five-year change prohibition contained in
this section 4.02(6). However,Amay still be
able to use the provisions of this revenue proce-
dure to change the method of accounting the tax-
payer will use to treat advances made on behalf of
clients for 2010.Seesection 3.01 of the APPEN-
DIX of this revenue procedure.
(7)Prior five-year item change.
(a)In general. Except as provided in
sections 4.02(7)(b), 13.02(1), and the AP-
PENDIX of this revenue procedure, if dur-
ing any of the five taxable years ending
with the year of change a taxpayer changed
its method of accounting for a specific
item, or applied for consent to change a
method of accounting for a specific item
regardless of whether it implemented that
change, the taxpayer may not obtain au-
tomatic consent to change its method of
accounting for that same item. For pur-
poses of this section 4.02(7)(a), a change
in method of accounting for an item does
not include the use of a method of ac-
counting for the first taxable year that the
taxpayer accounts for the item (for exam-
ple, include in income, deduct, or capital-
ize) to which the method of accounting re-
lates, or a change in method of accounting
imposedbytheServicepursuanttoRev.
Proc. 2002–18 (or any successor). The
five-year change prohibition in this section
4.02(7) applies regardless of whether the
taxpayer’s current or prior method is a per-
missible method or clearly reflects the tax-
payer’s income and regardless of the ad-
ministrative guidance used to request con-
sent or to change the prior method of ac-
counting.
(b)Exceptions. Notwithstanding sec-
tion 4.02(7)(a) of this revenue procedure,
a taxpayer may obtain automatic consent
to change its method of accounting for an
item when that change is required as part
of another change in method of account-
ing that the taxpayer may otherwise im-
plement under the provisions of this rev-
enue procedure. In addition, a taxpayer
is not prohibited from changing a last-in,
first-out (LIFO) inventory sub-method (for
example, the method of determining cur-
rent-year cost or the method of comput-
ing a dollar-value pool index) within five
years of adopting or changing to the LIFO
inventory method or another LIFO inven-
tory sub-method. However, a taxpayer
that changes a LIFO inventory sub-method
within five years of adopting or changing
to the LIFO inventory method does not re-
ceive audit protection under section 7 of
this revenue procedure.
(c)Examples.
Example 1.Auses the LIFO inventory
method. For 2007,Achanged a LIFO inven-
tory sub-method. Specifically,Achanged from
the average-cost method of determining the
current-year cost of inventories to the earliest-ac-
quisitions cost method. For 2010,Aseeks to
change to the IPIC method of computing the in-
dex and value of its dollar-value pools, a method
thatAhas never used. As part of this change,A
seeks to change its method of determining the
current-year cost of inventories from the earli-
est-acquisitions cost method to the most-recent
acquisitions cost method.Ais eligible to change
its method of computing the index and value of its
dollar-value pools to the IPIC method under this
revenue procedure. However,Ais not eligible
to change its method of determining the cur-
rent-year costs of inventories under this revenue
procedure becauseAchanged this LIFO inven-
tory sub-method within the proscribed five-year
period.
Example 2.Buses the dollar-value LIFO in-
ventory method and maintains separate dollar-
value pools for its inventory of (1) new cars; (2)
new trucks; (3) used cars; and (4) used trucks. For
2006,Bterminated its use of the LIFO inventory
method for its used cars and used trucks under
Rev. Proc. 2002–9. For 2010,Bseeks to termi-
nate its use of the LIFO inventory method for its
new cars and new trucks.Bis eligible to change
its method of accounting for new cars and new
trucks under this revenueprocedure because it has
not changed the inventory-identification method
for those pools within the proscribed five-year pe-
riod.
Example 3.C, a driving instruction school,
uses an overall accrual method of accounting.C
obtains payment in full from its students at the
beginning of each session of classes. For 2009,C
properly elected the deferral method for advance
payments as described in Rev. Proc. 2004–34.
For 2010,Cseeks to change its overall method
of accounting to the cash method as described in
Rev. Proc. 2001–10 which it qualifies to use.C
is eligible to change its method of accounting for
advance payments even though it made a prior
change in its method of accounting for advance
payments within the previous 5 taxable years end-
ingwith2010becauseCis required to change
its treatment of advance payments as part of its
change to the overall cash method of accounting.
.03Nonautomatic changes.Ifatax-
payer is precluded other than by sections
4.02(1) through 4.02(3) of this revenue
procedure from using this revenue pro-
cedure to make a change in method of
accounting, the taxpayer requesting such
a change must file a Form 3115 with the
Commissioner in accordance with the
requirements of § 1.446–1(e)(3)(i) and
Rev. Proc. 97–27, 1997–1 C.B. 680, as
amplified and modified by Rev. Proc.
2002–19, as amplified and clarified by
Rev. Proc. 2002–54, as modified by Rev.
Proc. 2007–67, as clarified and modified
by Rev. Proc. 2009–39, and as clarified
andmodifiedbyRev. Proc. 2011–14(or
any other applicableCode, regulation, or
guidance published in the Internal Rev-
enue Bulletin (IRB)).
2011–4 I.R.B.342January 24, 2011

SECTION 5. TERMS AND
CONDITIONS OF CHANGE
.01In general. An accounting method
change filed under this revenue procedure
must be made pursuant to the terms and
conditions provided in this revenue proce-
dure.
.02Year of change. The year of change
is the taxable year designated on the ap-
plication and for which the application is
timely filed under section 6.02(3) of this
revenue procedure.
.03Section 481(a) adjustment.Unless
otherwise provided in this revenue pro-
cedure, a taxpayer making a change in
method of accountingunder this revenue
procedure must apply § 481(a) and take
into account a § 481(a) adjustment in the
manner provided in section 5.04 of this
revenue procedure.
.04Section 481(a) adjustment period.
(1)In general. Except as otherwise pro-
vided in section 5.04(3) or the APPENDIX
of this revenue procedure, or in other guid-
ance published in the IRB, the § 481(a)
adjustment period for a change in method
of accounting is one taxable year (year of
change) for a net negative § 481(a) ad-
justment and four taxable years (year of
change and next three taxable years) for
a net positive § 481(a) adjustment. A net
positive § 481(a) adjustment is taken into
account ratably over the § 481(a) adjust-
ment period.
(2)Short period as a separate taxable
year. If the year of change or any other
taxable year during the § 481(a) adjust-
ment period is a short taxable year, the
§ 481(a) adjustment must be included in
income as if that short taxable year were a
full 12-month taxable year.SeeRev. Rul.
78–165, 1978–1 C.B. 276.
Example 1. A calendar year taxpayer changed
its method of accounting under this revenue pro-
cedure beginning with the 2010 calendar year.
The net § 481(a) adjustment for this method
change is a positive adjustment of $30,000 and
the adjustment period is four taxable years. The
taxpayer subsequently receives permission to
change its annual accounting period to September
30, effective for the taxable year ending Septem-
ber 30, 2011. The taxpayer must include $7,500
of the § 481(a) adjustment in gross income for
the short period from January 1, 2011, through
September 30, 2011.
Example 2. CorporationX, a calendar year
taxpayer, changed its method of accounting under
this revenue procedure beginning with the 2010
calendar year. The net § 481(a) adjustment for
this method change is a positive adjustment of
$30,000 and the adjustment period is four taxable
years. On July 1, 2012, CorporationZacquires
CorporationXin a transaction to which § 381(a)
applies. CorporationZis a calendar year taxpayer
that uses the same method of accounting to which
CorporationXchanged in 2010. CorporationX
must include $7,500 of the § 481(a) adjustment
in gross income for its short period income tax
return for January 1, 2012, through June 30, 2012.
In addition, CorporationZmust include $7,500
of the § 481(a) adjustment in gross income in its
income tax return for calendar year 2012.
(3)Shortened or accelerated § 481(a)
adjustment periods. The § 481(a) adjust-
ment period provided in section 5.04(1) or
the APPENDIX of this revenue procedure
will be shortened or accelerated in the fol-
lowing situations.
(a)De minimis rule. A taxpayer may
elect to use a one-year § 481(a) adjust-
ment period (the year of change) in lieu
of the § 481(a) adjustment period other-
wise provided by this revenue procedure
for a positive § 481(a) adjustment if the
net § 481(a) adjustment for the change is
less than $25,000. To make this election,
the taxpayer must complete the appropri-
ate line on Form 3115 and take the en-
tire § 481(a) adjustment into account in the
year of change.
(b)Cooperatives. A cooperative within
the meaning of § 1381(a) generally must
take the entire amount of a § 481(a) adjust-
ment into account in computing taxable in-
come for the year of change.SeeRev. Rul.
79–45, 1979–1 C.B. 284.
(c)Ceasing to engage in the trade or
business or terminating existence.
(i)In general. A taxpayer that ceases
to engage in a trade or business or termi-
nates its existence must take the remaining
balance of any § 481(a) adjustment relat-
ing to the trade or business into account in
computing taxable income in the taxable
year of the cessation or termination. Ex-
cept as provided in sections 5.04(3)(c)(iv)
and (v) of this revenue procedure, a tax-
payer is treated as ceasing to engage in
a trade or business if the operations of
the trade or business cease or substantially
all the assets of the trade or business are
transferred to another taxpayer. For this
purpose, “substantially all” has the same
meaning as in section 3.01 of Rev. Proc.
77–37, 1977–2 C.B. 568.
(ii)Examples of transactions that are
treated as the cessation of a trade or busi-
ness. The following is a nonexclusive list
of transactions that are treated as the ces-
sation of a trade or business for purposes
of accelerating the § 481(a) adjustment un-
der section 5.04(3)(c) of this revenue pro-
cedure:
(A) the trade or business to which the
§ 481(a) adjustment relates is incorpo-
rated;
(B) the trade or business to which the
§ 481(a) adjustment relates is purchased by
another taxpayer in a transaction to which
§ 1060 applies;
(C) the trade or business to which the
§ 481(a) adjustment relates is terminated
or transferred pursuant to a taxable liqui-
dation;
(D) a division of a corporation ceases to
operate the trade or business to which the
§ 481(a) adjustment relates; or
(E) the assets of a trade or business to
which the § 481(a) adjustment relates are
contributed to a partnership.
(iii)Conversion to or from S corpo-
ration status. Except as provided in
section 22.01 of the APPENDIX of this
revenue procedure, no acceleration of a
§ 481(a) adjustment is required under sec-
tion 5.04(3)(c) of this revenue procedure
when a C corporation elects to be treated
as an S corporation or an S corporation
terminates its S election and is then treated
as a C corporation.
(iv)Certain transfers to which § 381(a)
applies. No acceleration of the § 481(a)
adjustment is required under section
5.04(3)(c) of this revenue procedure when
a taxpayer transfers substantially all the
assets of the trade or business that gave
rise to the § 481(a) adjustment to another
taxpayer in a transfer to which § 381(a)
applies and the accounting method (the
change to which gave rise to the § 481(a)
adjustment) is a tax attribute that is carried
over and used by the acquiring corporation
immediately after the transfer pursuant
to § 381(c). The acquiring corporation
is subject to any terms and conditions
imposed on the transferor (or any prede-
cessor of the transferor) as a result of its
change in method of accounting.
(v)Certain transfers pursuant to § 351
within a consolidated group.
(A)In general. No acceleration of
the § 481(a) adjustment is required under
January 24, 20113432011–4 I.R.B.

section 5.04(3)(c) of this revenue proce-
dure when one member of an affiliated
group filing a consolidated return trans-
fers substantially all the assets of the trade
or business that gave rise to the § 481(a)
adjustment to another member of the
same consolidated group in an exchange
qualifying under § 351 and the transferee
member adopts and uses the same method
of accounting (the change to which gave
rise to the § 481(a) adjustment) used by
the transferor member. The transferor
member must continue to take the § 481(a)
adjustment into account pursuant to the
terms and conditions set forth in this rev-
enue procedure. The transferor member
must take into account activities of the
transferee member (or any successor) in
determining whether acceleration of the
§ 481(a) adjustment is required. For ex-
ample, except as provided in the following
sentence, the transferor member must take
any remaining § 481(a) adjustment into
account in computing taxable income in
the taxable year in which the transferee
member ceases to engage in the trade or
business to which the § 481(a) adjustment
relates. The § 481(a) adjustment is not
accelerated when the transferee mem-
ber engages in a transaction described
in section 5.04(3)(c)(iv) or this section
5.04(3)(c)(v)(A).
(B)Exception. The provisions of sec-
tion 5.04(3)(c)(v)(A) of this revenue pro-
cedure cease to apply and the transferor
member must take any remaining balance
of the § 481(a) adjustment into account
in the taxable year immediately preced-
ing any of the following: (1) the taxable
year the transferor member ceases to be
a member of the group; (2) the taxable
year any transferee member owning sub-
stantially all the assets of the trade or busi-
ness that gave rise to the § 481(a) ad-
justment ceases to be a member of the
group; or (3) a separate return year of the
common parent of the group. In apply-
ing the preceding sentence, the rules of
§§ 1.1502–13(j)(2), (j)(5) and (j)(6) apply,
but only if the method of accounting to
which the transferor member changed and
to which the § 481(a) adjustment relates
is adopted, carried over, or used by any
transferee member acquiring the assets of
the trade or business that gave rise to the
§ 481(a) adjustment immediately after ac-
quisition of such assets. For example, the
transferor member is not required to accel-
erate the § 481(a) adjustment if a transferee
member ceases to be a member of a consol-
idated group by reasonof an acquisition to
which § 381(a) applies and the acquiring
corporation (1) is a member of the same
group as the transferor member, and (2)
continues, under §381(c)(4) and the regu-
lations thereunder, to use the same method
of accounting as that used by the transferor
member with respect to the assets of the
trade or business to which the § 481(a) ad-
justment relates.
.05NOL carryback limitation for tax-
payer subject to criminal investigation.No
portion of any net operating loss that is
attributable to a negative § 481(a) adjust-
ment may be carried back to a taxable year
prior to the year of change that is the sub-
ject of any pending or future criminal in-
vestigation or proceeding concerning (1)
directly or indirectly, any issue relating to
the taxpayer’s federal tax liability, or (2)
the possibility of false or fraudulent state-
ments made by the taxpayer with respect to
any issue relating to its federal tax liability.
.06Certain foreign corporations.If
the change in method of accounting is on
behalf of a controlled foreign corporation
(CFC) as defined in § 953(c)(1)(B) or
§ 957 or a noncontrolled section 902 cor-
poration as defined in § 904(d)(2)(E), the
following additional terms and conditions
apply:
(1) If the functional currency of the for-
eign corporation is not the U.S. dollar, the
§ 481(a) adjustment must be stated in the
functional currency ofthe foreign corpora-
tion and not in U.S. dollars;
(2) A positive § 481(a) adjustment nec-
essary to prevent the duplication of an
expense item must take the same source,
separate limitation classification, charac-
ter, and treatment for purposes of subpart
F as the foreign corporation’s gross in-
come that was offset by the expense in the
prior year or years. A positive § 481(a)
adjustment necessary to prevent the omis-
sion of amounts of an income item must
take the same source, separate limitation
classification, character, and treatment for
purposes of subpart F as the foreign cor-
poration’s income would have had in the
prior year or years. A negative § 481(a)
adjustment necessary to prevent the omis-
sion of amounts of an expense item is
allocated to the class of gross income that
has the same source, separate limitation
classification, character, and treatment for
purposes of subpart F as the foreign cor-
poration’s income that would have been
offset by the expense in the prior year or
years. A negative §481(a) adjustment
necessary to prevent the duplication of
amounts of an income item offsets gross
income that has the same source, separate
limitation classification, character, and
treatment for purposes of subpart F as the
foreign corporation’s income had in the
prior year or years;
(3) For each taxable year of the ad-
justment period beginning with the year
of change, the appropriate amount of the
§ 481(a) adjustment must be taken into ac-
count in computing the foreign corpora-
tion’s subpart F income under § 952 and
its earnings and profits under §§ 964 and
986(b);
(4) The written statement required by
§ 1.964–1(c)(3)(i) and (ii) must be filed by
each controlling domestic shareholder (or
its common parent) with its tax return for
its taxable year with or within which ends
the foreign corporation’s year of change;
(5) The shareholder(s) of the foreign
corporation must maintain records and ac-
counts with respect to the foreign corpo-
ration, for the year of change and for sub-
sequent taxable years, in conformity with
the requirements of §§ 905(b) and 964(c).
This condition is considered satisfied if the
shareholder(s) of the foreign corporation
reconcile(s) the results obtained under the
method used in keeping the foreign corpo-
ration’s books and records and the method
used for federal income tax purposes and
maintain(s) sufficient records to support
such reconciliation;
(6) If a foreign corporation loses its sta-
tus as a CFC or noncontrolled section 902
corporation at any time prior to the expira-
tion of the adjustment period, the foreign
corporation must take into account in com-
puting its subpart F income under § 952
(if applicable) and earnings and profits un-
der §§ 964 and 986(b), on the final day on
which it is a CFC or noncontrolled sec-
tion 902 corporation, the balance of the
§ 481(a) adjustment not previously taken
into account;
(7) Each U.S. shareholder of a CFC (or
its common parent) must comply with its
obligations to report changes in the own-
ership of the CFC on Form 5471,Informa-
tion Return of U.S. Persons With Respect
2011–4 I.R.B.344January 24, 2011

To Certain Foreign Corporations,during
the adjustment period; and
(8) In the case of any disposition of
stock of the foreign corporation that is
owned directly or indirectly by a United
States person if the disposition (i) repre-
sents ten percent or more of the total value
of the stock of the foreign corporation, or
(ii) results in the person no longer meet-
ing the stock ownership requirements of
§ 6046(a)(2) with respect to the foreign
corporation, then the foreign corporation
must take into account, prior to the disposi-
tion, the remaining balance of the § 481(a)
adjustment in computing its subpart F in-
come under § 952 and earnings and profits
under §§ 964 and 986(b). This condition
also applies if the foreign corporation is-
sues stock so that either of the situations
applies to the United States person. This
condition does not apply to any change in
ownership of the foreign corporation if the
stock disposed of continues to be owned,
directly or indirectly, by a member of the
U.S. consolidated group of which the for-
mer shareholder is a member.
.07Foreign division of a domestic cor-
poration taxpayer. If the change in method
of accounting is on behalf of a foreign divi-
sion of a domestic corporation, the follow-
ing additional terms and conditions apply:
(1) If the functional currency of the di-
vision is not the U.S. dollar, the § 481(a)
adjustment must be stated in the functional
currency of the division and not in U.S.
dollars;
(2) A positive § 481(a) adjustment nec-
essary to prevent the duplication of an ex-
pense item must take the same source, sep-
arate limitation classification, and charac-
ter as the foreign division’s gross income
that was offset by the expense in the prior
year or years. A positive § 481(a) adjust-
ment necessary to prevent the omission of
amounts of an income item must take the
same source, separate limitation classifica-
tion, and character as the foreign division’s
income would have had in the prior year or
years. A negative § 481(a) adjustment nec-
essary to prevent the omission of amounts
of an expense item is allocated to the class
of gross income that has the same source,
separate limitation classification, and char-
acter as the division’s income that would
have been offset by the expense in the prior
year or years. A negative § 481(a) adjust-
ment necessary to prevent the duplication
of amounts of an income item offsets gross
income that has the same source, separate
limitation classification, and character as
the foreign division’s income had in the
prior year or years;
(3) For each taxable year of the ad-
justment period beginning with the year
of change, the appropriate amount of the
§ 481(a) adjustment must be taken into ac-
count in computing the taxable income of
the taxpayer;
(4) The taxpayer must maintain records
and accounts of the foreign division, for
the year of change and for subsequent tax-
able years, in conformity with the method
of accounting granted to the taxpayer.
This condition is considered satisfied if
taxpayer reconciles the results obtained
under the method used in keeping for-
eign division’s books and records and the
method used for federal income tax pur-
poses and maintains sufficient records to
support such reconciliation; and
(5) Taxpayer complies with its obliga-
tion to file Form 926,Return by a U.S.
Transferor of Property to a Foreign Corpo-
ration, with respect to a transfer of assets
of the foreign division to a foreign corpo-
ration during the adjustment period;
.08Foreign partnerships. If the change
in method of accounting is made by a for-
eign partnership, the following additional
terms and conditions apply:
(1) If the functional currency of the for-
eign partnership is not the U.S. dollar, the
§ 481(a) adjustment must be stated in the
functional currency of the foreign partner-
ship and not in U.S. dollars;
(2) A positive § 481(a) adjustment nec-
essary to prevent the duplication of an ex-
pense item must take the same source, sep-
arate limitation classification, and charac-
ter as the foreign partnership’s gross in-
come that was offset by the expense in the
prior year or years. A positive § 481(a) ad-
justment necessary to prevent the omission
of amounts of an income item must take
the same source, separate limitation classi-
fication, and character as the foreign part-
nership’s income would have had in the
prior year or years. A negative § 481(a) ad-
justment necessary to prevent the omission
of amounts of an expense item is allocated
to the class of gross income that has the
same source, separate limitation classifica-
tion, and character as the foreign partner-
ship’s income that would have been offset
by the expense in the prior year or years.
A negative § 481(a) adjustment necessary
to prevent the duplication of amounts of an
income item offsets gross income that has
the same source, separate limitation classi-
fication, and characteras the foreign part-
nership’s income had in the prior year or
years;
(3) For each taxable year of the ad-
justment period beginning with the year
of change, the appropriate amount of the
§ 481(a) adjustment must be taken into ac-
count in computing the taxable income of
the foreign partnership;
(4) The foreign partnership must main-
tain records and accounts for the year of
change and for subsequent taxable years,
in conformity with the method of account-
ing granted to the foreign partnership. This
condition is considered satisfied if the for-
eign partnership reconciles the results ob-
tained under the method used in keeping its
books and records and the method used for
federal income tax purposes and maintains
sufficient records to support such reconcil-
iation;
(5) Each partner (and any subsequent
transferee) of the foreign partnership com-
plies with its obligation to file Form 926,
Return by a U.S. Transferor of Property to
a Foreign Corporation, with respect to a
transfer of assets of the foreign partnership
to a foreign corporation during the adjust-
ment period; and
(6) Each partner (and any subsequent
transferee) of the foreign partnership com-
plies with its obligation to file Form 8865,
Return of U.S. persons with respect to Cer-
tain Foreign Partnerships,duringthead-
justment period.
.09Change treated as initiated by the
taxpayer. For purposes of § 481, a change
in method of accounting made under this
revenue procedure is a change in method
of accounting initiated by the taxpayer.
SECTION 6. GENERAL APPLICATION
PROCEDURES
.01Consent.Pursuantto
§ 1.446–1(e)(2)(i), the consent of the
Commissioner is hereby granted to any
taxpayer within the scope of this revenue
procedure to change its method(s) of
accounting as described in the APPEN-
DIX to this revenue procedure for the
requested year of change. Such consent is
granted only for the change(s) in method
January 24, 20113452011–4 I.R.B.

of accounting and the affected item(s)
that are clearly and expressly identified
in the taxpayer’s application.Seesection
6.02(1)(c) of this revenue procedure. Fur-
ther,suchconsentisgrantedonlytothe
extent that the taxpayer complies with all
the applicable provisions of this revenue
procedure and implements the change
in method of accounting on its federal
income tax return for the requested year of
change to which the original application is
attached pursuant to section 6.02(3) of this
revenue procedure. In the case of a CFC
or 10/50 corporation that does not file
a federal income tax return, the CFC or
10/50 corporation implements the change
in method of accounting for the requested
year of change and the controlling do-
mestic shareholder(s) reflect the change
in method of accounting on their federal
income tax return(s), as applicable, for the
year with or within which ends the CFC’s
or 10/50 corporation’s year of change.
.02Filing requirements.
(1)Applications.
(a)Form. Ordinarily, a taxpayer applies
for consent to change a method of account-
ing pursuant to this revenue procedure or
other guidance published in the IRB by
completing and filing a current Form 3115.
In some cases, however, the provisions of
this revenue procedure applicable to a par-
ticular change require or allow a taxpayer
to file a statement in lieu of a Form 3115
as an application for consent to make such
change. See, for example, section 14.10 of
the APPENDIX of this revenue procedure.
(b)Separate applications.
(i)In general. Ordinarily, a taxpayer
must submit a separate application for each
change in method of accounting.
(ii)Single application for two or more
changes. In some cases, the provisions
of this revenue procedure or other guid-
ance published in the IRB applicable to
particular changes in method of account-
ing require or allow a taxpayer to file a sin-
gle application for two or more concurrent
changes. See, for example, section 14.03
of the APPENDIX of this revenue proce-
dure.
When the taxpayer is required or al-
lowedtofileasingleForm3115fortwo
or more concurrent changes, the taxpayer
must attach to the single Form 3115 the in-
formationrequiredbyPartII,line12,and
Part IV, line 25 (including the amount of
any § 481(a) adjustment), of Form 3115 for
each change in method of accounting in-
cluded on that single Form 3115. Also at-
tach an explanation for any other line(s) on
thesingleForm3115wherethetaxpayer’s
answer is different for any of the con-
current changes to which the single Form
3115 relates.
(c)Contents. The taxpayer must submit
an application that is accurate and com-
plete as to all information required by this
revenue procedure. Further, unless this
revenue procedure provides that a Form
3115 is not required for the requested
change in method of accounting, the tax-
payer must submit a current Form 3115
that contains all information required by
the applicable portions of the Form 3115
and its instructions.
For example, an application must iden-
tify the taxpayer making the change; the
year of change (both the beginning and
ending dates); the designated automatic
accounting method change number(s)
for the requested change(s) in method of
accounting; and the amount of the adjust-
ment under § 481(a), unless the change is
required to be made using a cut-off basis.
Also, the application must fully describe
the item(s) being changed; the present
method(s) of accounting from which the
taxpayer is changing and the proposed
method(s) of accounting to which the tax-
payer is changing. Further, unless a Form
3115 is not required for the requested
change in method of accounting, the tax-
payer must provide all other information
required by Parts I, II, and IV, and any
applicable schedule(s) on the Form 3115.
(2)Waiver of taxable year filing
requirement. The requirement under
§ 1.446–1(e)(3)(i) to file a Form 3115
within the taxable year for which the
change is requested is waived for any
application for a change in method of
accounting filed pursuant to this revenue
procedure.See§ 1.446–1(e)(3)(ii).
(3)Timely duplicate filing require-
ments.
(a)In general. A taxpayer changing a
method of accounting pursuant to this rev-
enue procedure must complete and file an
application in duplicate, except as other-
wise provided in this revenue procedure.
(i)Original application.Theoriginal
application must be attached to the tax-
payer’s timely filed (including any exten-
sion) original federal income tax return im-
plementing the change in method of ac-
counting for the year of change; and
(ii)Copy of application.
(A)National office copy of appli-
cation. Except as provided in section
6.02(3)(a)(ii)(B), a copy of the application
(with the original signature or a photocopy
of the original signature) must be filed
with the national office (national office
copy) no earlier than the first day of the
year of change and no later than the date
the taxpayer files the original with the
federal income tax return for the year of
change. For the national office copy of
Form 3115, the taxpayer need only include
the pages containing Parts I through IV,
any applicable schedule(s), and required
attachments. See section 6.02(7)(a) of this
revenue procedure for the address for the
national office copy.
(B)Ogden copy of application in lieu
of the national office copy.Some sections
of the APPENDIX of this revenue proce-
dure require a copy of the application (with
the original signature or a photocopy of
the original signature) to be filed with the
IRS in Ogden, UT (Ogden copy), instead
of with the national office. In these cases,
the signed copy must be filed with the Og-
den office no earlier than the first day of
the year of change and no later than the
date the taxpayer files the original with the
federal income tax return for the year of
change.See, e.g., sections 6.01, 6.02, 6.04,
and9.01oftheAPPENDIXofthisrev-
enue procedure. For the Ogden copy of
Form 3115, the taxpayer need only include
the pages containing Parts I through IV,
any applicable schedule(s), and required
attachments. See section 6.02(7)(b) of this
revenue procedure for the address for the
Odgen copy.
(b)Certain foreign corporations.In
the case of a controlled foreign corpora-
tion as defined in section 953(c)(1)(B) or
957(a) (“CFC”) or a noncontrolled sec-
tion 902 corporation as defined in section
904(d)(2)(E) that is not required to file
a federal income tax return, the control-
ling domestic shareholders (as defined
in § 1.964–1(c)(5)) that want to change
the foreign corporation’s method of ac-
counting pursuant to the provisions of
2011–4 I.R.B.346January 24, 2011

this revenue procedure must satisfy the
requirements set forth in § 1.964–1(c)(3).
The designated shareholder who retains
the jointly executed consent described in
§ 1.964–1(c)(3)(ii) must complete and file
an application in duplicate on behalf of
the foreign corporation. An original appli-
cation must be attached to the designated
shareholder’s (or its common parent’s)
timely filed (including any extension)
original federal income tax return for its
taxable year with or within which ends the
year of change of the foreign corporation,
and a copy (with the original signature or a
photocopy of the original signature) of the
application must be filed with the national
office (or, if applicable, with the IRS in
Ogden, UT) (see section 6.02(7) of this
revenue procedure for the national office
copy or Ogden copy address) no earlier
than the first day of the year of change
and no later than the date the designated
shareholder (or its common parent) files
the original with the designated share-
holder’s (or its common parent’s) federal
income tax return for its taxable year with
or within which ends the year of change
of the foreign corporation. Each other
controlling domestic shareholder (or its
common parent) must also attach a copy
of the application to its federal income
tax return filed for its taxable year with or
within which ends such year of change.
(c)Additional copies required for a tax-
payer under examination, before an ap-
peals office, or before a federal court.If
the taxpayer is under examination (as de-
fined in section 3.08 of this revenue proce-
dure), or before an appeals office or a fed-
eral court (including a taxpayer to which
section 3.09(2) and (3) of this revenue pro-
cedure applies), with respect to any income
tax issue, in all cases the taxpayer (or if
section 6.02(3)(b) of this revenue proce-
dure applies, the designated shareholder)
must provide an additional copy of the ap-
plication to the examining agent(s), ap-
peals officer(s) and counsel to the govern-
ment, as applicable, no later than the date
the taxpayer files the national office copy
or, if applicable, the Ogden copy, of the ap-
plication.
(d)Limited relief for late application.
(i)Automatic extension. An automatic
extension of 6 months from the due date of
the return for the year of change (exclud-
ing any extension) is granted to file an ap-
plication, provided the taxpayer (or if sec-
tion 6.02(3)(b) of this revenue procedure
applies, the designated shareholder):
(A) timely filed (including any exten-
sion) its federal income tax return for the
year of change;
(B) files an amended return within the
6-month extension period in a manner that
is consistent with the new method of ac-
counting;
(C) attaches the original application to
the amended return;
(D) files a copy of the application with
the national office, or, if applicable, with
the IRS in Ogden, UT, no later than when
the original is filed with the amended re-
turn; and
(E) attaches a statement to the applica-
tion that the application is being filed pur-
suant to § 301.9100–2(b) of the Procedure
and Administration Regulations.
(ii)Other extensions. A taxpayer (or if
section 6.02(3)(b) of this revenue proce-
dure applies, the designated shareholder)
that fails to file the application for the
year of change as provided in section
6.02(3)(a), (b), or (d)(i) of this revenue
procedure will not be granted an extension
of time to file under § 301.9100, except
in unusual and compelling circumstances.
See§ 301.9100–3(c)(2) and Rev. Proc.
2011–1 (or successor).
(4)Designated automatic accounting
method change number. The taxpayer
(orifsection6.02(3)(b)ofthisrevenue
procedure applies, the designated share-
holder) must type or clearly print the
designated automatic accounting method
change number for the requested change in
method of accounting on the application.
When the requested change in method of
accounting is made using Form 3115, the
taxpayer must enter the designated auto-
matic accounting method change number
for the requested change on the appropri-
ate line on the Form 3115. For example, a
taxpayer requesting the change in method
of accounting identified in section 1.01 of
the APPENDIX of this revenue procedure
for the year ending December 31, 2010,
must enter the number “91” on Line 1(a)
of Form 3115. When the requested change
in method of accounting is made using a
statement in lieu of Form 3115 the tax-
payer must enter the designated automatic
accounting method change number for the
requested change in method of accounting
at the top of the first page of the statement,
directly above the taxpayer’s name and
employer identification number (or social
security number in the case of an individ-
ual). For example, enter the number “125”
for the change in method of accounting
identified in section 14.10 of the APPEN-
DIX of this revenue procedure at the top
of the first page of the statement, directly
above the taxpayer’s name and employer
identification number (or social security
number in the case of an individual).
In general, a taxpayer may enter only
one designated automatic accounting
method change number on an application.
However, where this revenue procedure
or other guidance published in the IRB
specifically permits two or more particular
changes in method of accounting to be
made on a single application, a taxpayer
must enter the designated automatic ac-
counting method change number for each
such particular change being requested on
the application.
The designated automatic accounting
method change numbers are provided in
the APPENDIX of this revenue procedure
and in other guidance published in the IRB.
See alsoInstructions for Form 3115.
(5)Signature requirements.Thena-
tional office copy, or if applicable, the Og-
den copy, of the application must be signed
by, or on behalf of, the taxpayer request-
ing the change in method of accounting
by an individual who has personal knowl-
edge of the facts and authority to bind the
taxpayer (or if section 6.02(3)(b) of this
revenue procedure applies, the designated
shareholder) in such matters. For exam-
ple, an officer must sign on behalf of a cor-
poration, a general partner on behalf of a
state law partnership, a member-manager
on behalf of a limited liability company,
a trustee on behalf of a trust, or an indi-
vidual taxpayer on behalf of a sole pro-
prietorship. If the taxpayer (or the desig-
nated shareholder) is a member of a con-
solidated group, an application submitted
on behalf of the taxpayer must be signed
by a duly authorized officer of the common
parent. See the signature requirements set
forth in section 6.02(3)(a)(ii) of this rev-
enue procedure and in the current Instruc-
tions for Form 3115 regarding those who
are to sign.
(6)Authorized representative.Ifan
agent is authorized to represent the tax-
January 24, 20113472011–4 I.R.B.

payer before the Service, receive a copy
of the correspondence concerning the ap-
plication, or perform any other act(s) re-
garding the application filed on behalf of
the taxpayer, a power of attorney reflect-
ing such authorization(s) must be attached
to the national office copy, or if applica-
ble, the Ogden copy, of the application
and to any additional required copy. It is
preferred that Form 2848,Power of Attor-
ney and Declaration of Representative,be
used to provide the representative’s author-
ity and qualification. A taxpayer’s repre-
sentative without a power of attorney to
represent the taxpayer as required in this
section 6.02(6) of this revenue procedure
will not be given any information regard-
ing the application.
(7)Wheretofilecopy.
(a)National office copy of application.
(i) For a taxpayer other than an exempt
organization, the national office copy of
the application must be addressed to the
Internal Revenue Service, Attn: CC:ITA
— Automatic Rulings Branch, P.O. Box
7604, Benjamin Franklin Station, Wash-
ington, D.C. 20044 (or, in the case of a
designated private delivery service: Inter-
nal Revenue Service, Attn: CC:ITA —
Automatic Rulings Branch, 1111 Constitu-
tion Avenue, NW, Room 5336, Washing-
ton, D.C. 20224).
(ii) For an exempt organization, the na-
tional office copy of the application must
be addressed to the Internal Revenue Ser-
vice, Tax Exempt & Government Enti-
ties, P.O. Box 2508, Cincinnati, OH 45201
(or, in the case of a designated private de-
livery service: Internal Revenue Service,
Tax Exempt & Government Entities, 550
Main Street, Room 4024, Cincinnati, OH
45202).
(iii) For a taxpayer other than an exempt
organization, the national office copy of
the application may also be hand delivered
between the hours of 8:00 a.m. and 4:00
p.m. to the courier’s desk at the loading
dock (located behind the 12
th
Street secu-
rity station) of 1111 Constitution Avenue,
NW, Washington, D.C. A receipt will be
given at the courier’s desk. The copy of
the application must be addressed to the
Courier’s Desk, Internal Revenue Service,
Attn: CC:PA:LPD:DRU, Room 5336,
1111 Constitution Avenue, NW, Washing-
ton, D.C. 20224.
(b)Ogden copy of application in lieu
of the national office copy. The Ogden
copy of the application, when applicable,
must be addressed to: Internal Revenue
Service, 1973 North Rulon White Blvd.,
Mail Stop 4917, Ogden, UT 84404. This
Ogden copy is in lieu of the national office
copy.Seesection 6.02(3)(a)(ii)(B) of this
revenue procedure.
(8)No acknowledgement of receipt.Ex-
cept as provided in section 6.02(7)(a)(iii)
of this revenue procedure, the Service does
not send an acknowledgement of the re-
ceipt of an application (original or copy)
filed under this revenue procedure.
(9)No user fee. A user fee is not re-
quired for an application filed under this
revenue procedure.
(10)Single application for certain tax-
payers. Certain taxpayers (or if section
6.02(3)(b) of this revenue procedure ap-
plies, certain designated shareholders)
may file a single application for an iden-
tical change in method of accounting on
behalf of two or more of its separate and
distinct trades or businesses, two or more
members of a consolidated group, two
or more controlled foreign corporations
(CFCs), or two or more noncontrolled
section 902 corporations (10/50 corpora-
tions).Seesections 9.02 and 15.07(4) of
Rev. Proc. 2011–1 (or successor).
.03Taxpayer under examination.
(1)In general. Except as otherwise
provided in the APPENDIX of this rev-
enue procedure (see, for example, section
2.01 of the APPENDIX of this revenue
procedure), a taxpayer that is under ex-
amination (as provided in section 3.08 of
this revenue procedure) may file an ap-
plication to change a method of account-
ing under this revenue procedure only if
the taxpayer is within the provisions of
section 6.03(2) (90-day window), 6.03(3)
(120-day window), 6.03(4) (consent of di-
rector), 6.03(5) (changes lacking audit pro-
tection), 6.03(6) (issue pending), 6.04 (is-
sue under consideration by an appeals of-
fice), or 6.05 (issue under consideration
by a federal court) of this revenue proce-
dure. A taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, the des-
ignated shareholder) that files an applica-
tion beyond the time periods provided in
the 90-day and 120-day windows is not el-
igible for the automatic extension of time
and will not be granted an extension of
time to file under § 301.9100, except in un-
usual and compelling circumstances.
(2)90-day window period. A taxpayer
(or if section 6.02(3)(b) of this revenue
procedure applies, the designated share-
holder) may file a copy of the applica-
tion with the national office or, if appli-
cable with the Ogden office, to change a
method of accounting under this revenue
procedure during the first 90-days of any
taxable year (the 90-day window) if the
taxpayer has (or in the case of a taxpayer
that is a CFC or 10/50 corporation, all of
its controlling domestic shareholders that
are under examination have) been under
examination for at least 12 consecutive
months as of the first day of the taxable
year. This 90-day window is not available
if the method of accounting the taxpayer is
changing is an issue under consideration at
the time the taxpayer (or designated share-
holder) would otherwise file the copy of
the application or an issue the examining
agent(s) has placed in suspense at the time
the taxpayer (or designated shareholder)
would otherwise file the copy of the appli-
cation. See section 6.02(3)(c) of this rev-
enue procedure for more information re-
garding the requirement to file a copy of
the application with the examining agent.
(3)120-day window period. Except as
provided in section 3.08(1)(c) of this rev-
enue procedure, a taxpayer (or if section
6.02(3)(b) of this revenue procedure ap-
plies, the designated shareholder) may file
a copy of the application with the national
office or, if applicable with the Ogden of-
fice, to change a method of accounting
under this revenue procedure during the
120-day period following the date an ex-
amination of the taxpayer (or in the case
of a taxpayer that is a CFC or 10/50 cor-
poration, of each of its controlling domes-
tic shareholders that were under examina-
tion) ends (the 120-day window), regard-
less of whether a subsequent examination
has commenced. This 120-day window is
not available if the method of accounting
the taxpayer is changing is an issue under
consideration at the time the taxpayer (or
designated shareholder) would otherwise
file a copy of the application or an issue the
examining agent(s) has placed in suspense
at the time the taxpayer (or designated
shareholder) would otherwise file a copy
of the application. See section 6.02(3)(c)
2011–4 I.R.B.348January 24, 2011

of this revenue procedure for more infor-
mation regarding the requirement to file a
copy of the application with the examining
agent.
(4)Consent of director.
(a) A taxpayer under examination may
change its method of accounting under this
revenue procedure if the director consents
to the filing of the application. The direc-
tor will consent to the filing of the applica-
tion unless, in the opinion of the director,
the method of accounting to be changed
would ordinarily be included as an item
of adjustment in the year(s) for which the
taxpayer is under examination. For ex-
ample, the director will consent to the fil-
ing of an application to change from a
clearly permissible method of accounting,
or from an impermissible method of ac-
counting where the impermissible method
was adopted subsequent to the years un-
der examination. The director’s consent is
limited to the director’s consent to file the
application and does not constitute the di-
rector’s agreement to, or approval of, the
requested change in method of account-
ing. The question of whether the method
of accounting from which the taxpayer is
changing is permissible or was adopted
subsequent to the years under examination
may be referred to the national office as a
request for technicaladvice under the pro-
visions of Rev. Proc. 2011–2 (or succes-
sor).
(b) A taxpayer changing a method of
accounting under this revenue procedure
with the consent of the director (or if sec-
tion 6.02(3)(b) of this revenue procedure
applies, the designated shareholder) must
attach to the copy of the application filed
with the national office or, if applicable
with the Ogden office, a statement from
the director consenting to the filing of the
application. In addition, the taxpayer (or
designated shareholder) must attach to its
original application attached to its federal
income tax return a statement certifying
that it has obtained the written consent of
the director to the filing of the application
and that the taxpayer (or designated share-
holder) will maintain a copy of such con-
sent available for inspection. See section
6.02(3)(c) of this revenue procedure for
more information regarding the require-
ment to file a copy of the application with
the examining agent.
(5)Changes lacking audit protection.A
taxpayer under examination may change
its method of accounting under this rev-
enue procedure if the description of the
change in the APPENDIX of this revenue
procedure provides that the change is not
subject to the audit protection provisions
of section 7 of this revenue procedure. See
section 6.02(3)(c) of this revenue proce-
dure for more information regarding the
requirement to file a copy of the applica-
tion with the examining agent.
(6)Issue Pending. A taxpayer that is
under examination with respect to any in-
come tax issue may request to change a
method of accounting if the method of ac-
counting to be changed is an issue pend-
ing for any taxable year under examina-
tion. However, the audit protection pro-
visions of section 7 of this revenue proce-
dure do not apply to a taxpayer changing
its method of accounting under this sec-
tion 6.03(6). For purposes of this section
6.03(6), an issue is pending for a taxable
year under examination if the Service has
given the taxpayer (or if section 6.02(3)(b)
of this revenue procedure applies, any con-
trolling domestic shareholder of a CFC or
10/50 corporation) written notification in-
dicating an adjustment is being made or
will be proposed with respect to the tax-
payer’s method of accounting. This noti-
fication by the Service may result from an
inquiry by the Joint Committee on Taxa-
tion. This notification normally will oc-
cur after the Service or the Joint Commit-
tee on Taxation has gathered information
sufficient to determine that an adjustment
is appropriate and justified, although the
exact amount of the adjustment may not
yet be determined. See section 6.02(3)(c)
of this revenue procedure for more infor-
mation regarding the requirement to file a
copy of the application with the examining
agent.
.04Taxpayer before an appeals office.
A taxpayer otherwise within the scope
of this revenue procedure that is before
an appeals office with respect to any in-
come tax issue (or if section 6.02(3)(b)
of this revenue procedure applies, a CFC
or 10/50 corporation with a controlling
domestic shareholder that is before an
appeals office with respect to any income
tax issue) may request a change in method
of accounting. Further, a taxpayer not
otherwise within the scope of this revenue
procedure by reason of section 4.02(1),
(2), or (3) that is before an appeals office
with respect to any income tax issue (or if
section 6.02(3)(b) of this revenue proce-
dure applies, a CFC or 10/50 corporation
with a controlling domestic shareholder
that is before an appeals office with re-
spect to any income tax issue) may request
a change in method of accounting if the
method to be changed is an issue under
consideration by the appeals office. How-
ever, the audit protection provisions of
section 7 of this revenue procedure do not
apply if the method of accounting to be
changed is an issue under consideration by
the appeals office. See section 6.02(3)(c)
of this revenue procedure for more infor-
mation regarding the requirement to file
a copy of the application with the appeals
officer.
.05Taxpayer before a federal court.A
taxpayer otherwise within the scope of this
revenue procedure that is before a federal
court with respect to any income tax is-
sue (or if section 6.02(3)(b) of this revenue
procedure applies, a CFC or 10/50 corpo-
ration with a controlling domestic share-
holder that is before a federal court with
respect to any income tax issue) may re-
quest a change in method of accounting.
Further, a taxpayer not otherwise within
the scope of this revenue procedure by rea-
son of section 4.02(1), (2), or (3) that is
before a federal court with respect to any
income tax issue (or if section 6.02(3)(b)
of this revenue procedure applies, a CFC
or 10/50 corporation with a controlling do-
mestic shareholder that is before a federal
court with respect to any income tax is-
sue) may request a change in method of
accounting if the method to be changed is
an issue under consideration by the federal
court. However, the audit protection pro-
visions of section 7 of this revenue proce-
dure do not apply if the method of account-
ingtobechangedisanissueunderconsid-
eration by the federal court. See section
6.02(3)(c) of this revenue procedure for
more information regarding the require-
ment to file a copy of the application with
the counsel(s) for the government.
.06Compliance with provisions.Ifa
taxpayer to which this revenue procedure
applies changes to a method of account-
ing without complying with all the appli-
cable provisions of this revenue procedure
(for example, the taxpayer changes to a
January 24, 20113492011–4 I.R.B.

method of accounting that varies from the
applicable accounting method described in
this revenue procedure or the taxpayer is
outside the scope of this revenue proce-
dure), the taxpayer has initiated a change
in method of accounting without obtain-
ing the consent of the Commissioner as re-
quired by § 446(e).Seesections 9.02 and
10.03 of this revenue procedure.
SECTION 7. AUDIT PROTECTION
FOR TAXABLE YEARS PRIOR TO
YEAR OF CHANGE
.01In general. Except as provided in
sections 4.02(7)(b), 6.03(5), 6.03(6), 6.04,
6.05, 7.02 or the APPENDIX of this rev-
enue procedure or in any other guidance
published in the IRB, when a taxpayer
timely files a copy of the application with
the national office or, if applicable the Og-
den office, under section 6.02(3) of this
revenue procedure in compliance with all
the applicable provisions of this revenue
procedure, the Service will not require the
taxpayer to change its method of account-
ing for the same item for a taxable year
prior to the year of change.
.02Exceptions.
(1)Change not made or made improp-
erly. The Service may change a taxpayer’s
method of accounting for prior taxable
years if (a) the taxpayer fails to implement
the change, (b) the taxpayer implements
the change but does not comply with all
the applicable provisions of this revenue
procedure, or (c) the method of accounting
is changed or modified because there has
been a misstatement or omission of mate-
rial facts (see section 8.02 of this revenue
procedure).
(2)Change in sub-method.TheSer-
vice may change a taxpayer’s method of
accounting for prior taxable years if the
taxpayer is changing a sub-method of ac-
counting within the method. For exam-
ple, an examining agent may propose to
terminate the taxpayer’s use of the LIFO
inventory method during a prior taxable
year even though the taxpayer changes its
method of valuing increments in the cur-
rent year.
(3)Prior year Service-initiated change.
The Service may make adjustments to the
taxpayer’s returns for the same item for
taxable years prior to the requested year of
change to reflect a prior year Service-ini-
tiated change reported as an issue pending
or in a Revenue Agent’s Report.
(4)Criminal investigation.TheSer-
vice may change a taxpayer’s method of
accounting for the same item for taxable
years prior to the year of change if there
is any pending or future criminal inves-
tigation or proceeding concerning (a) di-
rectly or indirectly, any issue relating to the
taxpayer’s federal tax liability for any tax-
able year prior to the year of change, or (b)
the possibility of false or fraudulent state-
ments made by the taxpayer with respect
to any issue relating to its federal tax lia-
bility for any taxable year prior to the year
of change.
SECTION 8. EFFECT OF CONSENT
.01In general. A taxpayer that changes
to a method of accounting pursuant to
this revenue procedure may be required to
change or modify that method of account-
ing for the following reasons:
(1) the enactment of legislation;
(2) a decision of the United States
Supreme Court;
(3) the issuance of temporary or final
regulations;
(4) the issuance of a revenue ruling, rev-
enue procedure, notice, or other statement
published in the IRB;
(5) the issuance of written notice to the
taxpayer that the change in method of ac-
counting is not in accord with the current
views of the Service; or
(6) a change in the material facts on
which the consent was based.
.02Retroactive change or modification.
Except in rare or unusual circumstances, if
a taxpayer that changes its method of ac-
counting under this revenue procedure is
subsequently required under section 8.01
of this revenue procedure to change or
modify that method of accounting, the re-
quired change or modification will not be
applied retroactively, provided that:
(1) the taxpayer complied with all the
applicable provisions of this revenue pro-
cedure;
(2) there has been no misstatement or
omission of material facts;
(3) there has been no change in the
material facts on which the consent was
based;
(4) there has been no change in the ap-
plicable law; and
(5) the taxpayer to whom consent was
granted acted in good faith in relying on
the consent, and applying the change or
modification retroactively would be to the
taxpayer’s detriment.
SECTION 9. REVIEW BY DIRECTOR
.01In general. The director must apply
a change in method of accounting made
in compliance with all the applicable pro-
visions of this revenue procedure in de-
termining the taxpayer’s liability, unless
the director recommends that the change
in method of accounting should be modi-
fied or revoked. (See section 9.02 of this
revenue procedure if a change in method
of accounting is made without complying
with all the applicable provisions of this
revenue procedure.) The director will as-
certain if the change in method of account-
ing was made in compliance with all the
applicable provisions of this revenue pro-
cedure, including whether:
(1) the representations on which the
change was based reflect an accurate state-
ment of the material facts;
(2) the amount of the § 481(a) adjust-
ment was properly determined; and
(3) the change in method of accounting
was implemented in compliance with all
the applicable provisions of this revenue
procedure.
The director will also ascertain
whether:
(4) there has been any change in the ma-
terial facts on which the change was based
during the period the method of account-
ing was used; and
(5) there has been any change in the ap-
plicable law during the period the method
of accounting was used.
.02Changes not made in compliance
with all applicable provisions.Ifthedi-
rector determines that the taxpayer has not
complied with all of the applicable provi-
sions of this revenue procedure, the direc-
tor may:
(1) deny the change in method of ac-
counting and require the taxpayer to con-
tinue to use the prior method of account-
ing;
(2) deny the change in method of ac-
counting and place the taxpayer on a
proper method of accounting (seesection
2.10 of this revenue procedure); or
(3) make any adjustments (including
the amount of any § 481(a) adjustment)
2011–4 I.R.B.350January 24, 2011

that are necessary to bring the change in
method of accounting into compliance
with all applicable provisions of this rev-
enue procedure.
The director may impose any otherwise
applicable penalty, addition to tax, or ad-
ditional amount on the understatement of
tax attributable to the change in method of
accounting.
.03National office consideration.If
the director recommends that a change
in method of accounting (other than the
§ 481(a) adjustment) made in compliance
with all the applicable provisions of this
revenue procedure should be modified or
revoked, the director will forward the mat-
ter to the national office for consideration
before any further action is taken. Such
a referral to the national office will be
treated as a request for technical advice,
and the provisions of Rev. Proc. 2011–2
(or successor) will be followed.
SECTION 10. REVIEW BY NATIONAL
OFFICE
.01In general. The national office may
review any application filed under this rev-
enue procedure. If the national office re-
views an application, the procedures in
sections 10.02 and 10.03 of this revenue
procedure apply.
.02Incomplete application.
(1)30-day rule. If the national office
reviews an application and determines that
the application is not properly completed
(see section 6.02(1)(c) of this revenue pro-
cedure), or if supplemental information is
needed, the national office will notify the
taxpayer. The notification will specify the
information that the taxpayer needs to pro-
vide and permit the taxpayer 30 days from
the date of the notification to furnish the
information. The national office reserves
the right to impose shorter reply periods
if subsequent requests for additional infor-
mation are made. The national office may
grant a taxpayer an extension of the 30-day
period to furnish information, not to ex-
ceed 30 days. A taxpayer must request any
extension of the 30-day period in writing
and submit it within the initial 30-day pe-
riod. If the national office denies an exten-
sion request, there is no right of appeal.
(2)Failure to provide additional infor-
mation. Ordinarily, if the taxpayer fails
to provide the additional information on a
timely basis, the application does not qual-
ify for the automatic consent procedures
of this revenue procedure. If the national
office determines that the application does
not qualify for the automatic consent pro-
cedures of this revenue procedure because
the taxpayer has failed to provide the ad-
ditional information on a timely basis, the
national office will notify the taxpayer that
consent to make the change in method of
accounting is not granted.
.03National office determination.
(1)Conference in the national office.
If the national office tentatively deter-
mines that the taxpayer has changed its
method of accounting without complying
with all the applicable provisions of this
revenue procedure (for example, the tax-
payer changed to a method of accounting
that varies from the applicable accounting
method described in this revenue proce-
dure or the taxpayer is outside the scope
of this revenue procedure), the national
office will notify the taxpayer of its tenta-
tive adverse determination and will offer
the taxpayer a conference, if the taxpayer
requested one. For conference procedures
for taxpayers other than exempt organiza-
tions, see section 10 of Rev. Proc. 2011–1
(or successor). For conference procedures
for exempt organizations, see section 12
of Rev. Proc. 2011–4, 2011–1 I.R.B. 123
(or successor).
(2)Consent not granted. Except as pro-
vided in section 10.03(3) of this revenue
procedure, if the national office determines
that a taxpayer has changed its method of
accounting without complying with all the
applicable provisions of this revenue pro-
cedure, the national office will notify the
taxpayer that consent to make the change
in method of accounting is not granted. In
no event will an application filed under this
revenue procedure be treated as an applica-
tion under Rev. Proc. 97–27 (or any suc-
cessor).
(3)Application changed. If the na-
tional office determines that a taxpayer
has changed its method of accounting
without complying with all the applica-
ble provisions of this revenue procedure,
the national office, in its discretion, may
allow the taxpayer to (a) make appropri-
ate adjustments to conform its change in
method of accounting to the applicable
provisions of this revenue procedure, and
(b) make conforming amendments to any
federal income tax returns filed for the
year of change and subsequent taxable
years. Any application changed under this
section 10.03(3) is subject to review by
the director as provided in section 9 of this
revenue procedure.
SECTION 11. APPLICABILITY OF
REV. PROCS. 2011–1 AND 2011–4
Rev. Procs. 2011–1 and 2011–4 (or
successors) apply to applications filed un-
der this revenue procedure, unless specif-
ically excluded or overridden by other
guidance published in the IRB (including
any specific procedures in this document).
January 24, 20113512011–4 I.R.B.

SECTION 12. CHANGES TO REV.
PROC. 97–27
.01Changes to section 3.07, Under ex-
amination.
(1)Change to section 3.07(1)(a). Sec-
tion 3.07(1)(a) of Rev. Proc. 97–27 is
modified, in part, to read as follows:
(a) Except as provided in sections
3.07(2) and 3.07(4) of this revenue proce-
dure, an examination of a taxpayer with
respect to a federal income tax return be-
gins on the date the taxpayer is contacted
in any manner by a representative of the
Service for the purpose of scheduling any
type of examination of the return. Ex-
cept as provided in sections 3.07(1)(b),
3.07(1)(c), 3.07(2) and 3.07(3) of this rev-
enue procedure, an examination ends:
***
(2)Change to section 3.07(1)(c). Sec-
tion 3.07(1)(c) of Rev. Proc. 97–27 is
modified to read as follows:
(c) An examination resumes on the
date the taxpayer (or its representative) is
notified by Appeals (or otherwise) that the
case has been referred to Examination for
reconsideration. Further, notwithstand-
ing sections 3.07(1)(a)(iii) and 6.01(3) of
this revenue procedure, if the taxpayer is
within the 120-day window period pro-
vided in section 6.01(3) of this revenue
procedure, that 120-day window period
ends as of the date the taxpayer is notified
by Appeals (or otherwise) that the case has
been referred to the examining agent(s)
for reconsideration. The 120-day window
period in section 6.01(3) will be available
to the taxpayer in its entirety when the
resumed examination ends.
(3)Change to section 3.07(2), Part-
nerships and S corporations subject to
TEFRA. Section 3.07(2) of Rev. Proc.
97–27 is modified, in part, to read as fol-
lows:
(2)Partnerships and S corporations
subject to TEFRA. Except as provided in
sections 3.07(3) and 3.07(4) of this rev-
enue procedure, for an entity (including
a limited liability company), treated as a
partnership or an S corporation for federal
income tax purposes, that is subject to the
TEFRA unified audit and litigation provi-
sions for partnerships and S corporations,
an examination begins on the date of the
notice of the beginning of an administra-
tive proceeding sent to the Tax Matters
Partner/Tax Matters Person (TMP) and
ends:
***
(4)Change to section 3.07(3), Taxpayer
before Joint Committee on Taxation. Sec-
tion 3.07(3) of Rev. Proc. 97–27 is modi-
fied to read as follows:
(3)Taxpayer before Joint Committee on
Taxation. If a taxpayer is under examina-
tion (including an examination that begins
on the date a taxpayer is contacted in any
manner for additional information as a re-
sult of a Joint Committee on Taxation in-
quiry pursuant to § 6405) then, notwith-
standing the performance of an act de-
scribed in section 3.07(1) or 3.07(2), for
purposes of this revenue procedure, the
taxpayer continues to be under examina-
tion while the taxpayer has a refund or
credit under review by the Joint Commit-
tee on Taxation. The examination ends on
the later of (i) the performance of the ap-
plicable act described in section 3.07(1) or
3.07(2), or (ii) the date of the Service’s
written notification to the taxpayer that
the Joint Committee on Taxation has com-
pleted its consideration (for example, Let-
ter 1574 (P)), or that the case has been
withdrawn from consideration by the Joint
Committee on Taxation.SeeRev. Proc.
2005–32, 2005–1 C.B. 1206.
Further, for purposes of section 6.01(5)
(issue pending) of this revenue procedure,
an issue is pending for a taxable year un-
der examination if the Service has given
the taxpayer written notification indicat-
ing an adjustment is being made or will
be proposed with respect to the taxpayer’s
method of accounting. The notification by
the Service may result from an inquiry by
the Joint Committee on Taxation. This no-
tification normally will occur after the Ser-
vice or the Joint Committee on Taxation
has gathered information sufficient to de-
termine that an adjustment is appropriate
and justified, although the exact amount of
the adjustment may not yet be determined.
.02Changestosection3.08,Issueun-
der consideration.
(1)Change to section 3.08(2), Before
an appeals office. Section 3.08(2) of Rev.
Proc. 97–27, is modified to read as fol-
lows:
(2)Before an appeals office.Atax-
payer’s method of accounting for an item
is an issue under consideration for the tax-
able years before an appeals office if the
treatment of the item is included as an item
of adjustment in the examination report re-
ferred to Appeals or is specifically identi-
fied in writing to the taxpayer by Appeals.
If an appeals office submits to the Joint
Committee on Taxation pursuant to § 6405
a report of a refund or credit that includes a
method of accounting for an item that is an
issue under consideration, that method of
accounting continues to be an issue under
consideration by the appeals office while
the refund or credit is under review by the
Joint Committee on Taxation.
(2)Change to section 3.08(3), Before
a federal court. Section 3.08(3) of Rev.
Proc. 97–27, is modified to read as fol-
lows:
(3)Before a federal court. A taxpayer’s
method of accounting for an item is an
issue under consideration for the taxable
years before a federal court if the treatment
of the item is included as an item of adjust-
ment in the statutory notice of deficiency,
the notice of claim disallowance, the no-
tice of final administrative adjustment, the
pleadings (for example, the petition, com-
plaint, or answer) or amendments thereto
or is specifically identified in writing to
the taxpayer by the counsel for the govern-
ment. If a settlement stipulation that in-
cludes a method of accounting for an item
that is an issue under consideration is sub-
mitted to the Joint Committee on Taxa-
tion pursuant to § 6405, that method of
accounting continues to be an issue under
consideration by the federal court while
the settlement stipulation is under review
by the Joint Committee on Taxation.
.03Change to section 4.02, Scope, “In-
applicability”. Section 4.02(2) of Rev.
Proc. 97–27, is modified to read as fol-
lows:
(2)Under examination. If the taxpayer
is under examination,except as provided
in sections 6.01(2) (90-day window),
6.01(3) (120-day window), 6.01(4) (direc-
tor consent), 6.01(5) (issue pending), 6.02
(issue under consideration by an appeals
office) and 6.03 (issue under consideration
by a federal court) of this revenue proce-
dure;
.04Changes to section 6, PROCE-
DURES FOR TAXPAYERS UNDER EX-
AMINATION, BEFORE AN APPEALS
OFFICE, OR BEFORE A FEDERAL
COURT.
2011–4 I.R.B.352January 24, 2011

(1)Change to section 6.02, Taxpayer
before an appeals office. Section 6.02 of
Rev. Proc. 97–27, is modified to read as
follows:
.02Taxpayer before an appeals office.
A taxpayer otherwise within the scope of
this revenue procedure that is before an ap-
peals office with respect to any income tax
issue may request a change in method of
accounting. Further, a taxpayer not other-
wise within the scope of this revenue pro-
cedure by reason of section 4.02(2) (under
examination), 4.02(5) (consolidated group
member) or 4.02(6) (partnerships and S
corporations) that is before an appeals of-
fice with respect to any income tax issue
may request a change in method of ac-
counting if the method to be changed is
an issue under consideration by the appeals
office. However, the audit protection pro-
visions of section 9 of this revenue proce-
dure do not apply if the method of account-
ing to be changed is an issue under consid-
eration by the appeals office. A taxpayer
that requests to change a method of ac-
counting under this section 6.02 must pro-
vide a copy of the Form 3115 to the ap-
peals officer no later than the date it files
the original Form 3115 with the national
office.
(2)Change to section 6.03, Taxpayer
before a federal court. Section 6.03 of
Rev. Proc. 97–27, is modified to read as
follows:
.03Taxpayer before a federal court.A
taxpayer otherwise within the scope of this
revenue procedure that is before a federal
court with respect to any income tax is-
sue may request a change in method of ac-
counting. Further, a taxpayer not other-
wise within the scope of this revenue pro-
cedure by reason of section 4.02(2) (under
examination), 4.02(5) (consolidated group
member) or 4.02(6) (partnerships and S
corporations) that is before a federal court
with respect to any income tax issue may
request a change in method of accounting
if the method to be changed is an issue
under consideration by the federal court.
However, the audit protection provisions
of section 9 of this revenue procedure do
not apply if the method of accounting to
be changed is an issue under consideration
by the federal court. A taxpayer that re-
quests to change a method of accounting
under this section 6.03 must provide a copy
of the Form 3115 to the counsel(s) for the
government no later than the date it files
the original Form 3115 with the national
office.
SECTION 13. EFFECTIVE DATE
.01In general.
(1)Rev. Proc. 2011–14. Except as
provided in section 13.02 of this revenue
procedure, this revenue procedure is effec-
tive for applications filed on or after Jan-
uary 10, 2011, for a year of change end-
ing on or after April 30, 2010. The Service
will return any application that is filed with
the national office on or after January 10,
2011, for a year of change ending on or af-
ter April 30, 2010, if the application is filed
pursuant to the Code, regulations, or other
guidance published in the IRB other than
this revenue procedure and the change in
method of accounting appears to be within
the scope of this revenue procedure.
(2)Rev. Proc. 97–27. This revenue
procedure is effective for Forms 3115 filed
under Rev. Proc. 97–27, as amplified
and modified by Rev. Proc. 2002–19,
as amplified and clarified by Rev. Proc.
2002–54, as modified by Rev. Proc.
2007–67, as clarified and modified by
Rev. Proc. 2009–39, and as clarified and
modified by this revenue procedure, filed
on or after January 10, 2011, for a year
of change ending on or after January 10,
2011.
.02Transition rules. The following
transition rules apply:
(1)Forms 3115 filed under Rev. Proc.
97–27. If before January 10, 2011, a
taxpayer within the scope of Rev. Proc.
97–27 timely filed a Form 3115 under
Rev. Proc. 97–27 requesting consent for a
change in method of accounting described
in the APPENDIX of this revenue proce-
dure for a year of change ending on or after
April 30, 2010, and the Form 3115 is pend-
ing with the national office on January 10,
2011, the taxpayer may choose to make
the change under this revenue procedure
if the taxpayer is otherwise eligible under
this revenue procedure. If the taxpayer
chooses to convert the Form 3115 under
this revenue procedure, the taxpayer must
notify the national office before the later of
(a) February 11, 2011, or (b) the issuance
of either a letter ruling granting or denying
consent for the change or a letter closing
the case. If the taxpayer timely notifies
the national office that it will convert the
Form 3115 under this revenue procedure,
the national office ordinarily will return
the Form 3115 to the taxpayer to make the
necessary modifications to comply with
the applicable provisions of this revenue
procedure and will refund the user fee
submitted with the Form 3115.
A taxpayer may convert a Form 3115
that is returned to the taxpayer under this
section13.02(1)toanapplicationunder
Rev. Proc. 2011–14, if the taxpayer re-
submits the Form 3115 with the necessary
modifications, along with a copy of the na-
tional office letter sent with the returned
Form 3115, to the national office or, if ap-
plicable, to the Ogden office, by the earlier
of (a) the 30
th
calendar day after the date
of the Service’s letter returning the Form
3115 to the taxpayer, or (b) the date the
taxpayer is required to file the copy of the
application under section 6.02(3) of this
revenue procedure. For purposes of the
timely duplicate filing requirement in sec-
tion 6.02(3) of Rev. Proc. 2011–14, the na-
tional office copy or, if applicable, the Og-
den copy, of the timely resubmitted Form
3115 will be considered filed as of the date
the taxpayer originally filed the Form 3115
under Rev. Proc. 97–27.
A Form 3115 filed under Rev. Proc.
97–27 before January 10, 2011, that is
pending with the national office on January
10, 2011, will be disregarded for purposes
of the prior 5 year change rules in sections
4.02(6) and (7) of Rev. Proc. 2011–14, in
the following circumstances:
(a) the taxpayer converts the Form 3115
under this section 13.02(1); or
(b) the taxpayer withdraws the Form
3115 and files an application under Rev.
Proc. 2011–14, for the same change in
method of accounting for a year of change
ending on or before April 30, 2011.
(2)Application filed under Rev. Proc.
2008–52.
(a)General rule.Ifataxpayerproperly
filed an application with the national of-
fice under Rev. Proc. 2008–52, as ampli-
fied, clarified, and modified by Rev. Proc.
2009–39, to make a change in method of
accounting described in the APPENDIX of
Rev. Proc. 2008–52, as amplified, clari-
fied, and modified by Rev. Proc. 2009–39,
and the application was either post-marked
or received by the national office before
January 10, 2011, the taxpayer makes the
January 24, 20113532011–4 I.R.B.

change under Rev. Proc. 2008–52, as
amplified, clarified, and modified by Rev.
Proc. 2009–39.
(b)Option to file an amended applica-
tion.
(i)In general. If before January 10,
2011, a taxpayer properly filed an applica-
tion under Rev. Proc. 2008–52, as ampli-
fied, clarified, and modified by Rev. Proc.
2009–39, for a year of change that is the
taxpayer’s first taxable year ending on or
after April 30, 2010, the taxpayer may
choose to file an amended application for
that year of change under this revenue pro-
cedure if:
(A) On or before the earlier of (1)
May 2, 2011, or (2) the date the taxpayer
files its federal income tax return for
the year of change as required in section
13.02(2)(b)(i)(B) of this revenue proce-
dure, the taxpayer sends the national office
copy or, if applicable, the Ogden copy,
of the amended application, with “FILED
UNDER SECTION 13.02(2) of REV.
PROC. 2011–14” written on the top of
page 1, to the applicable address in section
13.02(2)(b)(ii) of this revenue procedure;
and
(B) Within 6 months from the due date
of the federal income tax return for the year
of change (excluding extension), the tax-
payer files an original or amended return
implementing the new method of account-
ing pursuant to this revenue procedure, and
attaches the original amended application
filed under this revenue procedure to its
original or amended return for the year of
change.
For purposes of the timely duplicate fil-
ing requirement in section 6.02(3) of Rev.
Proc. 2011–14, the national office copy or,
if applicable, the Ogden copy, of the timely
resubmitted amended application will be
considered filed as of the date the taxpayer
originally filed the copy of the application
under Rev. Proc. 2008–52 with the na-
tional office.
(ii)Address to send the amended ap-
plication to the national office or Ogden,
as applicable. Send the national office
copy or Ogden copy, as applicable, of the
amended application, pursuant to section
13.02(2)(b)(i)(A) of this revenue proce-
dure to the applicable address below:
National office copy: Internal Rev-
enue Service, P. O. Box 14095, Benjamin
Franklin Station, Washington, DC 20044,
Attention: CC:ITA:8.
Ogden copy: Internal Revenue Service,
1973 North Rulon White Blvd., Mail Stop
4917, Ogden, UT 84404.
(3)No application filed before
January 10, 2011. If, before January
10, 2011, a taxpayer has not filed an
application requesting consent to change
a particular method of accounting for its
first taxable year ending on or before
December 31, 2010, the taxpayer may
choose to apply the provisions of the
APPENDIX of Rev. Proc. 2008–52, as
amplified, clarified, and modified by Rev.
Proc. 2009–39, (in lieu of the APPENDIX
of this revenue procedure) with Rev. Proc.
2011–14, with respect to such method of
accounting for such taxable year.
For a taxpayer filing an application un-
der Rev. Proc. 2011–14 using the APPEN-
DIX of Rev. Proc. 2008–52, as ampli-
fied, clarified, and modified by Rev. Proc.
2009–39, the timely duplicate filing re-
quirement of section 6.02(3) of Rev. Proc.
2011–14 is modified to require the copy of
the application to be submitted to the Na-
tional Office or, if applicable, the Ogden
office, on or before February 15, 2011. A
taxpayer filing such a transition applica-
tion under this section 13.02(3) must oth-
erwise be eligible to make the change un-
der the non-APPENDIX sections of Rev.
Proc. 2011–14, and should write on the top
of page 1 of the national office copy or, if
applicable, the Ogden copy, of the applica-
tion “FILED UNDER SECTION 13.02(3)
OF REV. PROC. 2011–14.”
SECTION 14. EFFECT ON OTHER
DOCUMENTS
.01 Rev. Proc. 2008–52, is amplified,
clarified, modified, and, in part, is super-
seded. The last paragraph of section 13
of Rev. Proc. 2008–52 (relating to Rev.
Proc. 2008–43, 2008–30 I.R.B. 186) re-
mains in effect. All other sections of Rev.
Proc. 2008–52 are superseded.
.02 Rev. Proc. 2009–39, is amplified,
clarified, modified, and, in part, is super-
seded. Sections 3 and 4.03 of Rev. Proc.
2009–39 remain in effect. All other sec-
tions of Rev. Proc. 2009–39 are super-
seded.
.03 Rev. Proc. 97–27, is clarified and
modified.
.04 Rev. Proc. 2004–34, 2004–1 C.B.
991, is modified as follows. Section 8.03
of Rev. Proc. 2004–34 is modified by
adding new section 8.03(3) to read as fol-
lows:
(3) A taxpayer that makes a change in
method of accounting pursuant to the pro-
visions of Rev. Proc. 97–27 that other-
wise would be described in section 15.11
of the APPENDIX of Rev. Proc. 2011–14
but for the scope limitations in section 4.02
of Rev. Proc. 2011–14, must make the
change on a cut-off basis as described in
section 2.06 of Rev. Proc. 2011–14, ap-
plied only to advance payments received
on or after the beginning of the year of
change. Any advance payments received
prior to the year of change are accounted
for under the taxpayer’s former method of
accounting (i.e., according to its former
method of recognizing advance payments
in revenues in its AFS). Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
.05 Rev. Proc. 2001–10, 2001–1
C.B. 272, as modified by Announcement
2004–16, 2004–1 C.B. 668, is further
modified to remove section 6.02(1)(a).
Thus, the scope limitations of section 4.02,
as well as the provisions of sections 6.03
(regarding taxpayers under examination),
6.04 (regarding taxpayers before an ap-
peals office), 6.05 (regarding taxpayers
before a federal court) and 6.02(3)(c) (re-
garding additional copies of application
for a taxpayer under examination, be-
fore an appeals office or before a federal
court) of this revenue procedure apply to a
change in method ofaccounting described
in sections 14.03 and 21.03 of the APPEN-
DIX of this revenue procedure.
.06 Rev. Proc. 2002–28, 2002–1
C.B. 815, as modified by Announcement
2004–16, 2004–1 C.B. 668, is further
modified to remove section 7.02(1)(a).
Thus, the scope limitations of section 4.02,
as well as the provisions of sections 6.03
(regarding taxpayers under examination),
6.04 (regarding taxpayers before an ap-
peals office), 6.05 (regarding taxpayers
before a federal court) and 6.02(3)(c) (re-
garding additional copies of application
for a taxpayer under examination, be-
fore an appeals office or before a federal
court) of this revenue procedure apply to a
change in method ofaccounting described
in sections 14.03 and 21.03 of the APPEN-
DIX of this revenue procedure.
2011–4 I.R.B.354January 24, 2011

.07 Rev. Proc. 2006–56, 2006–2 C.B.
1169, is modified to remove section 4.01.
See, however, section 14.04 of the AP-
PENDIX of this revenue procedure.
.08 Notice 2011–4, 2011–2 I.R.B. 282,
is modified, in part, to correct section 5.01.
The first sentence of the paragraph entitled
“Designated automatic accounting method
change number” is modified to read as fol-
lows: The designated automatic account-
ing method change number for a change
under section 25.02 of the APPENDIX is
“155.”
SECTION 15. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1551. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information un-
less the collection of information displays
a valid OMB control number.
The collections of information in this
revenue procedure are in sections 6, 10,
and 13 and sections 3, 5, 6, 7, 8, 9, 10,
11, 14, 15, 16, 17, 19, 20, 21, 22, 23,
24, 29, 31, and 32 of the APPENDIX.
This information is necessary and will be
used to determine whether the taxpayer
properly changed to a permitted method of
accounting. The collections of informa-
tion are required for the taxpayer to ob-
tain consent to change its method of ac-
counting. The likely respondents are the
following: individuals, farms, business or
other for-profit institutions, nonprofit in-
stitutions, and small businesses or organi-
zations.
The estimated total annual reporting
and/or recordkeeping burden is 15,359.34
hours.
The estimated annual burden per re-
spondent/recordkeeper varies from 1/6
hour to 8
1
/2hours, depending on indi-
vidual circumstances, with an estimated
average of 1
1
/4hours. The estimated
number of respondents is 14,130. The
estimated annual frequency of responses
is on occasion.
SECTION 16. SIGNIFICANT
CHANGES
.01 Significant changes to Rev. Proc.
2008–52, include:
(1) Section 3.08(1)(c) of this revenue
procedure modifies the 120-day window
period to provide if a taxpayer is within
the 120-day window period, that 120-day
window period ends when Appeals refers
a case to the examining agent(s) for recon-
sideration;
(2) Section 3.08(4) of this revenue pro-
cedure is clarified to explain that a tax-
payer under examination, for purposes of
this revenue procedure, continues to be un-
der examination while the taxpayer has a
refund or credit under review by the Joint
Committee on Taxation. This section fur-
ther explains when such an examination
ends for purposes of this revenue proce-
dure;
(3) Section 3.09(2) of this revenue pro-
cedure modifies the rules for a taxpayer
with a method of accounting for an item
that is an issue under consideration before
an appeals office when the appeals office
submits a refund or credit to the Joint Com-
mittee on Taxation;
(4) Section 3.09(3) of this revenue pro-
cedure modifies the rules for a taxpayer
with a method of accounting for an item
that is an issue under consideration before
a federal court when a settlement stipula-
tion is submitted to the Joint Committee on
Taxation;
(5) Sections 5.07 and 5.08 of this rev-
enue procedure provide additional terms
and conditions applicable to a foreign di-
vision of a domestic corporation taxpayer
and foreign partnership, respectively;
(6) Section 6.01 of this revenue proce-
dure is clarified to provide that a taxpayer
receives the consent of the Commissioner
to make a change in method of accounting
under the APPENDIX of this revenue pro-
cedure if the taxpayer complies with the
provisions of this revenue procedure and
implements the change on its federal in-
come tax return for the requested year of
change to which the original application is
attached pursuant to section 6.02(3);
(7) Changes to section 6.02(3) of this
revenue procedure:
(a) Section 6.02(3) of this revenue pro-
cedure clarifies the filing requirements of
this revenue procedure by consolidating
the filing requirements into a single sec-
tion; and
(b) Section 6.02(3) of this revenue pro-
cedure is modified to require, in certain
cases, a copy of the application be pro-
vided to the IRS in Ogden, UT (Ogden
copy), in lieu of providing the copy of the
application to the national office (national
office copy). An Ogden copy, in lieu of
the national office copy, is required in AP-
PENDIX sections 6.01, 6.02, 6.04, 6.05,
6.06, 6.07, 6.08, 6.09, 6.10, 6.11, 6.12,
6.17, 6.18, 6.19, 6.20, 6.21, 6.22, 6.23,
6.24, 6.25, and 9.01;
(8) Sections 6.04 and 6.05 of this rev-
enue procedure are modified to provide
that a taxpayer not otherwise within the
scope of this revenue procedure by reason
of section 4.02(1) (under examination),
4.02(2) (consolidated group member) or
4.02(3) (Partnerships and S corporations)
that is before an appeals office or federal
court with respect to any income tax is-
sue may request a change in method of
accounting without audit protection if the
method to be changed is an issue under
consideration by the appeals office or fed-
eral court;
(9) Section 3.06(3) of the APPEN-
DIX of this revenue procedure, relating to
changes for repair and maintenance costs,
modifies the date that the additional Og-
den, UT, copy of the application must be
filed;
(10) Section 6.01 of the APPENDIX of
this revenue procedure, relating to changes
from impermissible to permissible meth-
ods of accounting for depreciation and
amortization, clarifies that the amount of
depreciation allowable takes into account
all additional first year depreciation de-
duction provisions;
(11) Section 6.03(2)(b) of the APPEN-
DIX of this revenue procedure, relating
to sale, lease or financing transactions, is
modified to explain when the Service will
consider requests for a change in method
of accounting for existing transactions un-
der Rev. Proc. 97–27;
(12) The following changes are made
to sections 6.24 (relating to changes for
dispositions of structural components of a
building (section 168)), and 6.25 (relating
to changes for dispositions of tangible de-
preciable assets (other than a building or
its structural components) (section 168))
of the APPENDIX of this revenue proce-
dure:
January 24, 20113552011–4 I.R.B.

(a) Sections 6.24(2)(e) and 6.25(2)(e)
are modified to require an additional state-
ment to be provided when making the
change in method of accounting; and
(b) Sections 6.24(5) and 6.25(5) are
modified to require a copy of the Form
3115 be filed with the IRS in Ogden, UT,
in lieu of providing a copy to both the
national office and the Ogden office;
(13) Consistent with the Service’s ad-
ministrative practice, the following sec-
tions of the APPENDIX of this revenue
procedure are modified to permit concur-
rent changes on a single Form 3115 when a
taxpayer makes a change under the section
for more than one asset for the same year
of change, and to provide rules for aggre-
gation of the net § 481(a) adjustments:
(a) Section 6.01, relating to changes
from impermissible to permissible meth-
ods of accounting for depreciation or
amortization;
(b) Section 6.04, relating to changes for
modern golf course greens;
(c) Section 6.05, relating to changes for
original and replacement tire costs;
(d) Section 6.06, relating to changes in
depreciation of gas pump canopies;
(e) Section 6.07, relating to a change in
depreciation of utility assets;
(f) Section 6.08, relating to a change in
depreciation of cable TV fiber optics;
(g) Section 6.10, relating to a change in
method of accounting for depreciation due
to a change in the use of MACRS property;
(h) Section 6.11, relating to a change in
depreciation of qualified non-personal use
vans and light trucks;
(i) Section 6.12, relating to a change
in depreciation of qualified revitalization
building in the expanded area of a renewal
community;
(j) Section 6.18, relating to a change in
depreciation of MACRS property acquired
in a like-kind exchange or as a result of an
involuntary conversion; and
(k) Section 6.22, relating to changes in
Kansas additional first-year depreciation;
(14) Consistent with the Service’s
administrative practice, the following
sections of the APPENDIX of this rev-
enue procedure are modified to permit a
taxpayer to make concurrent changes in
method of accounting on a single Form
3115 for these changes:
(a) Section 6.01, relating to changes
from impermissible to permissible meth-
ods of accounting for depreciation or
amortization;
(b) Section 6.04, relating to changes for
modern golf course greens;
(c) Section 6.05, relating to changes for
original and replacement tire costs;
(d) Section 6.06, relating to changes in
depreciation of gas pump canopies; and
(e) Section 6.07, relating to a change in
depreciation of utility assets;
(15) Consistent with the Service’s ad-
ministrative practice, the following sec-
tions of the APPENDIX of this revenue
procedure are modified to permit a tax-
payer to make a change, with the same
designated automatic accounting method
change number, for more than one asset for
the same year of change on a single appli-
cation:
(a) Section 6.02, relating to changes
from a permissible to another permissible
method of accounting for depreciation;
(b) Section 6.09, relating to changes in
general asset account treatment due to a
change in the use of MACRS property;
(c) Section 6.17, relating to changes
from an impermissible to permissible
method of accounting for depreciation or
amortization for disposed depreciable or
amortizable property;
(d) Section 6.20, relating to changes
for accounting for, or identifying disposed,
depreciable repairable and reusable spare
parts;
(e)Section6.21,relatingtochanges
from depreciating land (or nondeprecia-
ble land improvement) to not depreciat-
ing land (or nondepreciable land improve-
ment); and
(f) Section 6.23, relating to changes for
tenant construction allowances;
(16) Section 14.01(1)(b)(viii) of the
APPENDIX of this revenue procedure, re-
lating to a change in overall method from
the cash method to an accrual method,
is modified to provide that this inappli-
cability subsection does not apply to a
taxpayer accounting for inventories under
§ 1.446–1(c)(2)(i) and accounting for all
other items of income and expense on the
cash method of accounting, and otherwise
permitted to make a change to an overall
accrual method of accounting under sec-
tion 14.01 of the APPENDIX;
(17) Section 19.01(2) of the APPEN-
DIX of this revenue procedure, relating to
changes involving timing of incurring lia-
bilities for bonuses, is amplified and mod-
ified to include method changes involving
bonuses that are received by the employee
more than 2
1
/2months after the taxable
year in which the related services are pro-
vided, and that are not deferred compensa-
tion;
(18) The following sections of the AP-
PENDIX of this revenue procedure have a
subsection that is removed because it is ob-
solete:
(a) Section 10.06(2), relating to “Scope
limitations inapplicable” for changes for
rotable spare parts;
(b) Section 14.04(2), relating to “Scope
limitations inapplicable” for changes for
the nonaccrual-experience method;
(c) Section 14.08(3), relating to “Scope
limitations inapplicable” for changes by a
bank for uncollected interest;
(d) Section 15.07(2), relating to “Man-
ner of making change” for changes for ad-
vance payments;
(e) Section 19.04(3), relating to “Scope
limitations inapplicable” for changes for
the timing of incurring certain liabilities
for payroll taxes;
(f) Section 21.08(2), relating to “Scope
limitations inapplicable” for changes for
the replacement cost for heavy equipment
dealers’ parts inventory; and
(g) Section 21.10(3), relating to “Scope
limitations inapplicable” for changes to the
advance trade discount method;
(19) The following sections are the AP-
PENDIX of this revenue procedure are ob-
solete and are removed from this APPEN-
DIX in their entirety:
(a) Section 6.14, relating to changes in
income forecast method of depreciation;
(b) Section 6.15, relating to changes for
GO Zone additional first year depreciation
deduction;
(c) Section 6.16, relating to changes for
additional first year depreciation deduc-
tion;
(d) Section 8.01, relating to changes for
the treatment of qualified film and televi-
sion productions;
(e) Section 8.02, relating to changes for
expensing of certain reforestation expendi-
tures;
(f) Section 8.03, relating to changes for
the deduction for capital costs incurred in
complying with Environmental Protection
Agency sulfur regulations;
(g) Section 9.02, relating to changes for
Year 2000 costs; and
2011–4 I.R.B.356January 24, 2011

(h) Section 15.09, relating to changes
for sales or dispositions to implement Fed-
eral Energy Regulatory Commission or
state electric restructuring policy;
(20) The following sections are added
to the APPENDIX of this revenue pro-
cedure to provide additional changes in
method of accounting:
(a) Section 8.04, relating to changes to
deduct, under § 179D, amounts paid or in-
curred for the installation of energy effi-
cient commercial building property;
(b) Section 15.11, relating to changes
for advance payments — subsequent
change in applicable financial statement
(these types of changes were removed
from section 15.07 of the APPENDIX);
and
(c) Section 19.09, relating to changes
for California franchise taxes;
(21) Section 21.03(2) of the APPEN-
DIX of this revenue procedure, relating to
changes for small taxpayers excepted from
the requirement to account for inventories
under § 471, is modified to provide that
the scope limitations of section 4.02 of this
revenue procedure apply to a change in
method of accounting made under section
21.03 of the APPENDIX;
(22) Section 22.01(7) of the APPEN-
DIX of this revenue procedure, relating to
changes from the LIFO inventory method,
clarifies that a taxpayer must compute a
§ 481(a) adjustment when changing from
a LIFO method to a non-LIFO method.
In addition, this section provides a special
rule for calculating that § 481(a) adjust-
ment when the taxpayer is changing to an
inventory method that a taxpayer not using
a LIFO method implements on a cut-off
basis; and
(23) Section 29.01 of the APPENDIX
of this revenue procedure, relating to
changes in functional currency, is modi-
fied to require taxpayers making a change
under this section to attach a statement to
the Form 3115.
.02 Significant changes to Rev. Proc.
97–27 include:
(1) Section 3.07(1)(c) of Rev. Proc.
97–27 is modified to provide that, if a
taxpayer is within the 120-day window
period, that 120-day window period ends
when a case before Appeals is referred
to the examining agent(s) for reconsider-
ation;
(2) Section 3.07(3) of Rev. Proc. 97–27
is clarified to explain that a taxpayer under
examination, for purposes of Rev. Proc.
97–27, continues to be under examination
while the taxpayer has a refund or credit
under review by the Joint Committee on
Taxation. This section further explains
when such an examination ends for pur-
poses of Rev. Proc. 97–27;
(3) Section 3.08(2) of Rev. Proc. 97–27
is modified to provide the rules for a tax-
payer with an issue under consideration
before an appeals office when the appeals
office submits a refund or credit to the Joint
Committee on Taxation;
(4) Section 3.08(3) of Rev. Proc. 97–27
is modified to provide the rules for a tax-
payer with an issue under consideration
before a federal court when a settlement
stipulation is submitted to the Joint Com-
mittee on Taxation; and
(5) Sections 6.02 and 6.03 of Rev. Proc.
97–27 are modified to provide that a tax-
payer not otherwise within the scope of
Rev. Proc. 97–27 by reason of section
4.02(2) (under examination), 4.02(5) (con-
solidated group member) or 4.02(6) (Part-
nerships and S corporations) that is before
an appeals office or federal court with re-
spect to any income tax issue may request
a change in method of accounting with-
out audit protection if the method to be
changed is an issue under consideration by
the appeals office or federal court.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Karla M. Meola of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Ms. Meola, at (202) 622–4930 (not a
toll-free call).
For further information regarding a
specific change in method of account-
ing in the APPENDIX of this revenue
procedure, contact the appropriate indi-
vidual listed in the “Contact Person(s)”
section located at the end of each sec-
tion of the APPENDIX (calls are not
toll-free) or see the APPENDIX CON-
TACT LIST immediately following the
APPENDIX. The contact person is with
one of the following Offices of Associate
Chief Counsel: Corporate (CORP), Fi-
nancial Institutions and Products (FI&P),
Income Tax & Accounting (IT&A), Inter-
national (INTL), Passthroughs and Special
Industries (P&SI), or Tax Exempt and
Government Entities (TEGE).
APPENDIX
CHANGES IN METHODS OF ACCOUNTING TO WHICH THIS REVENUE PROCEDURE APPLIES
SECTION 1. GROSS INCOME (§ 61)
.01Up-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 Pay-
ment 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 sat-
isfies 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 re-
imbursements of the Up-front Payment.
To the extent that Federal Energy Reg-
ulatory Commission (FERC) interest is
deductible, it must be properly 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 pur-
poses of this change.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 1.01
of this APPENDIX is “91.”Seesection
6.02(4) of this revenue procedure.
January 24, 20113572011–4 I.R.B.

(3)Contact information. For further
information regarding a change under
this section, contact David B. Silber at
202–622–3930 (not a toll-free call).
.02Reserved.
SECTION 2. COMMODITY CREDIT
LOANS (§ 77)
.01Treating 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 the
loan is received to treating the loan amount
as a loan.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to loans received from the Com-
modity Credit Corporation on or after the
beginning of the year of change. See sec-
tion 2.06 of this revenue procedure for
more information regarding a cut-off ba-
sis. 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 section 2.01
of this APPENDIX is “1.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02Reserved.
SECTION 3. TRADE OR BUSINESS
EXPENSES (§ 162)
.01Advances made by a lawyer on
behalfofclients.
(1)Description of change. This change
applies to a lawyer handling cases on a
contingent fee basis that advances money
to pay for costs of litigation or for other
expenses on behalf of clients and that
wants to change the method of accounting
for such advances from treating them as
deductible business expenses to treating
them as loans.See Boccardo v. United
States, 12 Cl. Ct. 184 (1987);Canelo v.
Commissioner, 53 T.C. 217 (1969),aff’d
per curiam, 447 F.2d 484 (9
th
Cir. 1971).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.01
of this APPENDIX is “2.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.02ISO 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.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.02
of this APPENDIX is “3.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.03Restaurant 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 tav-
ern (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.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Section 481(a) adjustment period.
A taxpayer changing its method of ac-
counting for restaurant smallwares under
this section 3.03 of the APPENDIX must
take the entire § 481(a) adjustment into ac-
count in computing taxable income in the
year of change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.03
of this APPENDIX is “4.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.04Timber 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.SeeRev. Rul. 2004–62,
2004–1 C.B. 1072.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 3.04
of this APPENDIX is “86.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Martin Osborne at
202–622–7900 (not a toll-free call).
.05Materials and supplies.
(1)Description of change.
(a)
Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for materials and
supplies on hand to the method of treating
the cost of materials and supplies as a de-
ferred expense to be taken into account in
the taxable year in which they are actually
consumed and used in operation, consis-
tent with § 1.162–3.
(b)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under section 3.05 of this AP-
PENDIX if the taxpayer is not capitaliz-
ing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Amounts taken into account. Appli-
cable provisions of the Code, regulations,
and other guidance published in the IRB
prescribe the manner in which a liability
that has been incurred is taken into ac-
2011–4 I.R.B.358January 24, 2011

count. For example, for a taxpayer with
inventories, certain indirect material costs
must be included in inventory costs and
may be recovered through the cost of
goods sold.See§ 1.263A–1(e)(3)(ii)(E).
A taxpayer may not rely on the provisions
of section 3.05 of this APPENDIX to take
a current deduction.
(3)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(4)Proposed regulations.TheDe-
partment of the Treasury has published
proposed regulations that address the def-
inition and treatment of materials and
supplies under § 162.SeeGuidance Re-
garding Deduction and Capitalization of
Expenditures Related to Tangible Prop-
erty, REG–168745–03, 73 FR 12838–01
(March 10, 2008), 2008–18 I.R.B. 871.
The proposed regulations are not effective
until publication of a Treasury decision
adopting them as final regulations in the
Federal Register. Thus, taxpayers may not
change a method of accounting in reliance
upon the rules contained in the proposed
regulations until the rules are published
as final regulations in the Federal Regis-
ter. If final regulations are adopted with
positions that are inconsistent with the
method of accounting implemented by
the taxpayer under section 3.05 of this
APPENDIX, that method will no longer
be regarded as proper. In such event, the
taxpayer will be required to follow any in-
structions in the final regulations or other
guidance published in the IRB concerning
methods of accounting for materials and
supplies for future taxable years.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of account-
ing under section 3.05 of this APPENDIX
is “143.”Seesection 6.02(4) of this rev-
enue procedure.
(6)Contact information. For further
information regarding a change under
this section, contactJustin G. Meeks at
202–622–5020 (not a toll-free call).
.06Repair and maintenance costs.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change its
method of accounting from capitalizing
under § 263(a) costs paid or incurred to
repair and maintain tangible property (in-
cluding network assets) to treating the
repair and maintenance costs as ordinary
and necessary business expenses under
§ 162 and § 1.162–4. This change also
applies to a taxpayer that wants to change
the unit of property it uses to determine the
deductibility of repair and maintenance
costs to a unit of property that is permissi-
ble under applicable legal authority.
(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 section 3.06 of this AP-
PENDIX if the taxpayer is not capitaliz-
ing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
(ii) A taxpayer that wants to change its
method of accounting for dispositions of
depreciable property, including a change in
the unit of property used for such disposi-
tions (but see sections 6.24 and 6.25 of this
APPENDIX); or
(iii) Any property subject to the re-
pair allowance under § 1.167(a)–11(d)(2)
(including expenditures incurred after
December 31, 1980, for the repair, main-
tenance, rehabilitation, or improvement
of property placed in service before
January 1, 1981).
(2)Manner of making change.Atax-
payer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of tangible property to which this change
applies;
(b) A detailed description of the types
of repair and maintenance costs to which
this change applies;
(c) If the taxpayer is changing any unit
of property determination, a detailed de-
scription of the unit(s) of property under
its present method of accounting for de-
termining the deductibility of repair and
maintenance costs and a detailed descrip-
tion of the unit(s) of property it will use
under its proposed method of determining
the deductibility of repair and maintenance
costs, together with a description of the
legal authority supporting the taxpayer’s
proposed unit(s) of property for determin-
ing the deductibility of repair and mainte-
nance costs;
(d) The following statements regarding
the costs to which this change applies:
(i) “The taxpayer represents that the re-
pair and maintenance costs are incurred to
keep the taxpayer’s property in ordinarily
efficient operating condition.”
(ii) “The taxpayer represents that the re-
pair and maintenance costs do not materi-
ally increase the value or substantially pro-
long the useful life of any unit of property
compared to the value or useful life of the
property before the general wear or tear or
particular event that led to the repairs or
maintenance.”
(iii) “The taxpayer represents that the
repair and maintenance costs do not adapt
anyunitofpropertytoanewordifferent
use.”
(iv) “The taxpayer represents that the
repair and maintenance costs do not in-
clude costs to replace any unit of prop-
erty or any major components or substan-
tial structural parts of any unit of property.”
(v) “The taxpayer represents that the
repair and maintenance costs are not in-
curred as part of a plan of rehabilitation,
modernization, or improvement to any unit
of property.”
(vi) “The taxpayer represents that the
repair and maintenance costs do not result
from any prior owner’s use of any unit of
property.”
(3)Additional copy of Form 3115 re-
quired. A taxpayer changing its method of
accounting under section 3.06 of this AP-
PENDIX must, in addition to the timely
duplicate filing requirements in section
6.02(3) of this revenue procedure, send a
copy of its completed Form 3115 (includ-
ing attachments) to the following address
no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year of
change, in accordance with section 6.02(3)
of this revenue procedure: Internal Rev-
enue Service, 1973 North Rulon White
Blvd., Mail Stop 4917, Ogden, UT 84404.
(4)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
January 24, 20113592011–4 I.R.B.

IRB prescribe the manner in which a liabil-
ity that has been incurred is taken into ac-
count. For example, for a taxpayer with in-
ventories, certain repair and maintenance
costs must be included in inventory costs
and may be recovered through the cost of
goods sold.See§ 1.263A–1(e)(3)(ii)(E).
A taxpayer may not rely on the provisions
of section 3.06 of this APPENDIX to take
a current deduction.
(5)No ruling on unit of property.The
consent granted under this revenue proce-
dure for this change is not a determina-
tion by the Commissioner that the taxpayer
is using the appropriate unit of property
in determining the deductibility of repair
and maintenance costs and does not create
any presumption that the proposed unit of
property is permissible. The director will
ascertain whether the taxpayer’s determi-
nation of its unit of property is correct.
(6)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(7)Proposed regulations. The Depart-
ment of the Treasury has published pro-
posed regulations that address the appli-
cation of §§ 162 and 263 to expenditures
paid or incurred to repair, maintain, or
improve tangible property.SeeGuidance
Regarding Deduction and Capitalization
of Expenditures Related to Tangible Prop-
erty, 73 FR 12838–01 (March 10, 2008),
2008–18 I.R.B. 871. The proposed regu-
lations are not effective until publication
of a Treasury decision adopting them as
final regulations in the Federal Register.
Thus, taxpayers may not change a method
of accounting in reliance upon the rules
contained in the proposed regulations un-
til the rules are published as final regula-
tions in the Federal Register. If final regu-
lations are adopted with positions that are
inconsistent with the method of accounting
implemented by the taxpayer under sec-
tion 3.06 of this APPENDIX, that method
will no longer be regarded as proper. In
such event, the taxpayer will be required
to follow any instructions in the final reg-
ulations or other guidance published in
the IRB concerning methods of accounting
for the repair, maintenance, or improve-
ment of tangible property for future tax-
able years.
(8)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of account-
ingundersection3.06ofthisAPPENDIX
is “144.”Seesection 6.02(4) of this rev-
enue procedure.
(9)Contact information. For further
information regarding a change under
this section, contact Alan Williams at
202–622–4950 (not a toll-free call).
SECTION 4. BAD DEBTS (§ 166)
.01Change 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 im-
proper method) to a specific charge-off
method that complies with § 166. For pro-
cedures applicable to banks, see § 585(c)
and the regulations thereunder and section
24 of this APPENDIX.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 4.01
of this APPENDIX is “5.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Justin G. Meeks at
202–622–5020 (not a toll-free call).
.02Reserved.
SECTION 5. AMORTIZABLE BOND
PREMIUM (§ 171)
.01Revocation 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 pre-
scribed 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 revo-
cation 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.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. 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, ad-
justed 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 section 5.01
of this APPENDIX is “16.”Seesection
6.02(4) of this revenue procedure.
(5)Additional requirements. On a state-
ment attached to the Form 3115, the tax-
payer must provide:
(a) the reason(s) for revoking the elec-
tion; 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. A taxpayer re-
ceives audit protection under section 7 of
this revenue procedure in connection with
this change. However, the audit protec-
tion applicable to this change does not pre-
clude the Commissioner from examining
the method used by the taxpayer to deter-
mine the amount of amortizable bond pre-
mium 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
202–622–3950 (not a toll-free call).
.02Reserved.
2011–4 I.R.B.360January 24, 2011

SECTION 6. DEPRECIATION
OR AMORTIZATION (§ 56(a)(1),
56(g)(4)(A), 167, 168, 197, 280F(a),
1400I, 1400L, or 1400N(d), OR FORMER
§ 168)
.01Impermissible 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 apermissible method
of accounting for depreciation or amortiza-
tion (depreciation) for any item of depre-
ciable or amortizable property:
(i) for which the taxpayer used the im-
permissible method of accounting in at
least two taxable years immediately pre-
ceding the year of change (but see section
6.01(1)(b) of this APPENDIX for property
placed in service in the taxable year imme-
diately 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);
(iii) for which depreciation is deter-
mined under § 56(a)(1), § 56(g)(4)(A),
§ 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 provi-
sion 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 6.17 of this APPENDIX for prop-
erty 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 APPENDIX for an
item of depreciable oramortizable prop-
erty 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 im-
permissible method of determining de-
preciation 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 in-
cludes the amount of any adjustment that
is attributable to all property (including
the 1-year depreciableproperty) subject
to the Form 3115. Alternatively, the tax-
payer may change from the impermissible
method of determining depreciation to the
permissible method of determining depre-
ciation for a 1-year depreciable property
by filing an amended federal tax return for
the property’s placed-in-service year prior
to the date the taxpayer files its federal tax
return for the taxable year succeeding the
placed-in-service year.
(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 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (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 clari-
fied 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 tax-
payer is revoking a timely valid election,
or making a late election, under § 167,
§ 168, § 179, §1400I, § 1400L(c), for-
mer § 168, § 13261(g)(2) or (3) of the
Revenue Reconciliation Act of 1993
(1993 Act), 1993–3 C.B. 1, 128 (relat-
ing to amortizable § 197 intangibles),
or any additional first year depreciation
deduction provision of the Code (for ex-
ample, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d)). A taxpayer may request
consent to revoke or make the election
by submitting a request for a letter ruling
under Rev. Proc. 2011–1, 2011–1 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 propertyfor which deprecia-
tion is determined under § 56(g)(4)(A) or
§ 167 (other than under § 168, § 1400I,
§ 1400L(c), former § 168, or any ad-
ditional first year depreciation deduc-
tion provision of the Code (for exam-
ple, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d))) and a taxpayer is chang-
ing the useful life of the property. A
change in the useful life of property
is corrected by adjustments in the ap-
plicable taxable year provided under
§ 1.446–1(e)(2)(ii)(d)(5)(iv).How-
ever, this section 6.01(1)(c)(vii) of the
APPENDIX does not apply if the tax-
payer 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 IRB
and, therefore, this change is a change
in method of accounting (unless section
6.01(1)(c)(xv) of this APPENDIX ap-
plies).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);
(ix)anypropertyforwhichdepre-
ciation is determined in accordance
with § 1.167(a)–11 (regarding the Class
Life Asset Depreciation Range System
(ADR));
(x) any change in method of account-
ing involving a change from deducting the
cost or other basis of any property as an ex-
pense to capitalizing and depreciating the
cost or other basis, orvice versa;
(xi) any change in method of account-
ing involving a change from one permissi-
ble method of accounting for the property
to another permissible method of account-
ing for the property. For example:
(A) a change from the straight-line
method of depreciation to the income
forecast method of depreciating for video-
cassettes.SeeRev. Rul. 89–62, 1989–1
C.B. 78; or
(B) a change from charging the depre-
ciation reserve with costs of removal and
crediting the depreciation reserve with sal-
vage proceeds to deducting costs of re-
moval as an expense (provided the costs
of removal are not required to be capital-
ized under any provision of the Code, such
January 24, 20113612011–4 I.R.B.

as § 263(a)) and including salvage pro-
ceeds in taxable income (see section 6.02
of this APPENDIX for making this change
for property for which depreciation is de-
termined under § 167);
(xii) any change in method of account-
ing involving both a change from treat-
ing the cost or other basis of the prop-
erty as nondepreciableor nonamortizable
property to treating the cost or other basis
of the property as depreciable or amortiz-
able 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 con-
sumed in landfills placed in service in 2006
from nondepreciableto depreciable prop-
erty (assuming section 6.01(1)(c)(xiii) of
the APPENDIX 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 account-
ing for any item of income or deduction
other than depreciation, even if the change
results in a change in computing deprecia-
tion under § 1.446–1(e)(2)(ii)(d)(2)(i), (ii),
(iii), (iv), (v), (vi), (vii), or (viii). For ex-
ample, a change in method of accounting
involving:
(A) a change in inventory costs (for ex-
ample, when property is reclassified from
inventory property to depreciable prop-
erty, orvice versa) (but see section 10.02
of this APPENDIX for making a change
in method of accounting from inventory
property to depreciable property for unre-
coverable line pack gas or unrecoverable
cushion gas, and section 10.06 of this AP-
PENDIX 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 trans-
action from sale to lease, orvice versa(but
see section 6.03 of this APPENDIX for
making this change);
(xiv) a change from determining de-
preciation 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 prop-
erty. This change is corrected by adjust-
ments in the applicable taxable year pro-
vided under § 1.446–1(e)(2)(ii)(d)(5)(v);
or
(xvi) any property for which the reha-
bilitation credit under § 47 was claimed
and that a taxpayer is reclassifying to
3-year property, 5-year property, 7-year
property, 10-year property, 15-year prop-
erty, 20-year property, or water utility
property (other thanreal property with a
class life of more than 12.5 years).
(2)Certain scope limitations inappli-
cable. The scope limitations in sections
4.02(4) and 4.02(5) of this revenue proce-
dure are not applicable to this change.
(3)Additional requirements.Atax-
payer also must comply with the follow-
ing:
(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 sec-
tion 6.01(6) of this APPENDIX).
(b)Statements required. A taxpayer
must provide the following statements, if
applicable, and attach them to the com-
pleted application:
(i) a detailed description of the former
and new methods of accounting. A general
description of these methods of account-
ing is unacceptable (for example, MACRS
to MACRS, erroneous method to proper
method, claiming lessthan the deprecia-
tion allowable to claiming the depreciation
allowable);
(ii) to the extent not provided elsewhere
on the application, a statement describing
the taxpayer’s business or income-produc-
ing activities. Also, if the taxpayer has
more than one business or income-produc-
ing activity, a statement describing the tax-
payer’s business or income-producing ac-
tivity in which the item of property at issue
is primarily used by the taxpayer;
(iii) to the extent not provided else-
where on the application, a statement of the
facts and law supporting the new 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 support-
ing 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;
(iv) to the extent not provided else-
where on the application, a statement
identifying the year in which the item of
property was placed in service by the tax-
payer;
(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 ac-
counting (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
application;
(B) as of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar re-
serve account in the taxpayer’s regulatory
books of account by the amount of the de-
ferral of federal income tax liability asso-
ciated with the § 481(a) adjustment appli-
cable 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 reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation;
(vi) if the taxpayer is changing the
classification of an item of § 1250 prop-
erty 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 pur-
poses 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, 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
2011–4 I.R.B.362January 24, 2011

is devoted to the sale of petroleum prod-
ucts (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 application filed under
section 6.01 of the APPENDIX of Rev.
Proc. 2011–14 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 im-
provement property, qualified restaurant
property, qualified retail improvement
property, 19-year real property, 18-year
real property, or 15-year real property]
to an asset class of [Insert, as appropri-
ate, 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)Section 481(a) adjustment.Be-
cause the adjusted basis of the property is
changed as a result of a method change
made under section 6.01 of the APPEN-
DIX (seesection 6.01(5) of this APPEN-
DIX), 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) adjust-
ment (a decrease in taxable income) or a
positive § 481(a) adjustment (an increase
in taxable income) and may be a differ-
ent amount for regular tax, alternative
minimum tax, and adjusted current earn-
ings purposes. This § 481(a) adjustment
equals the difference between the total
amount of depreciation taken into account
in computing taxableincome for the prop-
erty under the taxpayer’s former method
of accounting (including the amount at-
tributable to any property described in
section 6.01(1)(b) of this APPENDIX
that is included in the taxpayer’s Form
3115), and the total amount of deprecia-
tion allowable for the property under the
taxpayer’s new method of accounting (as
determined under section 6.01(6) of this
APPENDIX, and including the amount
attributable to any property described in
section 6.01(1)(b) of this APPENDIX that
is included in the taxpayer’s Form 3115),
for open and closed years prior to the
year of change. However, the amount of
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 begin-
ning of the year of change.
(5)Basis adjustment. As of the begin-
ning of the year of change, the basis of de-
preciable property to which section 6.01 of
this APPENDIX applies must reflect the
reductions required by § 1016(a)(2) for the
depreciation allowable for the property (as
determined under section 6.01(6) of this
APPENDIX).
(6)Meaning of depreciation allowable.
(a)In general. Section 6.01(6) of this
APPENDIX provides the amount of the
depreciation allowable determined under
§ 56(a)(1), § 56(g)(4)(A), § 167, § 168,
§ 197, §1400I, or § 1400L(c), or former
§ 168. This amount, however, may be
limited by other provisions of the Code
(for example, § 280F).
(b)Section 56(a)(1) property. The de-
preciation allowable for any taxable year
for property for which depreciation is de-
termined 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) is deter-
mined by using the depreciation method,
recovery period or useful life, as appli-
cable, and convention provided for under
§ 56(g)(4)(A) that applies for the prop-
erty’s placed-in-service date.
(d)Section 167 property. Generally, for
any taxable year, the depreciation allow-
able for property for which depreciation is
determined under § 167, is determined ei-
ther:
(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 depre-
ciation or the taxpayer has not adopted a
depreciation method for the property, un-
der 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 tax-
able year for property subject to § 167(f)
(regarding certain property excluded from
§197)isdeterminedbyusingthede-
preciation method and useful life pre-
scribed in § 167(f). If computer soft-
ware is depreciated under § 167(f)(1)
and is qualified property (as defined in
§ 168(k)(2) and § 1.168(k)–1), 50-per-
cent bonus depreciation property (as de-
fined in § 168(k)(4) and § 1.168(k)–1),
qualified disaster assistance property (as
defined in § 168(n)(2)), qualified New
York Liberty Zone (Liberty Zone) prop-
erty (as defined in § 1400L(b)(2) and
§ 1.1400L(b)–1), qualified Gulf Opportu-
nity Zone (GO Zone) property (as defined
in § 1400N(d)(2) 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), spec-
ified Gulf Opportunity Zone extension
property (GO Zone extension property)
(as defined in § 1400N(d)(6) 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 al-
lowable for that computer software under
§ 167(f)(1) is also determined by taking
into account the additional first year de-
preciation deduction provided by § 168(k),
§ 168(n), § 1400L(b), or § 1400N(d), or by
§ 15345(a)(1) and (d)(1) of the Food, Con-
servation, 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 depre-
ciation allowable for any taxable year for
property for which depreciation is deter-
mined under § 168, is determined as fol-
lows:
(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 depre-
ciation system pursuant to § 168(g)(1) or
other provisions of the Code (for exam-
January 24, 20113632011–4 I.R.B.

ple, property described in § 263A(e)(2)(A)
or § 280F(b)(1)). Property required to be
depreciated under the alternative depreci-
ation system pursuant to § 168(g)(1) in-
cludes 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, Lib-
erty 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), § 1400L(b), or
§ 1400N(d), 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 fur-
ther guidance, see Rev. Proc. 2002–33,
2002–1 C.B. 963, Rev. Proc. 2003–50,
2003–2 C.B. 119, or Notice 2006–77)
for the class of property (as defined in
§ 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 in-
cluded;
(iii) if the property is qualified cellu-
losic biofuel plant property (as defined in
§ 168(l)(2)), by also taking into account
the additional first year depreciation de-
duction provided by § 168(l)(1), unless the
taxpayer made a timely valid election not
to deduct the additional first year depreci-
ation 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 de-
duction provided by § 168(m)(1), unless
the taxpayer made a timely valid election
not to deduct the additional first year de-
preciation for the property.
(f)Section 197 property. The depre-
ciation 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 depre-
ciation allowable for any taxable year for
property subject to former § 168 is deter-
minedbyusingeither:
(i) the accelerated method of cost re-
covery applicable to the property (for ex-
ample, for 5-year property, the recovery
method under former § 168(b)(1)); or
(ii) the straight-line method appli-
cable to the property if the property is
required to be depreciated under the
straight-line method (for example, prop-
erty described in former § 168(f)(2) or
former § 280F(b)(2)) or if the taxpayer
elected to determine the depreciation al-
lowance 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 tax-
able year for any qualified revitalization
building (as defined in § 1400I(b)(1)) 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 expen-
ditures (as defined in § 1400I(b)(2) and as
limited by § 1400I(c)) chargeable to a cap-
ital 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 al-
lowable for the remaining depreciable ba-
sis of the qualified revitalization building
for its placed-in-service year and subse-
quent 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 expen-
ditures chargeable to a capital account
with respect to the qualified revitalization
building ratably over the 120-month pe-
riod beginning with the month in which
the building is placed in service, the de-
preciation 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 revital-
ization 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 de-
fined in § 1400L(c)(2)) is determined by
using the depreciation method and recov-
ery period prescribed in § 1400L(c) unless
the taxpayer made a timely valid election
under § 1400L(c)(5) not to use that recov-
ery period.
(7)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) ad-
justment, the taxpayer may provide a sin-
gle negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a sin-
gle positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment. For ex-
ample, a taxpayer files a single Form 3115
to change the depreciation methods, re-
covery periods, and/or conventions under
§ 168(a) resulting from the reclassifica-
tion 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 ei-
ther (i) a single net § 481(a) adjustment
that covers all the changes resulting from
all of these reclassifications, or (ii) a sin-
gle negative § 481(a) adjustment that cov-
ers the changes resulting from the reclassi-
fications of the two computers and one of-
fice desk from nonresidential real property
to 5-year property and 7-year property, re-
spectively, and a single positive § 481(a)
adjustment that covers the changes result-
ing from the reclassifications of the two of-
fice desks from 5-year property to 7-year
property.
(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
2011–4 I.R.B.364January 24, 2011

for both changes on the appropriate line on
that Form 3115.
(c) A taxpayer that wants to make this
change and a change indepreciation under
section 6.04 (modern golf course greens),
6.05 (original and replacement tire costs),
6.06 (gas pump canopies), and/or 6.07
(utility assets) for the same year of change
should file a single Form 3115 for these
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for these changes
on the appropriate line on that Form 3115.
(8)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.01 of the APPENDIX must
file a signed copy of its completed Form
3115 with the Internal Revenue Service in
Ogden, UT, (Ogden copy) in lieu of filing
the national office copy no earlier than the
first day of the year of change and no later
than the date the taxpayer files the origi-
nal Form 3115 with its federal income tax
return for the year of change.Seesec-
tions 6.02(3)(a)(ii)(B) (providing the gen-
eral rules) and section 6.02(7)(b) (provid-
ing the mailing address) of this revenue
procedure.
(9)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.01
of this APPENDIX is “7.”Seesection
6.02(4) of this revenue procedure.
(10)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02Permissible to permissible method
of accounting for depreciation.
(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)
or § 167 to another permissible method
of accounting for depreciation under
§ 56(g)(4)(A)(iv) 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 ac-
count or by combining two or more assets
in a single account and, for each account,
depreciation allowances are computed
separately.
(2)Scope.
(a)Applicability. 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 AP-
PENDIX 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 AP-
PENDIX are permissible methods for the
property under § 56(g)(4)(A)(iv) 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 of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (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 depreci-
ation is determined under § 56(a)(1),
§ 56(g)(4)(A)(i), (ii),(iii),or(v),§168,
§ 1400I, § 1400L(c), § 168 prior to its
amendment in 1986 (former § 168), or
any additional firstyear depreciation
deduction provision of the Code (for ex-
ample, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d));
(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 depreci-
ation is determined in accordance with
§1.167(a)–11(ADR);
(viii) any depreciable property for
which the taxpayer is changing the depre-
ciation 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, § 1400L(c), former
§ 168, or any additional first year depreci-
ation deduction provision of the Code (for
example, § 168(k), § 168(l), § 1400L(b),
or § 1400N(d)); or
(ix) any distributor commissions (as de-
fined 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 use-
ful life under the distribution fee period
method or the useful life method (both de-
scribed in Rev. Proc. 2000–38). A change
in this useful life is corrected by adjust-
ments in the applicable taxable year pro-
vided under § 1.446–1(e)(2)(ii)(d)(5)(iv).
(3)Certain scope limitations inappli-
cable. The scope limitations in sections
4.02(4) and 4.02(5) of this revenue proce-
dure are not applicable to this change.
(4)Changes covered
. Section6.02of
this APPENDIX only applies to the fol-
lowing changes in methods of accounting
for depreciation:
(a) a change from the straight-line
method to the sum-of-the-year-digits
method, the sinking fund method, the
unit-of-production method, or the de-
clining-balance method using any proper
percentage of the straight-line rate;
(b) a change from the declining-bal-
ance 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-produc-
tion 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 de-
clining-balance method using any proper
percentage of the straight-line rate;
(f) a change in the interest factor used
in connection with acompound interest
method or sinking fund method;
(g) a change in averaging convention as
set forth in § 1.167(a)–10(b). However, as
January 24, 20113652011–4 I.R.B.

specifically provided in § 1.167(a)–10(b),
in any taxable year in which an averaging
convention substantially distorts the de-
preciation allowance for the taxable year,
it may not be used (seeRev. Rul. 73–202,
1973–1 C.B. 81);
(h) a change from charging the depre-
ciation reserve with costs of removal and
crediting the depreciation reserve with sal-
vage proceeds to deducting costs of re-
moval as an expense and including salvage
proceeds in taxable income as set forth in
§ 1.167(a)–8(e)(2).SeeRev. Rul. 74–455,
1974–2 C.B. 63. This change, however,
may be made under this revenue procedure
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 depreci-
ation reserve with the salvage proceeds re-
alized on normal retirement sales to com-
puting and recognizing gains and losses on
the sales (seeRev. Rul. 70–165, 1970–1
C.B. 43);
(j) a change from crediting ordinary in-
come (including the combination method
of crediting the lesser of estimated sal-
vage 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 retire-
ment sales, to computing and recognizing
gainsandlossesonthesales(seeRev. 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, orvice versa;
(l) a change from one type of multiple
asset accounting (pooling) for specific as-
sets to a different type of multiple asset ac-
counting (pooling) for the same assets;
(m) a change from one method de-
scribed in Rev. Proc. 2000–38 for amor-
tizing distributor commissions (as defined
by section 2 of Rev. Proc. 2000–38) to
another method described in Rev. Proc.
2000–38 for amortizing distributor com-
missions; or
(n) a change from pooling to a single as-
set, orvice versa, for distributor commis-
sions (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.Atax-
payer also must comply with the follow-
ing:
(a)Basis for depreciation.Atthebe-
ginning 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 preced-
ing 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 re-
duced 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-
year-digits method of depreciation must be
basedontheremainingusefullifeofthe
property as of the beginning of the year of
change; or
(ii) the declining-balance method of de-
preciation must be based on the useful life
of the property measured from the placed-
in-service date, and not the expected re-
maining life from the date the change be-
comes effective.
(c)Regulatory requirements.For
changes in method of depreciation to the
sum-of-the-year-digits or declining-bal-
ance method, the property must meet
the requirements of § 1.167(b)–0 or
1.167(c)–1, as appropriate.
(d)Public utility property. If any item
of property is public utility property within
the meaning of former § 167(l)(3)(A), the
taxpayer must attach to the application
a statement providing that the taxpayer
agrees to the following additional terms
and conditions:
(i) a normalization method of ac-
counting within the meaning of former
§ 167(l)(3)(G) will be used for the public
utility property subject to the application;
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 application to any reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation.
(6)Section 481(a) adjustment. Because
the adjusted basis of the property is not
changed as a result of a method change
made under section 6.02 of this APPEN-
DIX, no items are being duplicated or
omitted. Accordingly, a § 481(a) adjust-
ment is neither required nor necessary.
(7)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.
(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(8)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.02 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(9)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.02
of this APPENDIX is “8.”Seesection
6.02(4) of this revenue procedure.
(10)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.03Sale, 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 prop-
erty as leased or financed by the taxpayer;
(ii) improperly treating property as
leased by the taxpayer to properly treating
2011–4 I.R.B.366January 24, 2011

property as sold or financed by the tax-
payer;
(iii) improperly treating property as fi-
nanced by the taxpayer to properly treating
property as sold or leased by the taxpayer;
(iv) improperly treating property as pur-
chased 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 change.
(a) The change in method of account-
ing under section 6.03 of this APPENDIX
is made using a cut-off method and applies
to transactions entered into on or after the
beginning of the year of change.Seesec-
tion 2.06 of this revenue procedure.
(b) If a taxpayer wants to change its
method of accounting for existing sale,
lease or financing transactions, the tax-
payer must file an application with the
Commissioner in accordance with the re-
quirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27. A change involving exist-
ing sale, lease, or financing transactions
will require a § 481(a) adjustment. The
Service will generally not consider a tax-
payer’s request to change a method of ac-
counting for an existing sale, lease, or fi-
nancing transaction unless the taxpayer’s
proposed method of accounting is consis-
tent with the method used by the coun-
terparty to the agreement. The follow-
ing information should be submitted with
Form 3115 to substantiate that the tax-
payer’s proposed method is consistent with
the counterparty’s method: (A) the name
of the counterparty to the transaction; and
(B) a representation, signed under penal-
ties of perjury, from the counterparty that
provides the method of accounting for the
agreement used by the counterparty for
federal income tax purposes. If a taxpayer
does not submit the counterparty informa-
tion, the taxpayer’s request to change a
method of accounting for an existing sale,
lease, or financing transaction will be con-
sidered only in unusual and compelling
circumstances. The requirement to ob-
tain counterparty information from multi-
ple counterparties will not be considered
unusual or compelling.
(3)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.03
of this APPENDIX is “10.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Edward Schwartz at
202–622–4960 (not a toll-free call).
.04Modern golf course greens.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the cost of
modern golf course greens owned by the
taxpayer at the beginning of the year of
change to conform with the holding in
Rev. Rul. 2001–60, 2001–2 C.B. 587.
Rev. Rul. 2001–60 holds that the costs
of land preparation undertakenbyatax-
payer in the original construction or recon-
struction of modern greens (as described in
Rev. Rul. 2001–60) that is so closely as-
sociated with depreciable assets, such as a
network of underground drainage tiles or
pipes, that the land preparation will be re-
tired, abandoned, or replaced contempora-
neously with those depreciable assets are
to be capitalized and depreciated over the
recovery period of the depreciable assets
with which the land preparation is asso-
ciated. However, the general earthmov-
ing, grading, and initial shaping of the
area surrounding and underneath the mod-
ern green that occur before the construc-
tion are inextricably associated with the
land and, therefore, the costs attributable to
this land preparation are added to the tax-
payer’s cost basis in the land and are not
depreciable.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for the cost of modern golf course
greens under section 6.04 of this APPEN-
DIX must change to a permissible method
of accounting for depreciation of modern
greens. For purposes of § 168, the mod-
ern green is includible in asset class 00.3,
Land Improvements, of Rev. Proc. 87–56,
1987–2 C.B. 674, as clarified and modified
by Rev. Proc. 88–22, 1988–1 C.B. 785.
(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) ad-
justment, the taxpayer may provide a sin-
gle negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a sin-
gle 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 this
change and a change in depreciation under
section 6.01 (impermissible to permissible
method of accounting for depreciation or
amortization), 6.05 (original and replace-
ment tire costs), 6.06 (gas pump canopies),
and/or 6.07 (utility assets) for the same
year of change should file a single Form
3115 for these changes, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for these changes on the appropriate line of
that Form 3115.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.04 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.04
of this APPENDIX is “11.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
January 24, 20113672011–4 I.R.B.

.05Original and replacement tire
costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for the cost of
original and replacement tires for all of
the taxpayer’s qualifying vehicles in which
the taxpayer has a depreciable interest at
the beginning of the year of change to
the original tire capitalization method pro-
vided by section 5 of Rev. Proc. 2002–27,
2002–1 C.B. 802. The terms “qualify-
ing vehicle,” “original tires,” and “replace-
ment tires” are defined in section 3 of Rev.
Proc. 2002–27. For further details, see
Rev. Proc. 2002–27.
(2)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) ad-
justment, the taxpayer may provide a sin-
gle negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a sin-
gle 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 this
change and a change in depreciation un-
der section 6.01 (impermissible to permis-
sible method of accounting for deprecia-
tion or amortization), 6.04 (modern golf
course greens), 6.06 (gas pump canopies),
and/or 6.07 (utility assets) for the same
year of change should file a single Form
3115 for these changes, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for these changes on the appropriate line
on that Form 3115.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.05 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.05
of this APPENDIX is “12.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.06Depreciation of gas pump canopies.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for the cost of
stand-alone gasoline pump canopies or
their supporting concrete footings owned
by the taxpayer at the beginning of the
year of change to conform with the hold-
ing in Rev. Rul. 2003–54, 2003–1 C.B.
982. Rev. Rul. 2003–54 holds that the
stand-alone gasoline pump canopies (as
described in Rev. Rul. 2003–54) are not
inherently permanent structures and are
classified as tangible personal property for
depreciation purposes, while the support-
ing concrete footings (as described in Rev.
Rul. 2003–54) are inherently permanent
structures classified as land improvements
for depreciation purposes.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for the cost of stand-alone gasoline
pump canopies or their supporting con-
crete footings under section 6.06 of this
APPENDIX must change to a permissible
method of accounting for depreciation of
the cost of the gasoline pump canopies or
the supporting concrete footings. For pur-
poses of § 168, the stand-alone gasoline
pump canopies are includible in asset class
57.0, Distributive Trades and Services, of
Rev. Proc. 87–56, 1987–2 C.B. 674,
as clarified and modified by Rev. Proc.
88–22, 1988–1 C.B. 785, and their sup-
porting concrete footings are includible in
asset class 57.1, Distributive Trades and
Services-Billboard, Service Station Build-
ings and Petroleum Marketing Land Im-
provements, of Rev. Proc. 87–56.
(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) ad-
justment, the taxpayer may provide a sin-
gle negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a sin-
gle 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 this
change and a change in depreciation un-
der section 6.01 (impermissible to permis-
sible method of accounting for deprecia-
tion or amortization), 6.04 (modern golf
course greens), 6.05 (original and replace-
ment tire costs), and/or 6.07 (utility as-
sets) for the same year of change should
file a single Form 3115 for these changes,
in which case the taxpayer must enter the
designated automatic accounting method
change numbers for these changes on the
appropriate line on that Form 3115.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.06 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.06
of this APPENDIX is “13.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.07Depreciation of utility assets.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciable
assets that are owned by a utility at the
beginning of the year of change and used
in the general business operations of the
2011–4 I.R.B.368January 24, 2011

utility to conform with Rev. Rul. 2003–81,
2003–2 C.B. 126.
(2)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) ad-
justment, the taxpayer may provide a sin-
gle negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a sin-
gle 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 this
change and a change indepreciation under
section6.01(impermissibletopermissi-
ble method of accounting for deprecia-
tion or amortization), 6.04 (modern golf
course greens), 6.05 (original and replace-
ment tire costs), and/or 6.06 (gas pump
canopies) for the same year of change
should file a single Form 3115 for these
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for these changes
on the appropriate line on that Form 3115.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.07 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.07
of this APPENDIX is “14.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.08Depreciation of cable TV fiber
optics.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciation
of fiber optic node and trunk line con-
sisting of fiber optic cable used in a ca-
ble television distribution system owned
by the taxpayer at the beginning of the
year of change to the safe harbor method
ofaccountingprovidedbysection4of
Rev. Proc. 2003–63, 2003–2 C.B. 304.
The taxpayer must operate a cable televi-
sion distribution system designed to pro-
vide one-way and two-way communica-
tion services to subscribers (as described
in section 3.02 of Rev. Proc. 2003–63).
The safe harbor method of accounting pro-
vided by section 4 of Rev. Proc. 2003–63
determines the unit of property for calcu-
lating depreciation under §§ 167 and 168,
and the primary use and placed-in-service
date of that unit of property.
(2)Concurrent automatic change.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 in-
cluded 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 nega-
tive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such adjustment and a single positive
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such adjustment.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.08 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.08
of this APPENDIX is “15.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.09Change in general asset account
treatment due to a change in the use of
MACRS property.
(1)Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for general
asset account treatment of MACRS prop-
erty (as defined in § 1.168(b)–1(a)(2))
to the method of accounting pro-
vided in §§ 1.168(i)–1(c)(2)(ii)(E) and
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).See
§ 1.168(i)–1(l)(2)(ii).
(2)Manner of making change.
The change is made on a mod-
ified 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
new 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 prop-
erty occurs pursuant to § 1.168(i)–4(d).
(3)Concurrent automatic change.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.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.09 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
January 24, 20113692011–4 I.R.B.

(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.09
of this APPENDIX is “87.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.10Change in method of accounting
for depreciation due to a change in the
use of MACRS property.
(1)Description of change. This change
applies to a taxpayer that wants to (a)
change the method of accounting for de-
preciation 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 prop-
erty, or (b) revoke the election 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).
(2)Concurrent automatic change.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 in-
cluded 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 nega-
tive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such adjustment and a single positive
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such adjustment.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.10 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.10
of this APPENDIX is “88.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.11Depreciation 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 accor-
dance 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 be-
fore 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
changedfrompropertytowhich§280F(a)
appliestopropertytowhich§280F(a)
does not apply.
(2)Concurrent automatic change.A
taxpayer that wants to make this change
formorethanoneassetforthesameyear
of change should file a single Form 3115
for all such assets and provide a single net
§ 481(a) adjustment for all the changes in-
cluded 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 nega-
tive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such adjustment and a single positive
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such adjustment.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.11 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.11
of this APPENDIX is “89.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.12Depreciation of qualified
revitalization building in the expanded
area of a renewal community.
(1)Description of change. This change
applies to a taxpayer that wants to elect the
commercial revitalization deduction under
§ 1400I(a) for a qualified revitalization
building (as defined in § 1400I(b)(1)) that
is placed in service by the taxpayer after
December 31, 2001, in the area of a re-
newal community that was expanded by
the U.S. Department of Housing and Ur-
ban Development and for which the tax-
payer receives a retroactive commercial
revitalization expenditure allocation made
in accordance with section 3 of Rev. Proc.
2006–16, 2006–1 C.B. 539. This change
applies only if the taxpayer filed the fed-
eral tax return for the placed-in-service
year of that building on or before the date
the taxpayer received the retroactive com-
mercial revitalization expenditure alloca-
tion. For further details, see Rev. Proc.
2006–16.
(2)Scope limitations inapplicable
.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Time for making change.The
change in method of accounting under
section 6.12 of this APPENDIX must be
timely filed with the taxpayer’s federal tax
return for the taxable year that includes
thedateonwhichthecommercialrevi-
talization agency makes the retroactive
commercial revitalization expenditure al-
location, or with the taxpayer’s federal tax
return for the first taxable year succeeding
the taxable year thatincluded the date
on which the commercial revitalization
agency made the retroactive commercial
revitalization expenditure allocation.
2011–4 I.R.B.370January 24, 2011

(4)Concurrent automatic change.A
taxpayer that wants to make this change
for more than one qualified revitaliza-
tion building for the same year of change
should file a single Form 3115 for all such
buildings and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115.
(5)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.12 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.12
of this APPENDIX is “97.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.13Loss disallowance rule upon a
disposition of an insurance contract
acquired in an assumption re-insurance
transaction.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that chooses, on a transac-
tion-by-transaction basis, to change their
treatment of certain insurance contracts ac-
quired in an assumption reinsurance trans-
action under § 1.197–2(g)(5) for the first
taxable year ending after April 10, 2006.
(b)Inapplicability. This change does
not apply when the taxpayer’s treatment of
its property is an issue under consideration
for a taxable year under examination, be-
fore an Appeals office, or before a federal
court. See section 3.09 of this revenue pro-
cedure for the definition of these terms.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Additional requirements.The
change in accounting method results in
items being omitted or duplicated and
thus, an adjustment under § 481(a) must
be computed.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.13
of this APPENDIX is “98.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Mark Weiss at
202–622–7750 (not a toll-free call).
.14Reserved.
.15Reserved.
.16Reserved.
.17Impermissible 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 de-
preciation 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. Sec-
tion 3 of Rev. Proc. 2007–16 allows a tax-
payer to make a change in method of ac-
counting for depreciation for the disposed
property if the taxpayer used an impermis-
sible method of accounting for deprecia-
tion for the property under which the tax-
payer did not take into account any depre-
ciation allowance, ordid take into account
some depreciation but less than the depre-
ciation allowable, inthe year of change (as
defined in section 6.17(4) of this APPEN-
DIX) or any prior taxable year.
(2)Scope.
(a)Applicability. Except as provided in
section 6.17(2)(b) of this APPENDIX, sec-
tion 6.17 of this APPENDIX applies to a
taxpayer that is changing from an imper-
missible method of accounting for depreci-
ation to a permissible method of account-
ing for depreciation for any item of de-
preciable 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 tax-
payer during the year of change (as defined
in section 6.17(4) of this APPENDIX); and
(ii) for which the taxpayer did not take
into account any depreciation allowance,
or did take into account some deprecia-
tion but less than the depreciation allow-
able (hereinafter, both are referred to as
“claimed less than the depreciation allow-
able”), in the year of change (as defined in
section 6.17(4) of this APPENDIX) or any
prior taxable year.
(b)Inapplicability. Section 6.17 of this
APPENDIX 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 elec-
tion, or making a late depreciation elec-
tion, under the Code or regulations there-
under, or under other guidance published
in the IRB (including under § 13261(g)(2)
or (3) of the Revenue Reconciliation Act of
1993 (1993 Act), 1993–3 C.B. 1, 128 (re-
lating to amortizable § 197 intangibles));
(iii) any property for which the tax-
payer 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 non-
recognition section of the Code applies
(for example, § 1031, transactions subject
to § 168(i)(7)(B)). However, this section
6.17(2)(b)(iv) of the APPENDIX 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), re-
spectively) of the replacement MACRS
property (as defined in § 1.168(i)–6(b)(1))
as property placed in service by the tax-
payer at the time of replacement and treat
the adjusted depreciable basis of the relin-
quished 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 (includ-
ing extensions) original federal tax return
for the year of change (as defined in sec-
tion 6.17(4) of this APPENDIX), provided
the taxpayer files the original Form 3115
in accordance with section 6.02(3) of this
revenue procedure.
(b)Change made on an amended return
for the year of change. This change may
January 24, 20113712011–4 I.R.B.

also be made on an amended federal tax
return for the year of change (as defined in
section 6.17(4) of this APPENDIX), pro-
vided:
(i) the taxpayer files the original Form
3115 with the taxpayer’s amended fed-
eral tax return for the year of change (as
defined in section 6.17(4) of this AP-
PENDIX) prior to the expiration of the
period of limitation for assessment under
§ 6501(a) for the taxable year in which the
item of depreciable oramortizable prop-
erty was disposed of by the taxpayer; and
(ii) the taxpayer’s amended federal tax
return for the year of change (as defined
in section 6.17(4) of this APPENDIX) in-
cludes the adjustments to taxable income
and any collateral adjustments to taxable
income or tax liability (for example, ad-
justments 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 depre-
ciation made by the taxpayer under section
6.17 of this APPENDIX.
(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)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(6)Filing requirements.Notwithstand-
ing section 6.02(3)(a) of this revenue
procedure, a taxpayer making this change
in accordance with section 6.17(3)(b) of
this APPENDIX must attach the original
Form 3115 to the taxpayer’s timely filed
amended federal tax return for the year
of change and must file the required copy
(with signature) of the Form 3115 with the
national office no later than when the orig-
inal Form 3115 is filed with the amended
federal tax return for the year of change.
If a taxpayer is making this change in
accordance with section 6.17(3)(a) of this
APPENDIX, the filing requirements in
section 6.02(3)(a) of this revenue proce-
dure apply.
(7)Section 481(a) adjustment period.
A taxpayer must take the § 481(a) adjust-
ment into account in the year of change.
(8)Concurrent automatic change.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.
(9)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.17 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(10)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.17
of this APPENDIX is “107.”Seesection
6.02(4) of this revenue procedure.
(11)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.18Depreciation of MACRS property
acquiredinalike-kindexchangeorasa
result of an involuntary conversion.
(1)Description of change. This change
applies to a taxpayer that wants to make a
change in method of accounting for depre-
ciation under § 168 to either:
(a) Apply the provisions of
§ 1.168(i)–6, or rely on prior guidance by
the Service for determining the deprecia-
tion deductions of replacement MACRS
property and relinquished MACRS
property, for a like-kind exchange or
an involuntary conversion of MACRS
property for which the time of disposition,
the time of replacement, or both occur on
or before February 27, 2004; or
(b) Apply § 1.168(i)–6(i)(2) to the re-
linquished property and the replacement
property for which the time of disposition,
the time of replacement , or both occur
on or before February 26, 2007, if the re-
placement property replaces relinquished
property for which the taxpayer made a
valid election under § 168(f)(1) to exclude
it from the application of § 168.
(2)Applicability. The change in section
6.18(1)(a) of this APPENDIX applies only
if the taxpayer’s applicable federal tax re-
turn has been filed on or before February
27, 2004. The change in section 6.18(1)(b)
of this APPENDIX applies only if the tax-
payer wants to apply § 1.168(i)–6(i)(2)
and the taxpayer’s applicable federal tax
return has been filed on or before Feb-
ruary 26, 2007. For further details, see
§ 1.168(i)–6(k)(2) and (3).
(3)Concurrent automatic change.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 in-
cluded 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 nega-
tive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such adjustment and a single positive
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such adjustment.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.18 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.18
of this APPENDIX is “116.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.19Lessor improvements abandoned at
termination of lease
.
(1)Description of change.
(a)Applicability. This change applies
to a lessor that continued to depreciate
under § 168 an improvement described
in § 168(i)(8)(B)(i) and (ii) after the im-
provement was irrevocably disposed of or
abandoned by the lessor at the termination
of the applicable lease by the lessee and
now wants to comply with § 168(i)(8)(B)
2011–4 I.R.B.372January 24, 2011

by recognizing gain or loss upon the dis-
position or abandonment of the improve-
ment. Toqualifyforrecognizinggainor
loss under § 168(i)(8)(B), the intent of the
lessor must be irrevocably to discard the
improvement so that it will neither be used
again by the lessor nor retrieved by the
lessor for resale, exchange, or other dispo-
sition.See§ 1.167(a)–8(a)(4).
(b)Inapplicability. This change does
not apply to:
(i) improvements disposed of or aban-
doned before June 13, 1996;
(ii) the extent § 280B applies to the de-
molition of a structure, a portion of which
may include leasehold improvements; or
(iii)improvementsdisposedoforaban-
doned before the termination of the appli-
cable lease.
(2)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.19 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.19
of this APPENDIX is “117.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.20Repairable and reusable spare
parts.
(1)Description of change.
(a)Applicability. This change ap-
plies to a taxpayer that wants to change
from item accounting to multiple asset
accounting (pooling) for its repairable and
reusable spare parts in accordance with
section 6.20(2) of this APPENDIX or
that wants to change its method of iden-
tifying disposed repairable and reusable
spare parts to a method described in sec-
tion 6.20(3) of this APPENDIX. These
changes apply 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.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that is currently capital-
izing and depreciating the cost of its re-
pairable and reusable spare parts and that
elected to establish general asset accounts
for the repairable and reusable spare parts;
(ii) a taxpayer that is not currently cap-
italizing and depreciating the cost of its
repairable and reusable spare parts under
§ 168 in accordance with the holdings
in Rev. Rul. 69–200, 1969–1 C.B. 60,
and Rev. Rul. 69–201, 1969–1 C.B. 60,
unless the taxpayer concurrently changes
itsmethodtoproperly capitalize and de-
preciate these costs in conjunction with
a change under section 10.07 of this AP-
PENDIX. Rev. Rul. 69–200 and Rev. Rul.
69–201 hold that repairable and reusable
spare parts are tangiblepropertyforwhich
depreciation is allowable at the time that
the related equipment is placed in service
by the taxpayer and the method of com-
puting depreciation for the repairable and
reusable spare parts is the same method
of computing depreciation for the related
equipment;
(iii) 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 6.20 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
or
(iv) a taxpayer that is using an im-
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, unless the taxpayer
concurrently changes its method to use
a permissible method of accounting for
depreciation under section 6.01 of this
APPENDIX.
(2)Establishment of pools. A taxpayer
may change from item accounting to pool-
ing for repairable and reusable spare parts
by establishing one or more pools for re-
pairable and reusable spare parts begin-
ning in the year of change. Each pool must
include only the repairable and reusable
spare parts that are placed in service by
the taxpayer in the same taxable year and
have the same: (a) asset class under Rev.
Proc. 87–56, 1987–2 C.B. 674, as clari-
fied and modified by Rev. Proc. 88–22,
1988–1 C.B. 785, (b) applicable depreci-
ation method, (c) applicable recovery pe-
riod, and (d) applicable convention. Ad-
ditionally, repairable and reusable spare
parts subject to the mid-quarter convention
may only be grouped into a pool with re-
pairable and reusable spare parts that are
placed in service in the same quarter of the
taxable year.
Further, each pool for repairable and
reusable spare parts placed in service by
the taxpayer after 1986 and before the year
of change must include a beginning bal-
ance for both the unadjusted depreciable
basis and the depreciation reserve. The be-
ginning balance for the unadjusted depre-
ciable basis of each pool is equal to the
sum of the unadjusted depreciable bases as
of the beginning of the year of change for
all repairable and reusable spare parts in-
cluded in that pool. The beginning balance
of the depreciation reserve of each pool is
equal to the sum of the greater of the de-
preciation allowed or allowable as of the
beginning of the year of change for all re-
pairable and reusable spare parts included
in that pool.
(3)Permissible methods of identifying
disposed repairable and reusable spare
parts. Beginning in the year of change,
a taxpayer may change to one of the fol-
lowing methods of accounting to identify
its disposed repairable and reusable spare
parts:
(a) Specific identification of each dis-
posed repairable and reusable spare part;
or
(b) A first-in, first-out method of ac-
counting if: (i) the taxpayer establishes
pools for repairable and reusable spare
parts in accordance with section 6.20(2)
of this APPENDIX, (ii) the repairable and
reusable spare parts are mass assets, and
(iii) the total repairable and reusable spare
parts dispositions during a particular tax-
able year are readily determined from the
January 24, 20113732011–4 I.R.B.

taxpayer’s records but it is impracticable
for the taxpayer to maintain records from
which the taxpayer can determine the par-
ticular taxable year in which the disposed
repairable and reusable spare parts were
placed in service by the taxpayer. A tax-
payer using the first-in, first-out method of
accounting under this section 6.20(3) must
identify the repairable and reusable spare
parts disposed of in a taxable year from
the pool with the earliest placed in-service
year existing at the beginning of the tax-
able year of the disposition. For purposes
of this section 6.20(3), mass assets are a
mass or group of individual items of de-
preciable property:
(i) that are not necessarily homoge-
neous;
(ii) each of which is minor in value rela-
tive to the total value of the mass or group;
(iii) numerous in quantity;
(iv) usually accounted for only on a to-
tal dollar or quantity basis;
(v) with respect to which separate iden-
tification is impracticable; and
(vi) are placed in service by the tax-
payer in the same taxable year.
(4)Manner of making change.
(a)Establishment of pools. Because
the adjusted basis of the property is not
changed as a result of changing from
item accounting to pooling under section
6.20(2) of this APPENDIX, no items are
being duplicated or omitted. Accordingly,
a § 481(a) adjustment is neither required
nor necessary.
(b)Identifying disposed repairable and
reusable spare parts. The change to a
method described in section 6.20(3) of this
APPENDIX for identifying disposed re-
pairable and reusable spare parts is made
on a cut-off basis and applies only to re-
pairable and reusable spare parts disposed
of by the taxpayer beginning in the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
(5)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.
(b) A taxpayer that wants to make both
this change and a change to a capitaliza-
tion and depreciation method under sec-
tion 10.07 of this APPENDIX for the same
year of change should file a single Form
3115 for both changes, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(c) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(d) A taxpayer that wants to make both
this change and a change to a permissi-
ble method of accounting for depreciation
for repairable and reusable spare parts, or
for the related equipment for which the re-
pairable and reusable spare parts are ac-
quired, under section 6.01 of this APPEN-
DIX 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.
(6)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.20 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.20
of this APPENDIX is “118.”Seesection
6.02(4) of this revenue procedure.
(8)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.21Land.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from de-
preciating land to notdepreciating land or
wants to change from depreciating a non-
depreciable land improvement to not de-
preciating a nondepreciable land improve-
ment. This change applies to any land or
nondepreciable land improvement that is
owned by the taxpayer at the beginning of
the year of change.
(b)Inapplicability. This change does
not apply to:
(i) any depreciable land improvement;
or
(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 6.21 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)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.
(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(3)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.21 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a changein method of account-
ingundersection6.21ofthisAPPENDIX
2011–4 I.R.B.374January 24, 2011

is “119.”Seesection 6.02(4) of this rev-
enue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.22Kansas additional first year
depreciation.
(1)Description of change.
(a)In general. This change applies to
a taxpayer that wants to make a change in
method of accounting for depreciation for
qualified Recovery Assistance (RA) prop-
erty placed in service by the taxpayer on or
after May 5, 2007, during the taxable year
that includes May 5, 2007, to claim the
Kansas additional first year depreciation
deduction for a class of property for which
the taxpayer did not claim the Kansas ad-
ditional first year depreciation deduction
on the taxpayer’s timely filed federal tax
return for the taxable year that includes
May 5, 2007, provided the taxpayer did not
make an election not to deduct the Kansas
additional first year depreciation for the
class of property pursuant to section 4.03
of Notice 2008–67, 2008–32 I.R.B 307.
For further details, see section 3.03 of No-
tice 2008–67
(b)Return for the first taxable year
succeeding the taxable year that in-
cludes May 5, 2007, not filed on or
before August 11, 2008. If, on or before
August 11, 2008, the taxpayer did not file
its federal tax return for the first taxable
year succeeding the taxable year that
includes May 5, 2007, and the taxpayer
owns the property as of the first day of
this taxable year, the taxpayer may file
Form 3115 to make the change in method
of accounting under section 6.22 of this
APPENDIX with the taxpayer’s timely
filed federal tax return for the first taxable
year succeeding the taxable year that
includes May 5, 2007.
(c)Return for the first taxable year
succeeding the taxable year that includes
May 5, 2007, filed on or before August 11,
2008. If on or before August 11, 2008,
the taxpayer filed its federal tax return
for the first taxable year succeeding the
taxable year that includes May 5, 2007, the
taxpayer may make the change in method
of accounting under section 6.22 of this
APPENDIX either by:
(i) Filing an amended federal tax return
(or a qualified amended return) on or be-
fore December 31, 2009, for the first tax-
able year succeeding the taxable year that
includes May 5, 2007, attaching a Form
3115 to the amended federal tax return,
and including the statement “Filed Pur-
suant to Notice 2008–67” at the top of any
amended return (or qualified amended re-
turn); or
(ii) Filing a Form 3115 with the tax-
payer’s timely filed federal tax return for
the second taxable year succeeding the tax-
able year that includes May 5, 2007, if the
taxpayer owns the property as of the first
day of this taxable year.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Concurrent automatic change.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 in-
cluded 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 nega-
tive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such adjustment and a single positive
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such adjustment.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.22 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.22
of this APPENDIX is “115.”Seesection
6.02(4) of this revenue procedure.
(6)Contact Information.Forfurther
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.23Tenant 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 construc-
tion allowances:
(i) from improperly treating the tax-
payer as having a depreciable interest in
the property subject to the tenant construc-
tion allowances for federal income tax pur-
poses 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 tax-
payer as not having a depreciable interest
in the property subject to the tenant con-
struction allowances for federal income
taxpurposestoproperlytreatingthetax-
payer as having a depreciable interest in
such property for federal income tax pur-
poses.
(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 depre-
ciable property; or
(iii) any amount expended for deprecia-
ble property in excess of the tenant con-
struction allowance.
(2)Definition. For purposes of section
6.23 of this APPENDIX, the term “ten-
ant 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.
(3)
Manner of making the change.
(a) The change in method of accounting
under section 6.23 of this APPENDIX is
made using a cut-off method and only ap-
plies to leases entered into on or after the
beginning of the year of change.Seesec-
tion 2.06 of this revenue procedure.
(b) If a taxpayer wants to change its
method of accounting for tenant construc-
tion allowances under existing leases, the
taxpayer must file a Form 3115 with the
Commissioner in accordance with the re-
quirements of § 1.446–1(e)(3)(i) and Rev.
Proc. 97–27. A change involving ten-
ant construction allowances under existing
leases will require a § 481(a) adjustment.
Consent to change a method of accounting
for tenant construction allowances under
January 24, 20113752011–4 I.R.B.

existing leases is granted only if the tax-
payer’s treatment of the property subject to
the tenant construction allowances is con-
sistent with the treatment of such property
by the counterparty for federal income tax
purposes. The following information must
be submitted with a Form 3115 submitted
under Rev. Proc. 97–27:
(i) If a lessee is filing the Form 3115, the
lessee must submit with the Form 3115:
(A) a statement 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 construc-
tion allowance; and (B) a representation,
signed under penalties of perjury, from
such lessor that provides the amount of the
tenant construction allowance provided to
the lessee and an explanation as to how
the lessor is treating the property sub-
ject to such tenant construction allowance
for federal income tax purposes. If the
lessor capitalized the tenant construction
allowance (or any portion thereof) pro-
vided to the lessee and depreciated the
property subject to such tenant construc-
tion allowance, the representation must
also include the amount that was capital-
ized by the lessor, the Internal Revenue
Code section under which the property is
depreciated by the lessor, and the life over
which the property is depreciated by the
lessor.
(ii) If a lessor is filing the Form 3115,
the lessor must submit with the Form 3115:
(A) a statement that provides the amount
of the tenant construction allowance pro-
videdtoalesseeandthenameofthe
lessee that received such tenant construc-
tion allowance; and (B) a representation,
signed under penalties of perjury, from
such lessee that provides the amount of
the tenant construction allowance received
from the lessor, the amount of such ten-
ant construction allowance recognized as
gross income by the lessee, the amount
of the tenant construction allowance ex-
pended by the lessee on property, and
an explanation as to how the lessee is
treating the property subject to the tenant
construction allowance for federal income
tax purposes. If the lessee capitalized the
tenant construction allowance (or any por-
tion thereof) received from the lessor and
depreciated the property subject to such
tenant construction allowance, the repre-
sentation must also include the amount
that was capitalized by the lessee, the In-
ternal Revenue Code section under which
the property is depreciated by the lessee,
and the life over which the property is
depreciated by the lessee.
(4)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(5)Concurrent automatic change.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.
(6)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.23 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 6.23
of this APPENDIX is “145.”Seesection
6.02(4) of this revenue procedure.
(8)Contact information. For further
information regarding a change under
this section, contact Ruba Nasrallah at
202–622–4930 (not a toll-free call).
.24Dispositions of structural
components of a building (section 168).
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change to a unit
of property that is permissible under appli-
cable legal authority for determining when
the taxpayer has disposed of a building (as
defined in § 1.48–1(e)(1), except as oth-
erwise provided under any other applica-
ble provision of the Code or regulations re-
lating to depreciation or amortization (for
example, § 1400I(f)(3))), and its structural
components (as defined in § 1.48–1(e)(2))
for depreciation purposes. This change
also will affect the determination of gain
or loss from the disposition of the building
(including its structural components).
(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 section 6.24 of this AP-
PENDIX if the taxpayer is not capitalizing
these costs, unless the taxpayer concur-
rently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
(ii) any property that is not depreciated
under § 168 under the taxpayer’s present
and proposed methods of accounting;
(iii) any section 1245 property or depre-
ciable land improvement (but see section
6.25 of this APPENDIX for making this
change);
(iv) any leasehold improvement,
whethermadebythelessororthelessee
(unless the taxpayer leased land and con-
structed a building on such leased land,
and such building (including its structural
components) is the leasehold improve-
ment and is the unit of property under the
taxpayer’s proposed method of accounting
under section 6.24 of this APPENDIX);
(v) any property disposed of by the tax-
payer in a transaction to which a non-
recognition section of the Code applies
(for example, § 1031, transactions subject
to § 168(i)(7));
(vi) any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder;
(vii) any building with multiple condo-
minium or cooperative units (unless each
condominium or cooperative unit is the
unit of property under the taxpayer’s pro-
posed method of accounting under section
6.24 of this APPENDIX); or
(viii) any multiple buildings (includ-
ing their structuralcomponents) that are
treated as a single building (single unit
of property) under the taxpayer’s present
method of accounting or will be treated as
a single building (single unit of property)
under the taxpayer’s proposed method of
accounting.
(2)Manner of making change.Atax-
payer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of property to which this change applies;
(b) A detailed description of the unit
of property under the taxpayer’s present
2011–4 I.R.B.376January 24, 2011

and proposed methods of accounting for
determining when the building (including
its structural components) is disposed of
by the taxpayer for depreciation purposes
(when depreciation ends);
(c) A detailed description of how the
taxpayer determined the unit of property
under its present method of accounting for
determining when the building (including
its structural components) is disposed of
by the taxpayer for depreciation purposes
and will determine the unit of property
under its proposed method of accounting
for determining when the building (includ-
ing its structural components) is disposed
of by the taxpayer for depreciation pur-
poses. If this proposed unit of property
is not each building (including its struc-
tural components) (except as provided in
section 6.24(1)(b)(vii) of this APPENDIX
regarding condominium or cooperative
units), also provide the legal authority
supporting the taxpayer’s proposed unit of
property for determining when the build-
ing (including its structural components)
is disposed of by the taxpayer for depreci-
ation purposes;
(d) A statement as to whether the tax-
payer’s proposed unit of property for de-
termining when the building (including its
structural components) is disposed of by
the taxpayer for depreciation purposes is
the same as the taxpayer’s present unit of
property for determining when the build-
ing (including its structural components) is
placed in service by the taxpayer (when de-
preciation begins). If not, also provide the
unit of property for determining when the
building (including its structural compo-
nents) is placed in service by the taxpayer
and explain why the taxpayer is using a
different unit of property for determining
when the building (including its structural
components) is placed in service; and
(e) if any item of property is public
utility property within the meaning of
§ 168(i)(10) or former § 167(l)(3)(A), as
applicable, a statement providing that the
taxpayer agrees to the following additional
terms and conditions:
(i) a normalization method of ac-
counting (within the meaning of former
§ 167(l)(3)(G), former § 168(e)(3)(B), or
§ 168(i)(9), as applicable) will be used for
the public utility property subject to the
application;
(ii) as of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar re-
serve account in the taxpayer’s regulatory
books of account by the amount of the de-
ferral of federal income tax liability asso-
ciated with the § 481(a) adjustment appli-
cable to the public utility property subject
to the application; 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 application to any reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation.
(3)No ruling on unit of property.The
consent granted under this revenue proce-
dure for this change is not a determina-
tion by the Commissioner that the taxpayer
is using the appropriate unit of property
for determining when the building (includ-
ing its structural components) is placed in
service or disposed of by the taxpayer for
depreciation purposes and does not cre-
ate any presumption that the proposed unit
of property is permissible for deprecia-
tion purposes. The director will ascertain
whether the taxpayer’s determination of its
unit of property for depreciation purposes
is correct.
(4)Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(b) A taxpayer that wants to make both
this change and a change under section
6.25 of this APPENDIX for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(5)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 6.24 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a changein method of account-
ingundersection6.24ofthisAPPENDIX
is “146.”Seesection 6.02(4) of this rev-
enue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Charles Magee at
202–622–4930 (not a toll-free call).
.25Dispositions of tangible depreciable
assets (other than a building or its
structural components) (section 168).
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change to a
unit of property that is permissible un-
der applicable legal authority for deter-
mining when the taxpayer has disposed
of a section 1245 property or a deprecia-
ble land improvement for depreciation pur-
poses. This change also will affect the de-
termination of gain or loss from the dispo-
sition of the section 1245 property or the
depreciable land improvement.
(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 section 6.25 of this AP-
PENDIX if the taxpayer is not capitalizing
these costs, unless the taxpayer concur-
rently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
(ii) any property that is not depreciated
under § 168 under the taxpayer’s present
and proposed methods of accounting;
(iii) any building (including its struc-
tural components) (but see section 6.24 of
this APPENDIX for making this change);
(iv) any leasehold improvement,
whethermadebythelessororthelessee
(unless each leasehold improvement is the
unit of property under the taxpayer’s pro-
posed method of accounting under section
6.25 of this APPENDIX);
January 24, 20113772011–4 I.R.B.

(v) any property disposed of by the tax-
payer in a transaction to which a non-
recognition section of the Code applies
(for example, § 1031, transactions subject
to § 168(i)(7));
(vi) any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder;
(vii) any property subject to a mass
asset account election under former
§ 168(d)(2)(A); or
(viii) any property subject to the re-
pair allowance under § 1.167(a)–11(d)(2)
(including expenditures incurred after
December 31, 1980, for the repair, main-
tenance, rehabilitation, or improvement
of property placed in service before
January 1, 1981).
(2)Manner of making change.Atax-
payer making this change must attach to its
Form 3115 a statement with the following:
(a) A detailed description of the types
of property to which this change applies;
(b) A detailed description of the unit of
property under the taxpayer’s present and
proposed methods of accounting for deter-
mining when the property is disposed of
by the taxpayer for depreciation purposes
(when depreciation ends);
(c) A detailed description of how the
taxpayer determined the unit of property
under its present method of accounting for
determining when the property is disposed
of by the taxpayer for depreciation pur-
poses and will determine the unit of prop-
erty under its proposed method of account-
ing for determining when the property is
disposed of by the taxpayer for depreci-
ation purposes. If this proposed unit of
property is not determined using only the
functional interdependence standard (see,
e.g.,Armstrong World Industries, Inc. v.
Commissioner, T.C. Memo. 1991–326,
aff’d, 974 F.2d 422 (3
rd
Cir. 1992);Hawai-
ian Independent Refinery, Inc. v. United
States, 697 F.2d 1063, 1069 (Fed. Cir.
1983)), also provide the legal authority
supporting the taxpayer’s proposed unit of
property for determining when the prop-
erty is disposed of by the taxpayer for de-
preciation purposes;
(d) A statement as to whether the tax-
payer’s proposed unit of property for de-
termining when the property is disposed
of by the taxpayer for depreciation pur-
posesisthesameasthetaxpayer’spresent
unit of property for determining when the
property is placed in service by the tax-
payer (when depreciation begins). If not,
also provide the unit of property for deter-
mining when the property is placed in ser-
vice by the taxpayer and explain why the
taxpayer is using a different unit of prop-
erty for determining when the property is
placed in service; and
(e)ifanyitemofpropertyispublic
utility property within the meaning of
§ 168(i)(10) or former § 167(l)(3)(A), as
applicable, a statement providing that the
taxpayer agrees to the following additional
terms and conditions:
(i) a normalization method of ac-
counting (within the meaning of former
§ 167(l)(3)(G), former § 168(e)(3)(B), or
§ 168(i)(9), as applicable) will be used for
the public utility property subject to the
application;
(ii) as of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar re-
serve account in the taxpayer’s regulatory
books of account by the amount of the de-
ferral of federal income tax liability asso-
ciated with the § 481(a) adjustment appli-
cable to the public utility property subject
to the application; 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 application to any reg-
ulatory body having jurisdiction over the
public utility property subject to the appli-
cation.
(3)No ruling on unit of property.The
consent granted under this revenue pro-
cedure for this change is not a determi-
nation by the Commissioner that the tax-
payer is using the appropriate unit of prop-
erty for determining when the property is
placed in service or disposed of by the tax-
payer for depreciation purposes and does
not create any presumption that the pro-
posed unit of property is permissible for
depreciation purposes. The director will
ascertain whether the taxpayer’s determi-
nation of its unit of property for deprecia-
tion purposes is correct.
(4)Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(b) A taxpayer that wants to make both
this change and a change under section
6.24 of this APPENDIX for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(5)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its method of accounting under
this section 6.25 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a changein method of account-
ingundersection6.25ofthisAPPENDIX
is “147.”Seesection 6.02(4) of this rev-
enue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact Charles Magee at
202–622–4930 (not a toll-free call).
SECTION 7. RESEARCH AND
EXPERIMENTAL EXPENDITURES
(§ 174)
.01Changes 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 ex-
penditures that qualify as research and ex-
perimental expenditures under § 174.
(b) Section 174 and the regulations
thereunder provide the specific rules for
changing a method of accounting un-
der § 174 for research and experimental
expenditures. Under § 174, a taxpayer
may treat research and experimental ex-
penditures that are paid or incurred by
the taxpayer during the taxable year in
connection with the taxpayer’s trade or
2011–4 I.R.B.378January 24, 2011

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
capital expenditures. 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.
(c) If a taxpayer has not treated re-
search and experimental expenditures as
expenses under § 174(a), § 174(a)(2)(B)
and § 1.174–3(b)(2) provide that the tax-
payer may, with consent, adopt the ex-
pense method at any time.
(d) If a taxpayer has treated research
and experimental expenditures as ex-
penses 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 experi-
mental 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 experimen-
tal expenditures or to a different period of
amortization for deferred expenses.
(2)Scope.
(a)Applicability. This change applies
to any taxpayer that is changing:
(i) from treating research and ex-
perimental expenditures for a particular
project or projects as expenses under
§ 174(a) to treating such expenditures as
deferred expenses under § 174(b), orvice
versa;
(ii) to a different period of amortiza-
tion for research and experimental expen-
ditures for a particular project or projects
that are being treated as deferred expenses
under § 174(b); or
(iii) from treating research and ex-
perimental expenditures for a particular
project or projects as expenses under
§ 174(a) or deferred expenses under
§ 174(b) to treating such expenditures as a
capital expenditure under § 263(a), orvice
versa.
(b)Inapplicability. This change does
not apply to:
(i) a portion of the research and ex-
perimental expenditures paid or incurred
for a particular project during the year
of change or in subsequent taxable years
(that is, the change must apply to all of
such expenditures;see§§1.174–3(a) and
1.174–4(a)(5));
(ii) a change in the treatment of com-
puter software costs under Rev. Proc.
2000–50, 2000–1 C.B. 601, as modified
by Rev. Proc. 2007–16, 2007–4 I.R.B.
358(butseesection9ofthisAPPENDIX
for making that change); or
(iii) a change in the treatment of Year
2000 costs under Rev. Proc. 97–50,
1997–2 C.B. 525.
(3)Scope limitations clarified.The
scope limitation under section 4.02(7) of
this revenue procedure is applied on a
project by project basis.
(4)Manner of making change.
(a) This change is made on a cut-off ba-
sis and applies to all research and exper-
imental expenditures paid or incurred for
a particular project or projects on or af-
ter the beginning of the year of change.
See section 2.06 of this revenue proce-
dure and § 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. Ac-
cordingly, 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 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 of this revenue procedure for
filing requirements applicable under this
revenue procedure.
(c) The consent granted under this
revenue procedure 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 chang-
ing 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 7 of this revenue procedure in con-
nection with this change.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 7.01
of this APPENDIX is “17.”Seesection
6.02(4) of this revenue procedure.
(8)Contact information. For further
information regarding a change under this
section, contact Grant D. Anderson at
202–622–4930 (not a toll-free call).
.02Reserved.
SECTION 8. ELECTIVE EXPENSING
PROVISIONS (§ 179D)
.01Reserved.
.02Reserved.
.03
Reserved.
.04Deduction for Energy Efficient
Commercial Buildings (§ 179D).
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to deduct un-
der § 179D amounts paid or incurred for
the installation of energy efficient com-
mercial building property, as defined in
§ 179D(c)(1). The deduction for energy ef-
ficient commercial building property must
be claimed in the taxable year in which the
property is placed in service and is subject
to the limits of § 179D(b). The basis of
the energy efficient commercial building
property is reduced by the amount of the
§ 179D deduction taken and the remain-
ing basis of the energy efficient commer-
cial building property is depreciated over
its recovery period.
(2)Applicability. This change applies
to:
(a) energy efficient commercial build-
ing property that is installed on or
in any building that is located in the
United States and is within the scope
of ANSI/ASHRAE/IESNA Standard
90.1–2001, Energy Standard for Buildings
Except Low-Rise Residential Buildings,
developed for the American National Stan-
January 24, 20113792011–4 I.R.B.

dards Institute by the American Society
of Heating, Refrigerating, and Air Condi-
tioning Engineers and the Illuminating En-
gineering Society of North America (as in
effect on April 2, 2003, including addenda
90.1a–2003, 90.1b–2002, 90.1c–2002,
90.1d–2002, and 90.1k–2002 as in effect
on that date) (Standard 90.1–2001);
(b) energy efficient commercial build-
ing property that is installed as part of the
interior lighting systems; the heating, cool-
ing, ventilation, and hot water systems;
or the building envelope of a commercial
building; and
(c) it is certified that the interior light-
ing systems, heating, cooling, ventilation,
and hot water systems, or the building en-
velope that have been incorporated into the
building, or that the taxpayer plans to in-
corporate into the building subsequent to
the installation of such property, will re-
duce the total annual energy and power
costs with respect to combined usage of
the building’s heating, cooling, ventila-
tion, hot water, and interior lighting sys-
tems by 50 percent or more as compared to
a Reference Building that meets the mini-
mum requirements of Standard 90.1–2001.
(3)Manner of making change.Atax-
payer making this change must attach a
statement with a detailed description of the
tax treatment of the property under the tax-
payer’s present and proposed methods of
accounting.
(4)Additional filing requirement.In
addition to the statement required by sec-
tion 8.04(3) of the APPENDIX of this
revenue procedure, a taxpayer making
this change must attach a certification as
required by section 4 of Notice 2006–52,
2006–1 C.B. 1175, and section 5 of Notice
2008–40, 2008–14 I.R.B. 725, to demon-
strate the energy efficient commercial
building property has achieved the reduc-
tion energy and power costs to qualify
for the § 179D deduction. In the case of
a publicly owned building for which a
designer has been allocated a deduction
under § 179D, the designer becomes the
taxpayer for purposes of the deduction and
must attach a certification as required by
Notice 2006–52 and Notice 2008–40, and
an allocation from the owner of the build-
ing to the designer as required by section
3.04 of Notice 2008–40.
(5)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of ac-
counting under this section 8.04 of the
APPENDIX is “152.”Seesection 6.02(4)
of this revenue procedure.
(7)Contact information. For further
information regarding a change under this
section, contact Jennifer Bernardini at
202–622–3110 (not a toll-free call).
SECTION 9. COMPUTER SOFTWARE
EXPENDITURES (§§ 162, 167, and 197)
.01Computer 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 toa method described
in Rev. Proc. 2000–50, 2000–1 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 soft-
ware. Section 6 of Rev. Proc. 2000–50 de-
scribes 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. If a taxpayer treats the
costs of computer software in accordance
with the applicable method described in
Rev. Proc. 2000–50, the Service will not
disturb the taxpayer’s treatment of its costs
of computer software.
(2)Scope. This change applies to all
costs of computer software as defined in
section 2 of Rev. Proc. 2000–50. How-
ever, this change does not apply to any
computer software that is subject to amor-
tization as an “amortizable section 197 in-
tangible” as defined in § 197(c) and the
regulations thereunder, or to costs that a
taxpayer has treated as research and exper-
imentation expenditures under § 174.
(3)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 re-
quired in section 8.02(2) of Rev. Proc.
2000–50.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
this section 9.01 of the APPENDIX must
file a signed copy of its completed Form
3115 with the IRS in Ogden, UT, (Ogden
copy) in lieu of filing the national office
copy no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 9.01
of this APPENDIX is “18.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Douglas Kim at
202–622–4930 (not a toll-free call).
.02Reserved.
SECTION 10. CAPITAL
EXPENDITURES (§ 263)
.01Package design costs.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package de-
sign 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 one of the three alternative
methods of accounting for package design
costs described in section 5 of Rev. Proc.
97–35. The three alternative methods of
accounting for package design costs de-
scribed 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.Ifatax-
payer is changing its method of account-
ing for package design costs to the capi-
talization method or the design-by-design
capitalization and 60-month amortization
method, the taxpayer must attach a state-
ment to its timely filed Form 3115. The
2011–4 I.R.B.380January 24, 2011

statement must provide a description of
each package design, the date on which
each was placed in service, and the cost ba-
sis 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 section 10.01
of this APPENDIX is “19.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.02Line 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 recover-
able cushion gas is not depreciable, and the
cost of unrecoverable line pack gas or un-
recoverable cushion gas is depreciable un-
der §§ 167 and 168.
(2)Additional requirements.Atax-
payer that changes its method of account-
ing for unrecoverable line pack gas or
unrecoverable cushion gas under section
10.02 of this APPENDIX must change to
a permissible method of accounting for
depreciation for the cost of that gas.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.02
of this APPENDIX is “20.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.03Removal costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for certain costs
incurred in the retirement and removal of
depreciable assets to conform with Rev.
Rul. 2000–7, 2000–1 C.B. 712.
(2)Additional requirements.
(a) Except for assets for which depre-
ciation is determined in accordance with
§ 1.167(a)–11 (ADR), the taxpayer’s new
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
section6.02oftheAPPENDIXofthis
revenue procedure for changing a tax-
payer’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 APPENDIX.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.03
of this APPENDIX is “21.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.04Distributor commissions.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from
currently deducting distributor commis-
sions (as defined by section 2 of Rev.
Proc. 2000–38, 2002–2 C.B. 310, as mod-
ified 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
notapplytoanamortizablesection197in-
tangible (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 ap-
plies only to distributor commissions paid
or incurred on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. 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 section 10.04
of this APPENDIX is “47.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.05Intangibles.
(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 mod-
ified by Rev. Proc. 2006–37, 2006–2 C.B.
499, for the specific requirements, infor-
mation, and documentation required for
this change.
(2)Prior unauthorized change in
method of accounting. In certain circum-
stances, a taxpayer that made an unautho-
rized change in method of accounting for
an item the treatment of which is provided
for in §§ 1.263(a)–4, 1.263(a)–5, and
1.167(a)–3(b) is eligible for this change
only if the taxpayer amends prior federal
income tax returns to correct the unautho-
rized change in method of accounting.See
section 4.03 of Rev. Proc. 2006–12 for
details.
(3)Scope limitations. The 5-year prior
change scope limitation in section 4.02(7)
of this revenue procedure is modified for
this change in that the taxpayer does not
take into account a change in method of
accounting provided in §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b) requested
or made for a tax year ending on or before
December 31, 2005.
(4)Section 481(a) adjustment.Incom-
puting 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.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.05
of this APPENDIX is “78.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
January 24, 20113812011–4 I.R.B.

.06Rotable spare parts.
(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 account-
ing 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.
(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 sec-
tion 21.09 of this APPENDIX.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.06
of this APPENDIX is “109.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.07Repairable 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. 90, 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 10.07 of
the APPENDIX may treat its repairable
and reusable spare parts as tangible prop-
erty 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.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that is currently capital-
izing and depreciating the cost of its re-
pairable and reusable spare parts, or that
is currently capitalizing the cost of its re-
pairable and reusable spare parts and treat-
ing these parts as nondepreciable property
(but see section 6.01 of this APPENDIX
for making a change from an impermissi-
ble to a permissible method of accounting
for depreciation);
(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 10.07 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable);
or
(iii) a taxpayer that is using an imper-
missible method of accounting for depre-
ciation 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 un-
der section 6 of this APPENDIX.
(2)Additional requirements. In addi-
tion to the other filing requirements of this
revenue procedure, to change a method
of accounting under this section 10.07 of
the APPENDIX, a taxpayer must complete
Schedule E of Form 3115 for the repairable
and reusable spare parts and also provide
and attach the following to the completed
application:
(a) A description of the repairable and
reusable spare parts;
(b) A list of related equipment for which
the repairable and reusable spare parts are
acquired; and
(c) A complete description of the
method of computing depreciation (e.g.,
depreciation method, recovery period,
convention, and applicable asset class un-
der 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.
(3)Concurrent automatic change.
(a) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 11.01 or 11.02 of this
APPENDIX (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 auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(b) A taxpayer that wants to make both
this change and a change to a permissi-
ble method of accounting for depreciation
for repairable and reusable spare parts, or
for the related equipment for which the re-
pairable and reusable spare parts are ac-
quired, under section 6 of this APPENDIX
(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.
(c) A taxpayer that makes 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 6.20 of
this APPENDIX. A taxpayer that wants
to make both this change and the change
under section 6.20 of this APPENDIX
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.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 10.07
of this APPENDIX is “121”.Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
2011–4 I.R.B.382January 24, 2011

SECTION 11. UNIFORM
CAPITALIZATION (UNICAP)
METHODS (§ 263A)
.01Certain uniform capitalization
(UNICAP) methods used by resellers and
reseller-producers.
(1)Description of change.
(a)Applicability. This change applies
to:
(i) a small reseller of personal prop-
erty that wants to change from a permissi-
ble UNICAP method to a permissible non-
UNICAP inventory capitalization method
in any taxable year that it qualifies as a
small reseller;
(ii) a formerly small reseller that
wants to change from a permissible
non-UNICAP inventory capitalization
method to a permissible UNICAP method
in the first taxable year that it does not
qualify as a small reseller;
(iii) 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 withde min-
imisproduction activities);
(iv) a reseller-producer that wants to
change from a permissible simplified re-
sale method described in § 1.263A–3(d)(3)
for both its production and resale activities
to a permissible UNICAP method 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);
(v) a reseller that wants to change its
permissible UNICAP method to include a
special reseller cost allocation rule;
(vi) a reseller or reseller-producer that
wants to change to a UNICAP method
(or methods) specifically described in the
regulations and includes any necessary
changes in the identification of costs sub-
ject to § 263A that will be accounted for
using the new method in any taxable year,
other than the first taxable year, that it does
not qualify as a small reseller. However,
this does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (orvice versa)
under the simplified resale method; or
(vii) a reseller or reseller-producer that
wants to change from not capitalizing a
cost subject to § 263A to capitalizing that
cost, if the reseller or reseller-producer
is otherwise already using a UNICAP
method (or methods) specifically de-
scribed in the regulations.
(b)Inapplicability.
(i)Self-constructed assets.This
change does not apply to a taxpayer
that wants to use either the simplified
service cost method or the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D) and
1.263A–2(b)(2)(i)(D).
(ii)Historic absorption ratio.This
change does not apply to a taxpayer that
wants to make an historic absorption
ratio election under §§ 1.263A–2(b)(4)
or 1.263A–3(d)(4), or to a taxpayer
that wants to revoke an election to
use the historic absorption ratio with
the simplified resale method (see
§ 1.263A–3(d)(4)(iii)(B)), including a tax-
payer using the simplified resale method
with an historic absorption ratio that wants
to change to a UNICAP method specif-
ically described in the regulations that
does not include the historic absorption
ratio. However, this change applies to a
small reseller that wants to change from
the historic absorption ratio with the sim-
plified resale method to a permissible
non-UNICAP inventory capitalization
method under section 11.01(1)(a)(i) of this
APPENDIX.
(c)Scope limitations inapplicable.
The scope limitation of § 4.02(7) of this
revenue procedure does not apply to the
changes described in §§ 11.01(1)(a)(i) and
(ii) of the APPENDIX of this revenue
procedure.
(2)Definitions.
(a) “Reseller” means a taxpayer that ac-
quires real or personal property described
in § 1221(a)(1) for resale.
(b) “Small reseller” means a reseller
whose average annual gross receipts for
the three immediately preceding taxable
years (or fewer, if the taxpayer has not
been in existence for the three preceding
taxable years) do not exceed $10,000,000.
See§ 263A(b)(2)(B).
(c) “Formerly small reseller” means a
reseller that no longer qualifies as a small
reseller.
(d) “Producer” means a taxpayer that
produces real or tangible personal prop-
erty.
(e) “Reseller-producer” means a tax-
payer that is both a producer and a reseller.
(f) “Permissible UNICAP method”
means a method of capitalizing costs that
is permissible under § 263A.
(g) “A UNICAP method specifically
described in the regulations” includes
the 90–10de minimisrule to allocate
a mixed service department’s costs to
resale activities (§ 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)), the 90–10de
minimisrule to allocate a dual-function
storage facility’s coststo property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)),
the specific identification method
(§ 1.263A–1(f)(2)), the burden rate
method (§ 1.263A–1(f)(3)), the stan-
dard cost method (§ 1.263A–1(f)(3)),
the direct reallocation method
(§ 1.263A–1(g)(4)(iii)(A)), the step-allo-
cation method (§ 1.263A–1(g)(4)(iii)(B)),
the simplified service cost method
(§ 1.263A–1(h)) (with a labor-based
allocation ratio), and the simplified resale
method without the historic absorption
ratio election (§ 1.263A–3(d)), but does
not include any other reasonable allo-
cation method within the meaning of
§ 1.263A–1(f)(4).
(h) “Special reseller cost alloca-
tion rule” means the 90–10de minimis
rule to allocate a mixed service de-
partment’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 minimisrule to allocate a dual-function
storage facility’s coststo property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)).
(i) “Permissible non-UNICAP in-
ventory capitalization method” means a
method of capitalizing inventory costs that
is permissible under § 471.
(3)Section 481(a) adjustment pe-
riod. Beginning with the year of change,
a taxpayer changing its method of ac-
counting for costs pursuant to sec-
tions 11.01(1)(a)(i), 11.01(1)(a)(iii), or
11.01(1)(a)(iv) of this APPENDIX gener-
ally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over the same number of
January 24, 20113832011–4 I.R.B.

taxable years, not to exceed four, that the
taxpayer used its former method of ac-
counting. A taxpayer changing its method
of accounting for costs pursuant to sec-
tions 11.01(1)(a)(ii), 11.01(1)(a)(v) or
11.01(1)(a)(vi) of this APPENDIX gener-
ally must take any applicable net positive
§ 481(a) adjustment for such change into
account ratably over four taxable years.
Seesection 5.04(3) of this revenue proce-
dure for exceptions to this general rule.
(4)Multiple changes. A taxpayer that
wants to make both this change and an-
other change in method of accounting for
the same year of change must comply 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 section 11.01
of this APPENDIX is “22.”Seesection
6.02(4) of this revenue procedure.
(6)Example. The following example
illustrates the principles of section 11.01
of this APPENDIX for small resellers and
formerly small resellers.
AssumeX, a corporate reseller
of personal property, incorporated
January 2, 2001, adopted a taxable year
ending December 31.Xdetermines
that its average annual gross receipts
for the three taxable years (or fewer,
if applicable) immediately preceding
taxable years 2001 through 2010 are as
shown in the table below:
Current
Taxable
Year
AVERAGE Annual Gross
Receipts for the Three Taxable
Years Immediately Preceding the
Current Taxable Year
2001
$0
2002
5,000,000
20036,000,000
20047,000,000
2005
11,000,000
200611,000,00
0
20079,000,000
20088,000,000
200911,000,0
00
201012,000,000
Further
more,Xwhich adopted the
dollar-
value LIFO inventory method,
has the f
ollowing LIFO inventory bal-
ances de
termined without considering
the effe
cts of the UNICAP method:
B
eginningEnding
2005
$1,000,
000
$1,100,
000
20061,100,0001,200,000
20071,200,0
00
1,300,0
00
20081,300,0001,400,000
20091,400,000
1,500,
000
2010
1,500,000
1,600,
000
Xwas re
quired by § 263A to change
to the
UNICAP method for 2005 be-
cause
its average annual gross receipts
for th
e three taxable years immediately
prece
ding 2005 were $11,000,000,
which
exceeded the $10,000,000 ceil-
ing pe
rmitted by the small reseller
exce
ption. Assume thatXwas re-
quir
ed to capitalize $80,000 of “ad-
diti
onal § 263A costs” to the cost of
its 2
005 beginning inventory because
of this
change in inventory method.
In add
ition,Xwas required to include
one-f
ourth of the § 481(a) adjustment
when c
omputing taxable income for
each o
f the four taxable years begin-
ning w
ith 2005. Thus,Xwas required
to inc
lude a $20,000 positive § 481(a)
adju
stment in its 2005 taxable income.
Xele
cted to use the simplified resale
meth
od without an historic absorption
rati
o election under § 1.263A–3(d)(3)
for det
ermining the amount of addi-
tiona
l § 263A costs to be capitalized to
each L
IFO layer. Assume thatXwas
requi
red to add $10,000 of additional
§ 263A
costs to the cost of its 2005 end-
ing in
ventory because of the $100,000
incre
ment for 2005.
2011–4 I.R.B.384January 24, 2011

X’s 2005 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,000,000
2005 Increment
100,000
Additional § 263A Costs in Beginning Inventory80,000
Additional § 263A Costs in 2005 Increment
1
0,000
Total 2005 Ending Inventory
$1,190,000
X’s Unamortized 2005 § 481(a) Adjustment:
2005 § 481(a) Adjustment
$ 80,000
Amount included in 2005 Taxable Income
<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/31/05
$ 60,000
BecauseXfailed to satisfy the small
reseller exception for 2006,Xwas re-
quired to continue using the UNICAP
method for its inventory costs. Fur-
thermore,Xwasrequiredtoinclude
$20,000 of the unamortized 2005 posi-
tive § 481(a) adjustment in 2006 taxable
income. Assume thatXwas required to
add $10,000 of additional § 263A costs
to the cost of its 2006 ending inventory
because of the $100,000 increment for
2006.
X’s 2006 Ending Inventory:
Beginning Inventory (With UNICAP costs)
$1,190,000
2006 Increment100,000
Additional § 263A Costs in 2006 Increment1
0,000
Total 2006 Ending Inventory
$1,300,000
X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/05
$ 60,000
Amount Included in 2006 Taxable Income<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/31/06
$ 40,000
BecauseXsatisfies the small reseller
exception for 2007,Xmay change vol-
untarily from the UNICAP method to
a permissible non-UNICAP inventory
capitalization method under section
11.01 of this APPENDIX. To reflect the
removal of the additional § 263A costs
from the cost of its 2007 beginning
inventory,Xmust compute a corre-
sponding § 481(a) adjustment, which
is a negative $100,000 ($1,200,000
- $1,300,000). The entire amount of
this negative § 481(a) adjustment is
included in the computation ofX’s tax-
able income for 2007. In addition,X
must include $20,000 of the unamor-
tized 2005 § 481(a) adjustment in 2007
taxable income.
X’s 2007 Ending Inventory:
Beginning Inventory (With UNICAP costs)
$1,300,000
2007 Increment100,000
2007 § 481(a) Adjustment <Negative><
100,000>
Total 2007 Ending Inventory
$1,300,000
X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–2/31/06
$ 40,000
Amount included in 2007 Taxable Income<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/21/07
$ 20,000
X’s Unamortized 2007 § 481(a) Adjustment:
2007 § 481(a) Adjustment <Negative>
$<100,000>
Amount included in 2007 Taxable Income1
00,000
Unamortized 2007 § 481(a) Adjustment–12/31/07
$0
Xalso satisfies the small reseller
exception for 2008 and, therefore, is
notrequiredtoreturntotheUNICAP
method for 2008.X, however, must in-
clude $20,000 of the unamortized 2005
positive § 481(a) adjustment in its 2008
taxable income.
January 24, 20113852011–4 I.R.B.

X’s 2008 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,300,000
2008 Increment100,000
Total 2008 Ending Inventory
$1,400,000
X’s Unamortized 2005 § 481(a) Adjustment:
Unamortized 2005 § 481(a) Adjustment–12/31/07
$ 20,000
Amount in 2008 Taxable Income<
20,000>
Unamortized 2005 § 481(a) Adjustment–12/31/08
$0
X’s Unamortized 2009 § 481(a) Adjustment:
In 2009,Xfails to satisfy the small
reseller exception and, therefore, must
return to the UNICAP method as
provided under section 11.01 of this
APPENDIX.Xchanges to the sim-
plified resale method without a his-
toric absorption ratio election under
§ 1.263A–3(d)(3). Assume thatX
must capitalize $120,000 of additional
§ 263A costs to the cost of its 2009
beginning inventory because of this
change in inventory method. Because
Xused a non-UNICAP method for two
taxable years prior to 2009, the § 481
spread period for the positive §481(a)
adjustment is two years. Therefore,X
must include one-half of the § 481(a)
adjustment ($60,000) when comput-
ing taxable income for 2009 and 2010.
Assume thatXmust add $10,000 of
additional § 263A costs to the cost of
its 2009 ending inventory because of
the $100,000 increment for 2009.
X’s 2009 Ending Inventory:
Beginning Inventory (Without UNICAP costs)
$1,400,000
2009 Increment100,000
Additional § 263A costs in Beginning Inventory120,000
Additional § 263A costs in 2009 Increment1
0,000
Total 2009 Ending Inventory
$1,630,000
X’s Unamortized 2009 § 481(a) Adjustment:
2009 § 481 Adjustment
$ 120,000
Amount included in 2009 Taxable Income<
60,000>
Unamortized 2009 § 481(a) Adjustment–12/31/09
$ 60,000
BecauseXfails to satisfy the small
reseller exception for 2010,Xmust con-
tinue using the UNICAP method for its
inventory costs. Furthermore,Xis re-
quired to include $60,000 of the un-
amortized 2009 positive § 481(a) ad-
justment in 2010 taxable income. As-
sume thatXis required to add $10,000
of additional § 263A costs to the cost
of its 2010 ending inventory because of
the $100,000 increment for 2010.
X’s 2010 Ending Inventory:
Beginning Inventory (With UNICAP costs)
$1,630,000
2010 Increment100,000
Additional § 263A Costs in 2010 Increment1
0,000
Total 2010 Ending Inventory
$1,740,000
X’s Unamortized 2009 § 481(a) Adjustment:
Unamortized 2009 § 481(a) Adjustment–12/31/09
$ 60,000
Amount included in 2010 Taxable Income<
60,000>
Unamortized 2009 § 481(a) Adjustment–12/31/10
$0
(7)Contact information. For further in-
formation regarding a change under this
section, contact Alexander R. Roche or
Kari Fisher, at 202–622–4970 (not a toll-
free call).
.02Certain uniform capitalization
(UNICAP) methods used by producers
and reseller-producers.
(1)Description of change.
(a)Applicability. This change ap-
plies to a producer (as defined in sec-
tion 11.01(2)(d) of this APPENDIX) or
a reseller-producer (as defined in sec-
tion 11.01(2)(e) of this APPENDIX) that
wants to change to a UNICAP method (or
methods) specifically described in the reg-
ulations, including any necessary changes
2011–4 I.R.B.386January 24, 2011

in the identification of costs subject to
§ 263A that will be accounted for using the
new method. This change also includes a
change from not capitalizing a cost subject
to § 263A to capitalizing that cost for a
producer or a reseller-producer that is oth-
erwise already using a UNICAP method
(or methods) specifically described in
the regulations. However, this change
does not include a change for purposes
of recharacterizing “section 471 costs” as
“additional § 263A costs” (orvice versa)
under the simplified production method.
(b)Inapplicability. This change does
not apply to a producer or reseller-pro-
ducer that wants to revoke an election
to use the historic absorption ratio with
the simplified production method (see
§ 1.263A–2(b)(4)(iii)(B)), including a
taxpayer using the simplified production
method with an historic absorption ratio
changing to a UNICAP method specifi-
cally described in the regulations that does
not include the historic absorption ratio.
This change also doesnot apply to a tax-
payer that wants to use either the simpli-
fied service cost method or the simplified
production method for self-constructed
assets under §§ 1.263A–1(h)(2)(i)(D)
and 1.263A–2(b)(2)(i)(D). Also, this
change does not apply to a producer or
reseller-producer that wants to change its
method of accounting for interest capital-
ization.
(2)Definition. A “UNICAP method
specifically described in the regula-
tions” includes the 90–10de minimis
rule to allocate a mixed service depart-
ment’s costs to production or resale
activities (§ 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)), the 90–10de
minimisrule to allocate a dual-function
storage facility’s costs to property acquired
for resale (§ 1.263A–3(c)(5)(iii)(C)),
the specific identification method
(§ 1.263A–1(f)(2)), the burden rate
method (§ 1.263A–1(f)(3)), the stan-
dard cost method (§ 1.263A–1(f)(3)),
the direct reallocation method
(§ 1.263A–1(g)(4)(iii)(A)), the step-allo-
cation method (§ 1.263A–1(g)(4)(iii)(B)),
the simplified service cost method
(§ 1.263–1(h)) (with either a labor-based
allocation ratio or a production cost
allocation ratio), and the simplified
production method without the historic
absorption ratio election (§ 1.263A–2(b)),
but does not include any other reasonable
allocation method within the meaning of
§ 1.263A–1(f)(4).
(3)Multiple changes. A taxpayer that
wants to make both this change and an-
other change in method of accounting in
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 section 11.02
of this APPENDIX is “23.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further in-
formation regarding a change under this
section, contact Alexander R. Roche or
Kari Fisher, at 202–622–4970 (not a toll-
free call).
.03Change to no longer capitalize
research and experimental expenditures
under § 263A.
(1)Description of change. The change
applies to a taxpayer who no longer wants
to capitalize research and experimental ex-
penditures to inventory under § 263A and
the regulations thereunder. A taxpayer
making this change must be in compliance
with all other aspects of § 263A and the
regulations thereunder and must have an
effective election under either § 174(a) or
(b).
(2)Manner of making change.Atax-
payer must attach to its Form 3115 the fol-
lowing representations:
(a) “The § 174 costs that are the subject
of this Form 3115 filed under section 11.03
of the APPENDIX of Rev. Proc. 2011–14
and will not be capitalized to inventory un-
der § 263A and the regulations thereunder
are costs that are subject to the taxpayer’s
effective election under [Insert, as appro-
priate: § 174(a) or § 174(b)] and the regu-
lations thereunder” and
(b) “All § 174 costs that will be re-
moved from inventory costs, have been
identified as § 174 costs at the time that the
costs were capitalized to inventory under
§ 263A and the regulations thereunder.”
(3)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.03
of this APPENDIX is “24.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further in-
formation regarding a change under this
section, contact Alexander R. Roche or
Kari Fisher, at 202–622–4970 (not a toll-
free call).
.04Impact 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 informa-
tion.
(2)Designated automatic accounting
method change number
. The designated
automatic accounting method change
number for a change under section 11.04
of this APPENDIX is “25.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Cheryl Oseekey at
202–622–4970 (not a toll-free call).
.05Change 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 environmen-
tal remediation costs from a method that
does not comply with the holding in Rev.
Rul. 2004–18, 2004–1 C.B. 509, to capi-
talizing them to inventory under § 263A.
(2)Concurrent automatic changes.A
taxpayer that wants to make both this
change and another automatic change in
method of accounting under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided
the taxpayer enters the designated auto-
matic 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).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.05
of this APPENDIX is “77.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact John Faron at
202–622–4930 (not a toll-free call).
January 24, 20113872011–4 I.R.B.

.06Change in allocating environmental
remediation costs under § 263A.
(1)Description of change. This change
applies to a taxpayer that capitalizes envi-
ronmental 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 that wants to make both this
change and another automatic change in
method of accounting 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).
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 11.06
of this APPENDIX is “92.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact John Faron at
202–622–4930 (not a toll-free call).
.07Safe 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,
asdescribedinsection5ofRev. 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 identifica-
tion of costs subject to § 263A that will be
accounted for using the new 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 sen-
tence, a change under this section does not
include a change for purposes of rechar-
acterizing “§ 471 costs” as “additional
§ 263A costs” (orvice versa)underthe
simplified resale method or the simplified
production method.
(2)Certain scope limitations temporar-
ily inapplicable. The scope limitations in
sections 4.02(1) through (4) and (7) of this
revenue procedure do not apply to a motor
vehicle dealership that changes to one or
both of the safe harbor methods in section
5 of Rev. Proc. 2010–44 for its first or sec-
ond taxable year ending after November 9,
2010.
(3)Concurrent automatic changes.A
motor vehicle dealership making an auto-
matic change in method of accounting to
one or both safe harbor methods described
in section 5 of Rev. Proc. 2010–44 and
another automatic change in method of ac-
counting under § 263A for the same tax-
able year may file one Form 3115 to make
both changes, provided the dealership en-
ters the designated automatic change num-
bers for all such changes in Part I on that
Form 3115, and complies with the order-
ing rules of § 1.263A–7(b)(2).
(4)Multiple adjustments. In the event
that a motor vehicle dealership is tak-
ing 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.
(5)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 de-
scribed in section 5.01 of Rev. Proc.
2010–44 is “150.” The designated auto-
matic 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.”
(6)Contact information. For further
information regarding a change under
this section, contact Kari Fisher at (202)
622–4970 (not a toll-free call).
SECTION 12. LOSSES, EXPENSES
AND INTEREST WITH RESPECT
TO TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)
.01Change 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,
which disallows or defers certain deduc-
tions attributable to transactions between
related taxpayers. However, this change
applies to a change for stated interest
only to the extent the stated interest is
qualified stated interest (as defined in
§ 1.1273–1(c)).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 12.01
of this APPENDIX is “26.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Steven Gee at
202–622–4970 (not a toll-free call).
.02Reserved.
SECTION 13. DEFERRED
COMPENSATION (§ 404)
.01Change to comply with
§ 404(a)(11).
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to comply with
§ 404(a)(11). Section 404(a)(11) provides
that, for purposes of determining under
§ 404 whether compensation of an em-
ployee is deferred compensation and when
deferred compensation is paid, no amount
is treated as received by the employee, or
paid, until it is actually received by the
employee. Section 404(a)(11) overturns
the decision inSchmidt Baking Co., Inc.
2011–4 I.R.B.388January 24, 2011

v. Commissioner, 107 T.C. 271 (1996), in
which the court held that a § 83(a) income
inclusion event upon securitization of va-
cation and severance pay benefits with a
letter of credit constitutes receipt of those
benefits by employees for purposes of de-
termining whether an employer’s deduc-
tion for the benefits is subject to § 404.See
Notice 99–16, 1999–1 C.B. 842.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Section 481(a) adjustment period.
A taxpayer must take the § 481(a) ad-
justment into account ratably over three
taxable years beginning with the year of
change.
(4)No audit protection. A taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nectionwiththischange.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.01
of this APPENDIX is “27.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Maryellen Furr at
202–622–6030 (not a toll-free call).
.02Deferred compensation.
(1)Description of change. This change
applies to an accrual method taxpayer 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 capitaliza-
tion under § 263A.Ifbytheendofthetax-
able 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 re-
ceived by the employee after the 15
th
day
of the 3
rd
calendar month after the end of
that taxable year, to treat the bonus as de-
ductible 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 em-
ployee; or
(B)Bonuses that are subject to capital-
ization under § 263A.Ifbytheendofthe
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 15
th
day of the 3
rd
cal-
endar 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 em-
ployee.
(ii)Vacation pay.
(A)Vacation pay not subject to capital-
ization under § 263A.Ifbytheendofthe
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 accu-
racy (see§ 1.446–1(c)(1)(ii)), and the va-
cation pay is otherwise deductible but the
vacation pay is received by the employee
after the 15
th
day of the 3
rd
calendar month
after the end of that taxable year, to treat
the vacation pay as deductible in the tax-
able year of the employer in which the va-
cation pay is paid to the employee; or
(B)Vacation pay that is subject to capi-
talization under § 263A.Ifbytheendofthe
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 accu-
racy (see§ 1.446–1(c)(1)(ii)), and the va-
cation pay is otherwise deductible (with-
out regard to § 263A), but the vacation pay
is received by the employee after the 15
th
day of the 3
rd
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 the extent that it is also de-
scribed in section 13.01 of this APPEN-
DIX.
This change also does not apply to a tax-
payer 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 account-
ing under this section 13.02 of the AP-
PENDIX if the taxpayer is not capitaliz-
ing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 13.02
of this APPENDIX is “28.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Maryellen Furr at
202–622–6030 (not a toll-free call).
.03Grace 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 mean-
ing of § 401(k) or to a defined contribu-
tion plan as matching contributions with
the meaning of § 401(m) when the con-
tributions 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 section 13.03
of this APPENDIX is “29.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact James Holland at
202–283–9699 or Carlton Watkins at
202–283–9625 (not toll-free calls).
SECTION 14. METHODS OF
ACCOUNTING (§ 446)
.01Change 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 (cash)
method to an accrual method, with or
without a “special method” as defined re-
spectively in sections 14.01(3)(a), (b), and
(e) of this APPENDIX, if subsequent to
this change, the taxpayer will be using an
January 24, 20113892011–4 I.R.B.

overall accrual method of accounting (that
is, all items of income and expense are
accounted for using an accrual method).
A taxpayer changing its overall method
of accounting to an accrual method under
this section 14.01 of the APPENDIX may
also adopt the recurring item exception for
one or more types of recurring items. A
taxpayer that wants to change its method
of accounting for one or more items of
income or expense, but not its overall
method of accounting, may be eligible to
make such change(s) using section 14.09
of this APPENDIX.
If the year of change is the first taxable
year the taxpayer is required by § 448 to
change from the cash method (the first
§ 448 year) and the taxpayer qualifies
to make this change under the automatic
consent procedures of § 1.448–1(g) and
(h)(2) as well as this revenue procedure,
the taxpayer may make the change un-
der this revenue procedure provided the
taxpayer complies with the provisions of
§ 1.448–1(h)(2) and the requirements of
this revenue procedure. For a hospital, de-
fined in § 1.448–1(g)(2)(ii)(B), that makes
the change for the first § 448 year under
the provisions of this revenue procedure,
see § 1.448–1(g)(2)(ii) for the applicable
§ 481(a) adjustment period. If a taxpayer
does not change from the cash method for
the first § 448 year under the provisions of
this revenue procedure, the taxpayer must
makethechangeundertheprovisionsof
§ 1.448–1(g) and (h)(2).
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that will not use an “over-
all accrual method of accounting” subse-
quent to this change under section 14.01 of
this APPENDIX;
(ii) a taxpayer that is required by § 447
to change to an accrual method when the
year of change is the first taxable year
the taxpayer is required to change to that
method;
(iii) a cooperative organization de-
scribed in § 501(c)(12), 521, or 1381;
(iv) an individual taxpayer, except for
activities conductedasasoleproprietor-
ship;
(v) a taxpayer that is required by §§ 446
and 471 and §§ 1.446–1(a)(4)(i) and
1.471–1 to use an inventory method in the
year of change. However, the taxpayer
qualifies to make the change to an overall
accrual method under this section 14.01
of this APPENDIX when in the year of
change either:
(A) the taxpayer adopts or changes to
a proper inventory method or continues to
use a proper inventory method that it had
used in the taxable year immediately prior
to the year of change but only when:
(1) the taxpayer is a small reseller
within the meaning of § 1.263A–3(a)
and, if the taxpayer also has produc-
tion activities, those activities qualify
under thede minimispresumption of
§ 1.263A–3(a)(2)(iii);
(2) the taxpayer is a reseller within the
meaning of § 263A and the regulations
thereunder that qualifies to use the simpli-
fied resale method under § 1.263A–3(d)
and the taxpayer either adopts or changes
to that method in the year of change or con-
tinues its use of that method from the tax-
able year immediately prior to the year of
change; or
(3) the taxpayer is a producer of real
or tangible personal property described
in § 1.263A–2 that adopts in the year of
change a “UNICAP method specifically
described in the regulations” within the
meaning of section 14.01(3)(d) of this
APPENDIX. (For purposes of this section
14.01(1)(b)(v)(A)(3)oftheAPPENDIX,
a method not listed in section 14.01(3)(d)
may not be adopted or changed in the year
of change); or
(B) the taxpayer continues to use the
proper inventory method and proper UN-
ICAPmethodthatithadusedinthetax-
able year immediately prior to the year
of change and the taxpayer is a producer
of real or tangible personal property de-
scribedin§1.263A–2;
(vi) a taxpayer that is either required
to or voluntarily wants to use a “special
method of accounting” in the year of
change regardless of whether a change to
that special method is requested in that
year. However, the taxpayer can request
its change to an overall accrual method
under this section 14.01 of the APPEN-
DIX when (a) the change to the special
method of accounting is permitted to be
changed automatically either under this
revenue procedure or any other Code, reg-
ulation, or administrative provision, and
(b) the change to the special method of
accounting is requested for the identical
taxable year of the change requested under
this section 14.01 of the APPENDIX if
the taxpayer is required to use the special
method of accounting;
(vii) a taxpayer engaged in two or more
trades or businesses, unless the taxpayer
makes such changes so that the same over-
all accrual method is used for each such
trade or business beginning with the year
of change; and
(viii) a taxpayer making a change from
a hybrid method of accounting to an over-
all accrual method of accounting. For pur-
poses of section 14.01 of this APPENDIX,
a hybrid method of accounting is a combi-
nation of the cash and accrual methods un-
der which one or more items of income or
expense are reported on the cash method
and one or more items of income or ex-
pense are reported on an accrual method.
This section 14.01(1)(b)(viii) does not ap-
ply to a taxpayer accounting for invento-
ries under section 1.446–1(c)(2)(i) and ac-
counting for all other items of income and
expense on the cash method of accounting,
and otherwise permitted to make a change
to an overall accrual method of account-
ing under this section 14.01 of the APPEN-
DIX.
(2)Scope limitation inapplicable.If
the year of change is the first taxable year
the taxpayer is required by § 448 to change
from the cash method (first § 448 year),
the scope limitation in section 4.02(6) of
this revenue procedure does not apply to
a change in method of accounting request
made under section 14.01 of this APPEN-
DIX. For all other changes in method
of accounting requests made under sec-
tion 14.01 of this APPENDIX, any prior
change to the overall cash method under
the provisions of Rev. Proc. 2001–10,
2001–1 C.B. 272, as modified by Rev.
Proc. 2011–14 (seesection 14.05), or
Rev. Proc. 2002–28, 2002–1 C.B. 815, as
modified by Rev. Proc. 2011–14 (seesec-
tion 14.06), is disregarded for purposes of
section 4.02(6) of this revenue procedure.
(3)Definitions.
(a)Cash method of accountingis
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 accountingis
the method identified by § 446(c)(2) and
§§ 1.446–1(c)(1)(ii), 1.451–1(a), and
1.461–1(a)(2).
(c)Recurring item exceptionis the
method described in § 461(h)(3) and
§ 1.461–5.
2011–4 I.R.B.390January 24, 2011

(d)UNICAP method specifically de-
scribed in the regulationsis one of the
following:
(i) the specific identification method
within the meaning of § 1.263A–1(f)(2);
(ii) the burden rate method within the
meaning of § 1.263A–1(f)(3);
(iii) the standard cost method within the
meaning of § 1.263A–1(f)(3);
(iv)thedirectreallocation
method within the meaning of
§ 1.263A–1(g)(4)(iii)(A);
(v) the step-allocation method within
the meaning of § 1.263A–1(g)(4)(iii)(B);
(vi) the simplified service cost method
within the meaning of § 1.263A–1(h); and
(vii) the simplified production method
without the historic absorption ratio elec-
tion within the meaning of § 1.263A–2(b).
(e)Special method of accountingwithin
the meaning of this section 14.01 of the
APPENDIX is a method of accounting,
other than the cash method, expressly
permitted by the Code, regulations, or
guidance published in the IRB that devi-
ates from the tax accrual accounting rules
of §§ 451 and 461 and the regulations
thereunder. For example, the installment
method of accounting under § 453, the
mark-to-market method under § 475, a
long-term contract method such as the
percentage of completion method, and the
deferral method of Rev. Proc. 2004–34,
2004–1 C.B. 991, used to account for ad-
vance payments are special methods of
accounting. 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 re-
tainages).
(f)Overall accrual method of account-
ingwithin the meaning of this section
14.01 of the APPENDIX is a method of
accounting where, but for the use of a
“special method of accounting,” all items
of income and expense are accounted for
using an accrual method.
(4)Manner of making change.
(a)Section 481(a) adjustment.Atax-
payer changing its method of accounting
under this section 14.01 of the APPEN-
DIX must compute a § 481(a) adjustment.
This adjustment must reflect the account
receivables, account payables, inventory,
and any other item determined to be nec-
essary in order to prevent items from be-
ing 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.
(b)Concurrent change to a special
method of accounting not permitted to be
made under this revenue procedure.A
taxpayer, that can not change to an over-
all accrual method of accounting using
this section 14.01 of the APPENDIX be-
cause the taxpayer is seeking to make a
concurrent change to a special method of
accounting not permitted automatically
under this revenue procedure, may request
both changes by filing one Form 3115
under Rev. Proc. 97–27 (or any succes-
sor). Only one user fee per taxpayer will
be required when a Form 3115 is filed for
both changes.
(c)Adoption of recurring item excep-
tion. The taxpayer must attach to its Form
3115 a statement describing the types of li-
abilities for which the recurring item ex-
ception will be used.
(5)Coordinationwithsection33.01
of this APPENDIX for short-term obliga-
tions. 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 ac-
crual method, the taxpayer must request
the change for the interest income under
section 33.01 of this APPENDIX. Section
14.01 will govern the request for change in
method of accounting to an overall accrual
method. The taxpayer must timely file
individual Forms 3115 for each change
requested.
(6)Concurrent automatic change to the
deferral method for advance payments.A
taxpayer that wants to make both a change
to an overall accrual method under this
section 14.01 of the APPENDIX and an
automatic change to the deferral method
for advance payments under Rev. Proc.
2004–34 (seesection 15.07 of this AP-
PENDIX) for the same year of change
must file a single Form 3115 for both
changes and enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line
on that Form 3115.
(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.01
of this APPENDIX for (a) a taxpayer not
subject to § 448, or (b) a taxpayer subject
to § 448 that is not making the change for
its first § 448 year is “122.”
The designated automatic accounting
method change number for a change un-
der section 14.01 of this APPENDIX for
the taxpayer’s first § 448 year is “123.”
Entering designated automatic accounting
method change number “123” on the ap-
propriate line on the Form 3115 fulfills
the requirement of § 1.448–1(h)(2) to type
or print “Automatic Change to Accrual
Method — Section 448” at the top of page
1 of the Form 3115.Seesection 6.02(4) of
this revenue procedure.
(8)Contact information. For further
information regarding a change under this
section, contact Karen Myrick or Kari
Fisher, at 202–622–4970 (not a toll-free
call).
.02Multi-year insurance policies for
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 wants to change its method of
accounting for insurance costs paid or in-
curred to insure its risks under multi-year
service warranty contracts to the method
described in section 14.02(2) of this AP-
PENDIX. Multi-year service warranty
contracts to which this change applies
include only those separately priced con-
tracts sold by a manufacturer, wholesaler,
or retailer also selling the motor vehicles
or other durable consumer goods (to the
ultimate customer or to an intermediary)
underlying the contracts. The classifica-
tion 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 con-
tracts through arrangements not constitut-
ing 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 con-
tractstocustomers)bypayingalump-sum
premium in advance, the taxpayer must
capitalize the amount paid or incurred
and may only obtain deductions for that
January 24, 20113912011–4 I.R.B.

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 section 14.02
of this APPENDIX is “31.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Erika Reigle, at
202–622–4950 (not a toll-free call).
.03Taxpayers changing to overall cash
method.
(1)Description of change. This change
applies to either:
(a) a taxpayer (other than a taxpayer de-
scribed in § 448(a)(3) or a bank described
in section 14.12(2)(a) of this APPENDIX)
with “average annual gross receipts” (as
defined in section 5.01 of Rev. Proc.
2001–10, 2001–1 C.B. 272) of $1,000,000
or less that wants to change to the overall
cash receipts and disbursements (cash)
method of accounting as provided in Rev.
Proc. 2001–10, as modified by Announce-
ment 2004–16 and Rev. Proc. 2011–14;
or
(b) a taxpayer (other than a taxpayer
prohibited from using the cash method
under § 448 or a bank described in section
14.12(2)(a) of this APPENDIX) with “av-
erage annual gross receipts” (as defined
in section 5.02 of Rev. Proc. 2002–28,
2002–1 C.B. 815) of $10,000,000 or less
that wants to change to the overall cash
receipts and disbursements (cash) method
of accounting as provided in Rev. Proc.
2002–28, as modified by Rev. Proc.
2011–14.
(2)Scope limitations applicable.The
scopelimitationsinsection4.02ofthis
revenue procedure (including the limita-
tion regarding a prior change within five
taxable years of section 4.02(6)) and the re-
quirements in sections 6.03 (regarding tax-
payers under examination), 6.04 (regard-
ing taxpayers before an appeals office) and
6.05 (regarding taxpayers before a federal
court) of this revenue procedure apply to a
change in method of accounting made un-
der this section 14.03 of the APPENDIX.
(3)Manner of making change. See ei-
ther Rev. Proc. 2001–10 or Rev. Proc.
2002–28 for additional guidance on the
computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4)Concurrent automatic change to
treat inventoriable items as nonincidental
materials and supplies under Rev. Proc.
2001–10 or Rev. Proc. 2002–28.Atax-
payer that wants to make both a change to
the overall cash method under this section
14.03 of the APPENDIX and a change
to treat inventoriable items as materials
and supplies that are not incidental un-
der § 1.162–3 (seesection 21.03 of this
APPENDIX) 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.
(5)Banks changing to overall cash/hy-
brid method. This change does not apply
to a bank described in section 14.12(2)(a)
of this APPENDIX. However, such a bank
may be eligible to change to the overall
cash/hybrid method under section 14.12 of
this APPENDIX if it meets the require-
ments of that section.
(6)Designated automatic account-
ing method change number.Thedes-
ignated automatic accounting method
change number for a change under sec-
tion 14.03(1)(a) of this APPENDIX is
“32.” The designatedautomatic account-
ing method change number for a change
under section 14.03(1)(b) of this APPEN-
DIX is “33.”Seesection 6.02(4) of this
revenue procedure.
(7)Contact information. For further
information regarding a change under this
section, contact Karen Myrick or Kari
Fisher, at 202–622–4970 (not a toll-free
call).
.04Nonaccrual-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 account-
ing to, from, or within a nonaccrual-expe-
rience (NAE) method of accounting that
are described in sections 3.01(1) through
(5) of Rev. Proc. 2006–56, 2006–2 C.B.
1169.
(b)Inapplicability. This change does
not apply to a taxpayer within the scope
of section 3.01(6) through 3.01(8) of Rev.
Proc. 2006–56.
(2)Manner of making the change.A
change in method of accounting described
in section 3.01(1), (2), (3), or (5) of Rev.
Proc. 2006–56 is made with a § 481(a)
adjustment. A change described in sec-
tion 3.01(4) of Rev. Proc. 2006–56 is
made on a cut-off basis and the new ap-
plicable period applies only to the tax-
payer’s nonaccrual-experience calculation
of its uncollectible amount for the year of
change and for subsequent years. Accord-
ingly, a § 481(a) adjustment is neither per-
mitted nor required for changes described
in section 3.01(4) of Rev. Proc. 2006–56.
(3)Concurrent change to overall ac-
crualmethodandaNAEmethodof
accounting. A taxpayer that wants to
make both a change to, from, or within a
NAE method of accounting under section
14.04 of the APPENDIX of this revenue
procedure and a change to an overall ac-
crual method under section 14.01 of the
APPENDIX of this revenue procedure
(whether or not it is the taxpayer’s first
§ 448 year), must file a single Form 3115
for both changes. The taxpayer must com-
plete all applicable sections of Form 3115,
including sections that apply to the change
to an overall accrual method and to the
change to a NAE method, and must enter
the automatic accounting method change
numbers for both changes on Form 3115.
A taxpayer that wants to make both a
change to, from, or within a NAE method
of accounting under section 14.04 of the
APPENDIX of this revenue procedure and
a required change to an overall accrual
method under § 448 (the taxpayer’s first
§ 448 year), and is either not eligible to
make the change to an overall accrual
method under section 14.01 of the AP-
PENDIX or chooses to make the change to
an overall accrual method using the proce-
dures of § 1.448–1(h)(2), 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 tax-
payer must follow the procedures of this
revenue procedure for the NAE change,
and the procedures of § 1.448–1(h)(2) for
the change to an overall accrual method
(except that entering the designated auto-
matic accounting method change number
“34” on the Form 3115 fulfills the require-
ment 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, includ-
ing sections that apply to the change to an
overall accrual method and to the change
2011–4 I.R.B.392January 24, 2011

to the NAE method and must enter the
designated automatic accounting method
change 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 section
14.04 of this APPENDIX is “35.”
(5)Contact information. For further
information regarding a change under
this section, contact Karla M. Meola, at
202–622–4930 (not a toll-free call).
.05Interest 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 in-
terest that is original issue discount) on
short-term consumerloans 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 de-
scribed in Rev. Proc. 83–40, provided:
(i) the loan is a self-amortizing loan that
requires level payments, at regular inter-
vals at least annually, over a period not in
excess of five years (with no balloon pay-
ment at the end of the loan term); and
(ii) the loan agreement between the bor-
rower and the lender provides that interest
is earned, or upon the prepayment of the
loan interest is treated as earned, in accor-
dance 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 descrip-
tion of the Rule of 78’s method.
(c) In general, the constant yield
method allocates interest and original is-
sue 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 gener-
ally front-loads interest as compared to the
constant yield method.
(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 in-
strument (loan) by using a constant yield
method. As a result, the Rule of 78’s
method is no longeran acceptable method
of accounting for federal income tax pur-
poses.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.05
of this APPENDIX is “71.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.06Film 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 of 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 section 14.06
of this APPENDIX is “85.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Bernard Harvey at
202–622–4930 (not a toll-free call).
.07Deduction of incentive payments to
health care providers.
(1)Description of change.Rev.Proc.
2004–41, 2004–2 C.B. 90, permits an
insurance company that makes incentive
payments to health care providers to in-
clude those payments in discounted unpaid
losses without regard to § 404. A payment
by a taxpayer to a health care provider is a
“provider incentive payment,” and thus el-
igible 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 par-
ticipating health care providers to provide
quality health care to the taxpayer’s sub-
scribers in a cost-efficient manner; (c) the
taxpayer’s liability for the payment is de-
pendent on the attainment of one or more
preestablished goals during a performance
period consisting of not more than 12 con-
secutive months; (d) the terms of the ar-
rangement 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 arrange-
ment; (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.SeeRev.
Proc. 2004–41.
(2)Scope. This procedure applies to
a taxpayer that wants to change to the
method of accounting for provider incen-
tive payments, under which those pay-
ments are included in discounted unpaid
losses without regard to § 404.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.07
of this APPENDIX is “90.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky, at
202–622–3970 (not a toll-free call).
.08Change 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: (1) uses an ac-
crual method of accounting to determine
its taxable income for federal income tax
purposes; (2) is subject to supervision by
Federal authorities, or by state authorities
maintaining substantially equivalent stan-
dards; (3) has uncollected interest other
than interest described in § 1.446–2(a)(2);
and (4) has six or more years of collection
experience. Under the safe harbor method
January 24, 20113932011–4 I.R.B.

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:
(1) the total accrued (determined under
§ 1.446–2) but uncollected interest for
the year by, (2) the bank’s “recovery per-
centage” (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 rea-
sonable expectancy of payment for the
excess, if any, of the accrued but uncol-
lected interest over the expected collection
amount determined using the bank’s re-
covery percentage. The bank includes in
gross income the portion of accrued but
uncollected interest for which it has a rea-
sonable expectancy of payment. The bank
excludes from income the portion of ac-
crued but uncollected interest for which it
has no reasonable expectancy of payment.
(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 re-
covery percentage cannot exceed 100 per-
cent and must be calculated to at least four
decimal places. The data used in the re-
covery percentage must take into account
acquisitions and dispositions. If a bank ac-
quires the major portion of a trade or busi-
ness of another person (predecessor) or the
major portion of a separate unit of a trade
or business of a predecessor, then in apply-
ing 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 re-
covery 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 nec-
essary 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 taxableyears attributable
to the disposed portion of the trade or busi-
ness 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 section 14.08
of this APPENDIX is “108.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.09Change from the cash method to an
accrual method for specific items.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer whose overall method of ac-
counting is an accrual method of account-
ing but has identified a specific item or
items of income and expense that are be-
ing 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
14.01 of this APPENDIX.
(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 this change under
this section 14.09 of the APPENDIX;
(ii) a cooperative organization de-
scribed in § 501(c)(12), 521, or 1381;
(iii) an individual taxpayer, except for
activities conducted as a sole proprietor-
ship;
(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); and
(vi) any change that is specifically pro-
vided in another section of the APPENDIX
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.Inaddi-
tion to the other filing requirements of this
revenue procedure, to change a method of
accounting under this section 14.09 of the
APPENDIX, a taxpayer must fully and
completely describe each specific item for
which the change in method of account-
ing is being made and how the accrual
method applies to each item and list the
§ 481(a) adjustment for each item, if any,
associated with the change. The change
is fully and completely described if the
revenue or expense item is described with
specificity and how the all-events test (and
the economic performance requirement,
if applicable) applies to the item is de-
scribed 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 the cash
method to an accrual method, 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 6.02
of this revenue procedure for additional
filing requirements.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.09
of this APPENDIX is “124.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
2011–4 I.R.B.394January 24, 2011

.10Multi-year service warranty
contracts.
(1)Description of change.
(a)Applicability. This change applies
to an eligible accrual method manufac-
turer, wholesaler, or retailer of motor vehi-
cles or other durable consumer goods that
wants to change to the service warranty
income method described in section 5 of
Rev. Proc. 97–38, 1997–2 C.B. 479. Un-
der the service warranty income method, a
qualifying taxpayer may, in certain speci-
fied 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 outside the scope
of Rev. Proc. 97–38.
(2)Manner of making change and
designated automatic accounting method
change number.
(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. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§1.446–1(e)(3)(i)tofileanapplication
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “125”;
(ii) the taxpayer’s name and employer
identification number (or social security
number in the case of an individual);
(iii) the year of change (both the begin-
ning and ending dates); and
(iv) the information required under sec-
tion 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. 2011–14.
(3)Additional requirement. A taxpayer
changing to the service warranty income
method of accounting under section 14.10
of this APPENDIX must satisfy the annual
reporting requirement set forth in section
6.04 of Rev. Proc. 97–38.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Erika Reigle at
202–622–4950 (not a toll-free call).
.11Overall cash method for specified
transportation industry taxpayers.
(1)Description of change. This change
applies to a “specified transportation in-
dustry taxpayer” with “average annual
gross receipts” of more than $10,000,000
and not in excess of $50,000,000 that
wants to change to the overall cash re-
ceipts and disbursement (cash) method.
(2)Definitions. For purposes of this
section 14.11 of this APPENDIX, the fol-
lowing definitions apply:
(a)Specified transportation indus-
try taxpayer. A specified transportation
industry taxpayer is a taxpayer that satis-
fies the following criteria for the year of
change:
(i) The taxpayer reasonably identi-
fies its “business” (as defined in section
14.11(2)(b) below) as being described in
one of the following NAICS subsector
codes (first three digits of the six-digit
NAICS codes):
(A) Air Transportation, Rail Trans-
portation, Water Transportation, Truck
Transportation, Transit and Ground Pas-
senger Transportation, or Scenic and
Sightseeing Transportation, within the
meaning of NAICS subsector codes
481–485 and 487; or
(B) Support Activities for Transporta-
tion within the meaning of NAICS subsec-
tor 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 rele-
vant facts and circumstances to determine
its business. A business may consist of
several activities, which may or may not
be related. For example, a taxpayer en-
gaged in transportation activities may pro-
vide various services such as transport-
ing air cargo and then subsequently truck-
ing the cargo throughout a metropolitan
area to warehouses and wholesale/retail
stores. However, each activity within a
taxpayer’s business must individually sat-
isfy the description of a NAICS subsector
code in section 14.11(2)(a)(i)(A) or (B) of
this APPENDIX. For example, a sightsee-
ing bus operator that sells box lunches in
connection with its tours is not a “specified
transportation industry taxpayer” because
each of its two activities (that is, sightsee-
ingtransportationandfoodsales)donot
each satisfy the description of a NAICS
subsector code in section 14.11(2)(a)(i)(A)
or (B) of this APPENDIX. Similarly, a
train operator who operates a dining car
where meals are served is not a “speci-
fied transportation industry taxpayer” be-
cause all of the activities of its “business”
fail to satisfy the descriptions of one or
more of the NAICS subsector codes in sec-
tion 14.11(2)(a)(i)(A) or (B) of this AP-
PENDIX. That is, while the rail service
satisfies the description of a NAICS sub-
sector code in section 14.11(2)(a)(i)(A) of
this APPENDIX, the food service does not
satisfy the description of any NAICS sub-
sector code in section 14.11(2)(a)(i)(A) or
(B)ofthisAPPENDIX,andthus,thetax-
payer’s business fails to meet the criteria
of section 14.11(2)(a)(i).
(c)Average annual gross receipts.A
taxpayer has average annual gross receipts
of more than $10,000,000 and not in ex-
cess of $50,000,000 if, for each prior tax-
able year ending on or after December 31,
2006, the taxpayer’s average annual gross
receipts for the three prior taxable-year pe-
riod ending with the applicable prior tax-
able year are more than $10,000,000 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 exis-
tence.See§ 448(c)(3)(A).
(d)Gross receipts. Gross receipts is de-
fined consistent with § 1.448–1T(f)(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.Seealso
§ 448(c)(3)(C).
(e)Aggregation of gross receipts.For
purposes of computing gross receipts un-
der section 14.11(2)(d) of this APPEN-
DIX, all taxpayers treated as a single em-
ployer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as
a single taxpayer. However, when trans-
actions 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 re-
January 24, 20113952011–4 I.R.B.

ceipts for purposes of the average annual
gross receipts limitation.See§ 448(c)(2)
and § 1.448–1T(f)(2)(ii).
(f)Treatment of short taxable year.In
the case of a short taxable year, a tax-
payer’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
§ 1.448–1T(f)(2)(iii).
(g)Treatment of predecessors.Anyref-
erence to a taxpayer in this section 14.11
of the APPENDIX includes a reference
to any predecessor of that taxpayer.See
§ 448(c)(3)(D).
(h)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 section 14.11
of this APPENDIX is “126.”Seesection
6.02(4) of this revenue procedure.
(4)Example.
Example. TaxpayerXis an LLC and taxed
for federal income tax purposes as a partnership.
TaxpayerXdoes not have any C corporations as
partners and TaxpayerXis not a tax shelter within
the meaning of § 448(d)(3). TaxpayerX’s busi-
ness consists of short-haul trucking among vari-
ous cities within StateY, which satisfies the de-
scription of the NAICS subsector code 484. Tax-
payerXdetermines that its average annual gross
receipts for each of the three prior taxable years
have been more than $10,000,000 and not in ex-
cess of $50,000,000. TaxpayerXqualifies to
change to the overall cash method using this sec-
tion 14.11 of the APPENDIX.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Kari Fisher at
202–622–4970 (not a toll-free call).
.12Change to overall cash/hybrid
method for certain banks.
(1)Description of change.
(a)Applicability. This change applies
to a bank described in section 14.12(2)(a)
of this APPENDIX that wants to change to
an overall cash/hybrid method described in
section 14.12(2)(b) of this APPENDIX.
(b)Inapplicability. A bank’s change to
an overall cash/hybrid method under this
section 14.12 of the APPENDIX does not
include any change in the accounting treat-
ment of an item for which the bank uses
a special method (as described in section
14.12(2)(b) of this APPENDIX) before the
change, or is required to use a special
method, or will use a special method after
the change. No change in the accounting
treatment of such an item may be made un-
der this section 14.12 of the APPENDIX.
Any change in the accounting treatment of
such an item must be made under an ap-
plicable section of this APPENDIX, un-
der Rev. Proc. 97–27 (or any successor),
or under another guidance published in the
IRB, as appropriate.
(2)Definitions. The following defini-
tions apply for purposes of section 14.12
of this APPENDIX.
(a)Bank. A bank is described in this
section 14.12(2)(a) of the APPENDIX 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 14.12(5)
of this APPENDIX) 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 dis-
bursements method (cash method) and
other items of income or expense are re-
ported 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.Afewofthe
special methods typically used by banks
include those provided for the accounting
treatment of the following items: secu-
rities held by a dealer in securities as
defined in § 475(c)(1) (the mark-to-mar-
ket 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); origi-
nal issue discount on debt instruments
(§§ 163(e) and 1271–1275); interest in-
come (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 negli-
gible 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 mort-
gages 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 14.12 of the APPEN-
DIX, a bank must comply with the fol-
lowing additional condition. In addition
to complying with the terms and condi-
tions set forth in section 5 of this revenue
procedure, the bank must keep its books
and records for the year of change and
for subsequent taxable years on an over-
all cash/hybrid method allowed by this
section 14.12 of the APPENDIX. This
condition is considered satisfied if the
bank reconciles the results obtained un-
der the method used in keeping its books
and records and those obtained under the
method used for federal income tax pur-
poses pursuant to this section 14.12 of
the APPENDIX and the bank maintains
sufficient records to support such recon-
ciliation.See also§ 1.446–1(a)(4).
(4)Additional filing requirement.To
change to an overall cash/hybrid method
under this section 14.12 of this APPEN-
DIX, a bank must include the following ad-
ditional information on its Form 3115 filed
in accordance with section 6.02 of this rev-
enue procedure. In addition to comply-
ing with all other applicable requirements,
the Form 3115 must describe each specific
item of the bank’s income or expense that
is affected by the change under this sec-
tion 14.12 of the APPENDIX and, for each
such item, identify the following: the ac-
counting method under which the bank re-
ports that item for federal income tax pur-
poses immediately before the change; and
the amount of the § 481(a) adjustment as-
sociated with changing that item to the
cash method under this section 14.12 of the
APPENDIX.
(5)Computation of average annual
gross receipts. For purposes of section
14.12(2)(a)(iii) of this APPENDIX, a
bank’s average annual gross receipts are
computed as described in this section
14.12(5) of the APPENDIX.
(a)Average annual gross receipts.
A bank has average annual gross re-
2011–4 I.R.B.396January 24, 2011

ceipts 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 grossreceipts 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 de-
fined consistent with § 1.448–1T(f)(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).
(c)Aggregation of gross receipts.For
purposes of computing gross receipts un-
der section 14.12(5)(b) of this APPEN-
DIX, all taxpayers treated as a single em-
ployer under § 52(a) or (b) or § 414(m) or
(o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as a
single taxpayer (i.e., a single bank). How-
ever, when transactions occur between tax-
payers 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 grossreceipts limitation.
See§448(c)(2)and§1.448–1T(f)(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 mul-
tiplying 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
§ 1.448–1T(f)(2)(iii).
(e)Treatment of predecessors.Anyref-
erence to a bank or taxpayer in section
14.12(5) of this APPENDIX includes a ref-
erence 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 section 14.12
of this APPENDIX is “127.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under
this section, contact David B. Silber at
202–622–3930 (not a toll-free call).
.13Change to overall cash method for
farmers.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer engaged in the trade or busi-
ness of farming that wants to change to
the overall cash receipts and 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 farm-
ingisafarmingbusinessasdefinedby
§ 263A(e)(4) and the regulations thereun-
der.
(3)Manner of making change.Gen-
erally, a taxpayer changing its method of
accounting under this section 14.13 of the
APPENDIX, must compute a § 481(a)
adjustment. However, if the taxpayer
is changing from the crop method, that
portion of the change shall be made us-
ing a cut-off basis under which expenses
reported on the crop method and not de-
ducted prior to the year of change are
deducted in the year the related crop is
sold.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.13
of this APPENDIX is “128.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Robert Basso
at 202–622–4950 or Renay France at
202–622–5020 (not a toll-free call).
.14Nonshareholder contributions to
capital under § 118.
(1)Description of change.
(a)Water and sewerage disposal utili-
ties.
(i) This change applies to a regulated
public utility described in § 118(c) that
wants to change its method of account-
ing for payments received from customers
as customer connection fees, which are
not contributions to the capital of the reg-
ulated public utility within the meaning
of § 118(c), from excluding the payments
from gross income as nontaxable contribu-
tions 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 § 118(c) that
wants to change its method of account-
ing for payments or property received that
are contributions in aid of construction un-
der § 118(c) and § 1.118–2 and that meet
the requirements of §§ 118(c)(1)(B) and
118(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 incomeas nontaxable con-
tributions to capital under § 118(a).
(b)Other payments or property re-
ceived. This change applies to a taxpayer
that wants to change its method of account-
ing for payments or property received
(other than the payments received by a
public utility described in § 118(c) that
are addressed in section 14.14(1)(a)(i) of
this APPENDIX) that do not constitute
contributions to the capital of the taxpayer
within the meaning of § 118 and the reg-
ulations 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 un-
der § 61.
(2)Additional requirement. In addition
to the other filing requirements of this rev-
enue procedure, a taxpayer that is making a
change described in section 14.14(1)(a)(i)
or (1)(b) must complete Schedule E of
Form 3115 for the depreciable property to
which the change relates.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.14
of this APPENDIX is “129.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
January 24, 20113972011–4 I.R.B.

section, contact David H. McDonnell at
202–622–3040 (not a toll-free call).
.15Debt issuance costs.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for capital-
ized debt issuance costs to comply with
§ 1.446–5, which provides rules for allo-
cating the costs over the term of the debt.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 14.15
of this APPENDIX is “148.” See section
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Sonja Kotlica at
202–622–3950 (not a toll-free number).
SECTION 15. TAXABLE YEAR OF
INCLUSION (§ 451)
.01Accrual of interest on
nonperforming loans.
(1)Description of change.
(a) This change applies to an accrual
method taxpayer 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.
(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 over-
due 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 un-
der § 166 and charged off as a bad debt,
or (ii) the interest is determined to be un-
collectible. In order for interest to be de-
termined uncollectible, the taxpayer must
substantiate, taking into account all the
facts and circumstances, that it has no rea-
sonable expectation of payment of the in-
terest. This substantiation requirement is
applied on a loan by loan basis.
(d) A taxpayer that changes its method
of accounting under section 15.01 of this
APPENDIX must do so for all of its loans.
(2)Section 481(a) adjustment.In
general, the § 481(a) adjustment for a
method change under section 15.01 of
this APPENDIX 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.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.01
of this APPENDIX is “36.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Timothy Sebastian at
202–622–3920 (not a toll-free call).
.02Advance 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 section 15.02
of this APPENDIX is “37.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.03State or local income or franchise
tax refunds.
(1)Description of change. This change
applies to an accrual method taxpayer de-
scribed in Rev. Rul. 2003–3, 2003–1 C.B.
252, that receives a state or local income
or franchise tax refund and wants to accrue
the refund in the year payment or notice of
the approval of the refund claim is received
(whichever is earlier).
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.03
of this APPENDIX is “38.”Seesection
6.02(4) of this revenue procedure.
(3)
Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.04Capital 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’ deal-
ers and wants to use the safe harbor ac-
counting method for capital cost reduction
(CCR) payments specified in Rev. Proc.
2002–36, 2002–1 C.B. 993.
(2)Audit protection. If a taxpayer com-
plies with the requirements of Rev. Proc.
2002–36 and changes its method of ac-
counting for CCR payments to the CCR
method provided in section 5 of Rev. Proc.
2002–36, the treatment of CCR payments
willnotberaisedasanissueinanytaxable
year before the year of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.04
of this APPENDIX is “39.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.05Credit 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 sec-
tion 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
2011–4 I.R.B.398January 24, 2011

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 rev-
enue procedure only if the 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.Atax-
payer making this change must identify the
specific method to which the taxpayer is
changing.See alsosection 15.05(3) of this
APPENDIX.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.05
of this APPENDIX to a method that sat-
isfies the all events test in accordance
with Rev. Rul. 2004–52 is “80.” The
designated automatic accounting method
change number for a change under section
15.05 of this APPENDIX to the Ratable
Inclusion Method for Credit Card Annual
Fees is “81.”Seesection 6.02(4) of this
revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
.06Credit card late fees.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
late fees to a method that treats these fees
as interest income that creates or increases
the amount of original issue discount
(OID) on the pool of credit card loans
to which the fees relate. This change is
available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer and that, for federal income
tax purposes, does not treat the credit card
purchase transactions of its cardholders as
creating either debt that is given in consid-
eration for the sale or exchange of property
(within the meaning of § 1274) or debt that
is deferred payment for property (within
the meaning of § 483). See Rev. Proc.
2004–33, 2004–1 C.B. 989, for additional
guidance relating to this change.
(2)Additional requirements.Atax-
payer making this change must be able to
demonstrate both of the following:
(a) the amount of any credit card late fee
charged to each cardholder by the taxpayer
is separately stated on the cardholder’s ac-
count when that fee is imposed; and
(b) under the applicable credit card
agreement governing each cardholder’s
use of the credit card, no amount iden-
tified as a credit card late fee is charged
for property or for specific services per-
formed by the taxpayer for the benefit of
the cardholder.
(3)Audit protection. The audit pro-
tection provided in connection with this
change is not a determination by the Com-
missioner that the taxpayer is properly ac-
counting for any OID income on that pool
of credit card loans. Thus, for example,
the Service is not precluded from pursuing
the issue of whether a taxpayer is properly
accounting for its OIDincome (including
any OID income attributable to credit card
late fees) on its pool of credit card loans in
accordance with § 1272(a)(6).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.06
of this APPENDIX is “82.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
.07Advance 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., and wants to
change to either the full inclusion or de-
ferral method, as described in Rev. Proc.
2004–34, other than a taxpayer changing
to a method described in section 15.11 of
this APPENDIX.See alsoAnnouncement
2004–48, 2004–1 C.B. 998.
(b)Inapplicability. This change does
not apply to a taxpayer that wants to use
the Deferral Method for payments de-
scribed in section 5.02(4)(a) of Rev. Proc.
2004–34 (other than allocable payments
describedinsection5.02(4)(c)ofRev.
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-auto-
matic procedures in Rev. Proc. 97–27 (or
any successor).Seesection 8.03 of Rev.
Proc. 2004–34.
(2)Scope limitations temporarily inap-
plicable for certain changes.Thescope
limitations in section 4.02 of this revenue
procedure do not apply to a change in
method of accounting for advance pay-
ments received from the sale of gift cards,
as described in section 6.01(1) of Rev.
Proc. 2011–18, for the taxpayer’s first or
second taxable year ending on or after De-
cember 31, 2010.
(3)Concurrent automatic change to an
overall accrual method. A taxpayer that
wants to make both a change to its method
of accounting for advance payments un-
der section 15.07 of this APPENDIX and
a change to an overall accrual method un-
der section 14.01 of this APPENDIX 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 8.04(1) of Rev. Proc. 2004–34.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.07 of
this APPENDIX to use the full-inclusion
method is “83.” The designated automatic
accounting method change number for a
change under 15.07 of this APPENDIX
to use the deferral method is “84.”See
section 6.02(4) of this revenue procedure.
(5)Contact information
. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.08Credit card cash advance fees.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
cash advance fees to a method that treats
these fees as creating or increasing origi-
nal issue discount (OID) on a pool of credit
card loans that includes the cash advances
that give rise to the fees. This change
is available only to a taxpayer that issues
credit cards allowing cardholders to access
a revolving line of credit established by
the taxpayer both to make credit card pur-
chase transactions and to obtain cash ad-
January 24, 20113992011–4 I.R.B.

vances and that, for federal income tax pur-
poses, does not treat the credit card pur-
chase transactions of its cardholders as cre-
ating debt that is given in consideration for
thesaleorexchangeofproperty.SeeRev.
Proc. 2005–47, 2005–2 C.B. 269, for ad-
ditional guidance relating to this change.
(2)Other requirements. A taxpayer
making this change must be able to demon-
strate both of the following:
(a) the amount of any credit card cash
advance fee charged to a cardholder by the
taxpayer is separately stated on the card-
holder’s account when that fee is imposed;
and
(b) under the credit card agreement with
the cardholder, no amount identified as a
credit card cash advance fee is charged for
property or for specific services performed
by the taxpayer for the benefit of the card-
holder.
(3)Audit protection.Theauditpro-
tection provided in connection with this
change is not a determination by the Com-
missioner that the taxpayer is properly ac-
counting for any OID income on that pool
of credit card loans. Thus, for example, the
Service is not precluded from pursuing the
issue of whether, under § 1272(a)(6), a tax-
payer is correctly accounting for its OID
income (including any OID income attrib-
utable to credit card cash advance fees) on
its pool of credit card loans.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.08
of this APPENDIX is “94.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jon Silver at
202–622–3930 (not a toll-free call).
.09Reserved.
.10Retainages.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants to
change its method ofaccounting for treat-
ing 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 section
15.10 of this APPENDIX must treat all re-
tainages (receivables and payables) in the
same manner.
(b)Inapplicability. This change does
not apply to retainages that are received
under long-term contracts as defined in
§ 460.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 15.10
of this APPENDIX is “130.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under this
section, contact R. Matthew Kelley at
202–622–7900 (not a toll-free call).
.11Advance payments — change in
applicable financial statements (AFS).
(1)Description of change.
(a)Applicability.
(i) This change applies to a taxpayer
that: (A) receives advance payments, as
defined in Rev. Proc. 2004–34, 2004–1
C.B. 991, (B) uses the deferral method de-
scribed in section 5.02(3)(a) of Rev. Proc.
2004–34 for including those advance pay-
ments in gross income in accordance with
its applicable financial statement (AFS),
(C) changes the manner in which it recog-
nizes advance payments in revenues in its
AFS, and (D) wants to change its method
of accounting to use its new method of rec-
ognizing advance payments in revenues in
its AFS for determining the extent to which
advance payments are included in gross in-
come under Rev. Proc. 2004–34.
(ii) A taxpayer’s restatement of its AFS
for financial accounting presentation does
not affect the propriety of the taxpayer’s
method of accounting for advance pay-
ments in the prior taxable year(s). Thus, if
the taxpayer uses the deferral method de-
scribed in section 5.02(3)(a) of Rev. Proc.
2004–34 for including advance payments
in gross income in accordance with its AFS
(even if the AFS for that taxable year is
later restated), the taxpayer satisfies the re-
quirement of section 15.11(1)(a)(i)(B) and
may change its method of accounting un-
der this section if it is otherwise eligible.
(b)Inapplicability. This change does
not apply to:
(i) a taxpayer that uses a present method
of accounting for advance payments that is
not the deferral method described in sec-
tion 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;
(ii) a taxpayer that wants to change its
method for allocating payments under sec-
tion 5.02(4) of Rev. Proc. 2004–34.
(2)Manner of making change and
designated automatic accounting method
change number.
(a) This change is made on a cut-off ba-
sis and applies only to advance payments
received on or after the beginning of the
year of change. Any advance payments
received prior to the year of change are
accounted for under the taxpayer’s former
method of accounting (i.e., according to its
former AFS).See alsosection 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§ 1.446–1(e)(3)(i) to file an application on
Form 3115 is waived and a statement in
lieu of the Form 3115 is authorized for this
change. To secure automatic consent for
the change in method of accounting under
section 15.11 of this APPENDIX, the
taxpayer must attach the statement to its
original return for the year of change (or
to the amended return if the limited relief
for a late application provided in section
6.02(3)(d) of this revenue procedure
applies). Except as provided in section
15.11(4)(b) of this APPENDIX, the
requirement to file a duplicate application,
under section 6.02(3)(a)ofthisrevenue
procedure, is waived. The statement
attached to the taxpayer’s return for the
year of change must include all of the
following:
(i) the designated automatic accounting
method change number for this change,
which is “153;”
(ii) the taxpayer’s name and employer
identification (or social security number in
the case of an individual) for each appli-
cant as would be provided had a Form 3115
been required;
(iii) the year of change (both the begin-
ning and ending dates);
(iv) for each applicant, identify the
type of applicable financial statement (as
defined in section 4.06 of Rev. Proc.
2004–34) used by the taxpayer;
(v) a detailed and complete description
of each type of item affected by the change
in revenue recognition and the line number
(or schedule) where the affected item is
2011–4 I.R.B.400January 24, 2011

reflected on the federal tax return for the
year of change; and
(vi) a detailed description of the ba-
sis used for deferral (i.e., the method the
taxpayer uses in its applicable financial
statement or how the taxpayer determines
amounts earned, as applicable) both before
and after the change in the revenue recog-
nition policy for the applicable financial
statement.
(3)Scope limitation inapplicable.The
scope limitation in section 4.02(7) of this
revenue procedure does not apply to a
change in method of accounting request
made under section 15.11 of this APPEN-
DIX.
(4)Special transition rules. Inlieuof
the general transition rules in section 13.02
of this revenue procedure, the following
transition rules apply regarding this sec-
tion 15.11 of the APPENDIX.
(a)Form 3115 filed under Rev. Proc.
97–27. If before January 10, 2011, a
taxpayer within the scope of Rev. Proc.
97–27 timely filed a Form 3115 under
Rev. Proc. 97–27 requesting consent for a
change in method of accounting described
in section 15.11 of this APPENDIX for a
year of change ending on or after April 30,
2010, and the Form 3115 is pending with
the national office on January 10, 2011,
the taxpayer may choose to make the
change under this revenue procedure and
make the change on a cut-off basis as
provided in section 15.11(2)(a) of this
APPENDIX if the taxpayer is otherwise
eligible under this revenue procedure. The
taxpayer must notify the national office of
its intent to make the change under this
section 15.11(4)(a) before the later of (a)
February 11, 2011, or (b) the issuance of
either a letter ruling granting or denying
consent for the change or a letter closing
the case. If the taxpayer timely notifies the
national office that it will make the change
under this section 15.11(4)(a), the national
office ordinarily will return the Form 3115
to the taxpayer and refund the user fee.
A taxpayer may make the change un-
der this section 15.11(4)(a) if the taxpayer
attaches an application that complies with
the provisions of section 15.11(2) of this
APPENDIX to its original or amended re-
turn for the year of change, filed no later
than the date required in section 6.02(3)
of this revenue procedure. If the taxpayer
converts the Form 3115 under this sec-
tion 15.11(4)(a), for purposes of the au-
dit protection in section 7 of this revenue
procedure, the application will be consid-
ered filed as of the date the taxpayer origi-
nally filed the Form 3115 under Rev. Proc.
97–27.
A Form 3115 filed under Rev. Proc.
97–27 before January 10, 2011, that
is pending with the national office on
January 10, 2011, will be disregarded for
purposes of the prior 5 year change rule in
section 4.02(7) of Rev. Proc. 2011–14, in
the following circumstances:
(1) the taxpayer converts the Form 3115
under this section 15.11(4)(a); or
(2) the taxpayer withdraws the Form
3115 and files an application under Rev.
Proc. 2011–14 for the same change in
method of accounting for a year of change
ending on or before April 30, 2011.
(b)Form 3115 filed under Rev. Proc.
2008–52. If before January 10, 2011, a
taxpayer properly filed a Form 3115 un-
der Rev. Proc. 2008–52 for a year of
change ending on or after April 30, 2010,
for a change in method of accounting de-
scribed in section 15.11 of this APPEN-
DIX, the taxpayer may choose to file an ap-
plication for that year of change under this
revenue procedure and make the change
on a cut-off basis as provided in section
15.11(2)(a) of this APPENDIX if, within
6 months from the due date of the federal
income tax return for the year of change
(excluding any extension), the taxpayer (i)
filesanoriginaloramendedreturnim-
plementing the new method of accounting
pursuant to this revenue procedure; (ii) at-
taches an application (amending the previ-
ously filed Form 3115) that complies with
the provisions of section 15.11(2) of this
APPENDIX to its original (or amended)
return for the year of change; (iii) writes
on the top of page 1 of a copy of the ap-
plication: “Statement Revising Form 3115
FiledPursuanttoSec. 15.11oftheAP-
PENDIX of Rev. Proc. 2011–14”; and
(iv) sends the copy of the application to
the following address no later than the date
the application is filed with the original
or amended return: Internal Revenue Ser-
vice, P.O. Box 14095, Benjamin Franklin
Station, Washington, D.C. 20044, Atten-
tion — CC:ITA:8. A Form 3115 filed un-
der Rev. Proc 2008–52 before January 10,
2011, for a taxable year ending on or af-
ter April 30, 2010, that is amended under
this section 15.11 of the APPENDIX will
be disregarded for purposes of the prior 5
year change rule in section 4.02(7) of Rev.
Proc. 2011–14.
(c)No Form 3115 filed.
(i)Background. Under § 446(e), a
taxpayer that changes its book method
of accounting must secure the Com-
missioner’s consent before applying its
new book method of accounting for tax
purposes.See also§ 1.446–1(e)(2)(i).
Accordingly, a taxpayer that previously
elected to defer advance payments under
Rev. Proc. 2004–34 is required to obtain
consent under § 446(e) if the taxpayer
subsequently changes its book method
for the deferred advance payments and
wants to use its new AFS in determining
the extent to which advance payments
are included in gross income under Rev.
Proc. 2004–34. The Service recognizes
that some taxpayers took the position that
consent under § 446(e) was not required
in these circumstances and changed their
method of accounting without properly
obtaining consent. The safe harbor de-
scribed below in section 15.11(4)(c)(ii)
of this APPENDIX is provided to reduce
controversy in this area.
(ii)Safe harbor. If before January 10,
2011, a taxpayer: (1) received advance
payments, as defined in Rev. Proc.
2004–34; (2) used 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; (3) changed
the manner in which advance payments
are recognized in revenues in its AFS;
and (4) used its new AFS method with
respect to a timely filed original federal
income tax return in determining the
amount of advance payments included in
gross income under the deferral method
of Rev. Proc. 2004–34 without securing
the consent of the Commissioner to that
change in accordance with § 446(e) and
§ 1.446–1(e)(2)(i), the Service will not
assert that the taxpayer’s present method
of accounting for advance payments is
not a proper deferral method described
in section 5.02(3)(a) of Rev. Proc.
2004–34 solely on the ground that the
taxpayer failed to obtain the consent of the
Commissioner for that change.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Nancy Lee at
202–622–5020 (not a toll-free number).
January 24, 20114012011–4 I.R.B.

SECTION 16. OBLIGATIONS ISSUED
AT DISCOUNT (§ 454)
.01Series E, EE or I U.S. savings
bonds.
(1)Description of change. This change
applies to a cash method taxpayer that
wants to change its method of account-
ing for interest income on Series E, EE,
or I U.S. savings bonds. However, this
change only applies to a taxpayer that has
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 ba-
sis and is effective for any increase in re-
demption price occurring after the begin-
ning 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. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§1.446–1(e)(3)(i)tofileanapplication
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The statement must set forth:
(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 begin-
ning and ending dates);
(iv) the Series E, EE or I U.S. savings
bonds for which this change in accounting
method is requested;
(v) an agreement to report all interest
on any bonds acquired during or after the
year of change when the interest is realized
upon disposition, redemption, or final ma-
turity, whichever is earliest; and
(vi) an agreement to report all interest
on the 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)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 17. PREPAID
SUBSCRIPTION INCOME (§ 455)
.01Prepaid subscription income.
(1)Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of account-
ing for prepaid subscription income to the
method described in § 455 and the regula-
tions thereunder, including an eligible tax-
payer 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) This change is made on a cut-off ba-
sis and applies only to prepaid subscription
income received on or after the beginning
of the year of change. Any prepaid sub-
scription income received prior to the year
of change is accounted for under the tax-
payer’s former method of accounting. See
section 2.06 of this revenue procedure for
more information regarding a cut-off basis.
Accordingly, a § 481(a) adjustment is nei-
ther permitted nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§ 1.446–1(e)(3)(i) to file an application
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The statement must set forth:
(i) the designated automatic accounting
method change number for this change,
which is “132”;
(ii) the taxpayer’s name and employer
identification number (or social security
number in the case of an individual);
(iii) the year of change (both the begin-
ning and ending dates);
(iv) the information described in
§ 1.455–6(a), as required by § 1.455–6(b);
(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) The consent granted under this rev-
enue procedure satisfies the consent re-
quired under § 455(c)(3) and § 1.455–6(b).
(3)Contact information. For further
information regarding a change under
this section, contact Patrick M. Clinton at
202–622–4970 (not a toll-free call).
.02Reserved.
SECTION 18. SPECIAL RULES FOR
LONG-TERM CONTRACTS (§ 460)
.01Change from exempt-contract
method to percentage-of-completion
method.
(1)Description of change. This change
applies to a taxpayer that:
(a) is not required by § 460 and regu-
lations thereunder to use the percentage-
of-completion method to account for its
long-term contracts, and
(b) wants to change its method of ac-
counting for long-term contracts from an
exempt-contract method properly applied
(see§ 1.460–4(c)) to the percentage-of-
completion method (see§ 1.460–4(b)).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies 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 de-
scription of when a contract is treated as
“entered into.” See section 2.06 of this rev-
enue procedure for more information re-
garding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(3)No audit protection. The taxpayer
does not receive audit protection under
section 7 of this revenue procedure in con-
nection with this change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 18.01
of this APPENDIX is “41.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Lore Cavanaugh at
202–622–4960 (not a toll-free call).
.02Reserved.
2011–4 I.R.B.402January 24, 2011

SECTION 19. TAXABLE YEAR OF
DEDUCTION (§ 461)
.01Timing of incurring liabilities for
employee compensation.
(1)Self-insured employee medical
benefits.
(a)Description of change.
(i)Applicability. This change ap-
plies to an accrual method taxpayer 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 ex-
penses (including liabilities resulting from
medical services provided to retirees and
to 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:
(A) If the taxpayer has a liability to
pay an employee for medical expenses in-
curred by the employee, the taxpayer will
treat the liability as incurred in the tax-
able 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
a3
rd
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 un-
der § 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 19.01(1) of
the APPENDIX if the taxpayer is not cap-
italizing these costs, unless the taxpayer
concurrently changes its method to cap-
italize these costs in conjunction with a
change to a UNICAP method under sec-
tion 11.01 or 11.02 of this APPENDIX (as
applicable).
(b)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a lia-
bility that has been incurred is taken into
account. For example, for a taxpayer with
inventories, direct labor costs must be in-
cluded in inventory costs and may be re-
covered through cost of goods sold.See
§ 1.263A–1(e)(2)(i)(B). A taxpayer may
not rely on the provisions of this section
19.01 of the APPENDIX to take a current
year deduction.
(c)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(d)Designated automatic account-
ing method change number.Thedes-
ignated automatic accounting method
change number for a change under section
19.01(1) of this APPENDIX is “42.”See
section 6.02(4) of this revenue procedure.
(2)Bonuses.
(a)Description of change.
(i)Applicability. This change applies
to an accrual method taxpayer 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 ac-
counting under section 19.01(2) of this
APPENDIX to one of the following meth-
ods:
(A)Ifalltheeventsthatestablishthe
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 15
th
day of the 3
rd
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.SeeRev. 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 pro-
vided, the taxpayer will treat the bonus li-
ability as incurred in such subsequent tax-
able year.
(ii)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 263A and the regulations thereunder
to capitalize the costs with respect to which
the taxpayer wants to change its method of
accounting under section 19.01(2) of this
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(b)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(c)Designated automatic account-
ingmethodchangenumber. The des-
ignated automatic accounting method
change number for a change under section
19.01(2) of this APPENDIX is “133.”See
section 6.02(4) of this revenue procedure.
(3)Vacation pay.
(a)Description of change.
(i)Applicability. This change applies
to an accrual method taxpayer that wants
to change its method of accounting to treat
vacation pay as incurred in the taxable year
in which all events have occurred that es-
tablish the fact of the liability to pay va-
cation pay and the amount of the liabil-
ity can be determined with reasonable ac-
curacy (see§ 1.446–1(c)(1)(ii)). Specifi-
cally, a taxpayer may change its method of
accounting under section 19.01(3) of this
APPENDIX to one of the following meth-
ods:
(A)Ifalltheeventsthatestablishthe
fact of the liability to pay vacation pay
have occurred by the end of the taxable
year in which the related services are pro-
vided, the taxpayer will treat the vaca-
tion pay liability as incurred in that tax-
able year. A taxpayer may change to this
method of accounting only if the vacation
pay vests in that taxable year.
(B) If all the events that establish the
fact of the liability to pay vacation 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 liability as incurred in such
subsequent taxable year.
(ii)Inapplicability. This change does
not apply:
January 24, 20114032011–4 I.R.B.

(A) if the vacation pay is not received
by the employee by the 15
th
day of the 3
rd
calendar month after the end of the taxable
year in which the related services are pro-
vided; or
(B) 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 section 19.01(3) of this
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(b)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(c)Designated automatic account-
ing method change number. The des-
ignated automatic accounting method
change number for a change under section
19.01(3) of this APPENDIX is “134.”See
section 6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Sandra Cheston at
202–622–7900 (not a toll-free call).
.02Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state
franchise taxes.
(1)Background. An accrual method
taxpayer 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 liabil-
ity can be determined with reasonable
accuracy, and economic performance
has occurred with respect to the lia-
bility.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 per-
formance occurs as the tax is paid to the
government authority that imposed the
tax.
(2)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer 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 fran-
chise 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, per-
sonal 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
(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 19.02 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(3)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a liabil-
ity that has been incurred is taken into ac-
count. For example, for a taxpayer with in-
ventories, certain real property taxes must
be included in inventory costs and may be
recovered through cost of goods sold.See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.02 of the APPENDIX to take a current
year deduction.
(4)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.02
of this APPENDIX is “43.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.03Timing 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 an accrual method taxpayer that wants to
change its method of accounting for self-
insured liabilities (including any amounts
not covered by insurance, such as a “de-
ductible” amount under an insurance pol-
icy) arising under any workers’ compen-
sation act or out of any tort, breach of con-
tract, or violation of law, to treating the lia-
bility 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 estab-
lish the fact of the liability, the amount of
the liability can be determined with rea-
sonable 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 19.01(1) of
this APPENDIX.
(b)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 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 19.03 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Amounts taken into account.Ap-
plicable provisions of the Code, regula-
tions, and other guidance published in the
IRB prescribe the manner in which a lia-
bility that has been incurred is taken into
account. For example, for a taxpayer with
inventories, certain employee benefit costs
2011–4 I.R.B.404January 24, 2011

(including workers’ compensation) must
be included in inventory costs and may be
recovered through costs of goods sold.See
§ 1.263A–1(e)(3)(ii)(D). A taxpayer may
not rely on the provisions of this section
19.03 of the APPENDIX to take a current
year deduction.
(3)Concurrent automatic change.A
taxpayer that wants to make both this
change and change to either a method
provided in section 19.01(1) of this AP-
PENDIX for self-insured employee medi-
cal expenses or a UNICAP method under
section 11.01 or 11.02 of this APPEN-
DIX (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 method
change numbers for each change on the
appropriate line on that Form 3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.03
of this APPENDIX is “44.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.04Timing of incurring certain
liabilities for payroll taxes.
(1)Description of change.
(a)Applicability. This change applies
to:
(i) an accrual method employer 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
holds that, under the all events test of
§ 461, an accrual method employer may
deduct in Year 1 its otherwise deductible
FICA and FUTA taxes imposed with re-
spect to year-end wages properly accrued
in Year 1, but paid in Year 2, if the require-
ments 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 Re-
tirement Tax Act (RRTA) (see§ 3231(a)),
RRTA taxes to a method under which the
taxpayer may deduct in Year 1 its other-
wise deductible state unemployment taxes
and railroad retirement taxes (if appli-
cable) 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 (includ-
ing 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 de-
termined 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
holdinginRev. Rul. 96–51andwantsto
change its method of accounting for state
unemployment taxes and, in the event the
employer is an employer within the mean-
ing of RRTA (see§ 3231(a)), RRTA taxes
to a method under which the taxpayer may
deduct 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 ex-
ception 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 lia-
bility can be determined with reasonable
accuracy,see§ 1.461–5(b)); or
(iii) an accrual method taxpayer that
wants to change its method of account-
ing 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 liabil-
ityinthesametaxableyearinwhichall
events have occurred that establish the fact
of the related compensation liability and
the amount of the related compensation li-
ability can be determined with reasonable
accuracy.
(b)Inapplicability. This change does
not apply to a taxpayer that is required un-
der § 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 19.04 of the
APPENDIX if the taxpayer is not capital-
izing these costs, unless the taxpayer con-
currently changes its method to capitalize
these costs in conjunction with a change to
a UNICAP method under section 11.01 or
11.02 of this APPENDIX (as applicable).
(2)Recurring item exception.Atax-
payer that previously has not changed to
or adopted the recurring item exception for
FICA taxes, FUTA taxes, state unemploy-
ment taxes, and railroad retirement taxes
(if applicable) must change to the recurring
item exception method for FICA taxes,
FUTA taxes, state unemployment taxes,
and railroad retirement taxes (if applica-
ble) as specified in § 461(h)(3) as part of
this change.
(3)Amounts taken into account. Appli-
cable provisions of the Code, regulation,
and other guidance published in the IRB
prescribe the manner in which a liabil-
ity that has been incurred is taken into
account. For example, for a taxpayer
with inventories, certain taxes must be
included in inventory costs and may be
recovered through cost of goods sold.See
§ 1.263A–1(e)(3)(ii)(L). A taxpayer may
not rely on the provisions of this section
19.04 of the APPENDIX to take a current
year deduction.
(4)Concurrent automatic change.A
taxpayer that wants to make both this
change and a change to a UNICAP method
under section 11.01 or 11.02 of this AP-
PENDIX (as applicable) for the same year
of change should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(5)Designated automatic account-
ingmethodchangenumber. The des-
ignated automatic accounting method
change number for a change under section
19.04(1)(a)(i) or (ii) of this APPENDIX is
“45.” The designated automatic account-
ing method change number for a change
under section 19.04(1)(a)(iii) of this AP-
PENDIX is “113.”Seesection 6.02(4) of
this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.05Cooperative advertising.
(1)Description of change. This change
applies to a taxpayer 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 gen-
erally provides that, under the all events
test of § 461, an accrual method manufac-
January 24, 20114052011–4 I.R.B.

turer’s liability to pay a retailer for cooper-
ative advertising services is incurred in the
year in which the services are performed,
provided the manufacturer is able to rea-
sonably estimate this liability, and even
though the retailer does not submit the re-
quired claim form until the following year.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.05
of this APPENDIX is “46.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.06Timing of incurring certain
liabilities for services or insurance.
(1)Description of change. This change
applies to a taxpayer that is currently treat-
ing the mere execution of a contract for ser-
vices 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 com-
ply with Rev. Rul. 2007–3, 2007–1 C.B.
350, that is, all the events needed to estab-
lish the fact of the liability occur when (a)
the event fixing the liability, whether that
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 section 19.06
of this APPENDIX is “106.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Charles Kim at
202–622–5020 (not a toll-free call).
.07Rebates and allowances.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer that wants to
change its method ofaccounting for treat-
ing its liability for rebates and allowances
to the recurring item exception method un-
der § 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 section 19.07
of this APPENDIX is “135.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Jamie Kim at
202–622–4950 (not a toll-free call).
.08Ratable accrual of real property
taxes.
(1)Description of change. This change
applies to an accrual method taxpayer that
wants to change its method of accounting
for real property taxes to the method de-
scribed in § 461(c) and § 1.461–1(c)(1)
(ratable accrual election). This change ap-
plies 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 us-
ing the provisions of § 1.461–1(c)(3)(i).
(2)Manner of making change and
designated automatic accounting method
change number.
(a) 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 prop-
erty taxes accrued prior to the year of
change are accounted for under the tax-
payer’s former method of accounting.See
§ 1.461–1(c)(6),Examples (2) — (5).See
also section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. Accordingly, a § 481(a) adjustment
is neither permitted nor required.
(b)Inaccordancewith
§ 1.446–1(e)(3)(ii), the requirement of
§ 1.446–1(e)(3)(i) to file an application
on Form 3115 is waived and a statement
in lieu of the Form 3115 is authorized for
this change. The taxpayer’s request (Form
3115 or statement) to make the change
under this section of the APPENDIX must
include all of the following:
(i) the designated automatic accounting
method change number for this change,
which is “149”;
(ii) the taxpayer’s name and employer
identification number (or social security
number in the case of an individual);
(iii) the year of change (both the begin-
ning and ending dates); and
(iv) the information described in
§ 1.461–1(c)(3)(ii)(a) through (f
).
(c) The consent granted under this
revenue procedure satisfies the con-
sent required under § 461(c)(2)(B) and
§ 1.461–1(c)(3)(ii).
(3)Contact information. For further
information regarding a change under
this section, contact Daniel Cassano at
202–622–7900 (not a toll-free call).
.09California Franchise Taxes.
(1)Description of change. This change
applies to a taxpayer 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 ac-
crual method of accounting incurs a liabil-
ity 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 section 19.09
of this APPENDIX is “154.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Charles Kim at
202–622–5020.
.10Gift cards issued as a refund for
returned goods.
(1)Description of change.
(a)Applicability. This change applies
to an accrual method taxpayer 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, 2011–5 I.R.B.) 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 ac-
cordance with the method of accounting it
otherwise employs for sales of gift cards.
(2)Scope limitations temporarily inap-
plicable. The scope limitations in section
4.02 of this revenue procedure do not ap-
ply to the taxpayer’s first or second tax-
able year ending on or after December 31,
2010.
(3)Concurrent automatic change.A
taxpayer that wants to make both this
change and an automatic change to the
deferral method for advance payments
under Rev. Proc. 2004–34 (seesection
2011–4 I.R.B.406January 24, 2011

15.07 of this APPENDIX) 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.
(4)Concurrent non-automatic change.
A taxpayer that wants to make both
this change and change to a permissible
method of accounting under § 1.451–5
for the same taxable year of change must
request this change in method of account-
ing using the non-automatic procedures in
Rev. Proc. 97–27 (or any successor).
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 19.10
of this APPENDIX is “156.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Sean M. Dwyer at
202–622–5020 (not a toll-free call).
SECTION 20. RENT (§ 467)
.01Change 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) wants to change its method of ac-
counting for its fixedrent (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 taxpayers required to use the
constant rental accrual method described
in § 1.467–(3)(a) or the proportional rental
accrual method described in § 1.467–(2)(a)
for their fixed rent.
(2)Additional requirements. The tax-
payer 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.Audit
protection under section 7 of this revenue
procedure does not apply to this change
for any § 467 rental agreement determined
by the Commissioner to be a disquali-
fied 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 section 20.01
of this APPENDIX is “136.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact William Ruane at
202–622–4920 (not a toll-free call).
.02Reserved.
SECTION 21. INVENTORIES (§ 471)
.01Cash discounts.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cash dis-
counts (discounts granted for timely pay-
ment) when they approximate a fair in-
terest rate, from a method of consistently
including the price of the goods before
discount in the cost of the goods and in-
cluding 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”), orvice versa.SeeRev.
Rul. 73–65, 1973–1 C.B. 216.
(2)Computation of § 481(a) adjustment
for changes to net invoice method.Inthe
case of a taxpayer changing from the gross
invoice method to the net invoice method,
a negative adjustment is required to pre-
vent 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 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 pay-
ment in a subsequent taxable year. The
net § 481(a) adjustment can be computed
by deducting the “Applicable Discount”
at the beginning of the year of change
from the “Available Discount” at the be-
ginning of the year of change. The Avail-
able Discount is equal to the difference be-
tween the accounts payable balance under
the gross invoice method and the net in-
voice method. The Applicable Discount
is equal to the difference between the be-
ginning inventory value under the gross in-
voice method and the net invoice method.
Example. Taxpayer’s accounts payable bal-
ance 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 inven-
tory 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) adjust-
ment is a negative $25 ($20 - $45).
(3)Computation of § 481(a) adjustment
forchangestogrossinvoicemethod.In
the case of a taxpayer changing from the
net invoice method to the gross invoice
method, a positive adjustment is required
to prevent omissions arising from the fact
that the net invoice method did not re-
port income upon timely payment for some
or all of the goods that remain in inven-
tory, and a negative 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 tax-
able 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 differ-
ence between the accounts payable bal-
ance 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 bal-
ance 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 in-
voice 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).
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.01
of this APPENDIX is “48.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
January 24, 20114072011–4 I.R.B.

der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.02Estimating 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:
(a) the “retail safe harbor method” de-
scribed in section 4 of Rev. Proc. 98–29,
1998–1 C.B. 857; or
(b) a method other than the retail safe
harbor method, provided (i) the taxpayer’s
present method of accounting does not es-
timate inventory shrinkage, and (ii) the
taxpayer’s new method of accounting (that
estimates inventory shrinkage) clearly re-
flects income under § 446(b).
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(3)Additional requirements.Ifthe
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 descrip-
tion of all aspects of the new method of
estimating inventory shrinkage (including,
for last-in, first-out (LIFO) taxpayers, the
method of determining inventory shrink-
age for, or allocating inventory shrinkage
to, each LIFO pool).
(4)Audit protection. A taxpayer does
not receive audit protection under section
7 of this revenue procedure in connec-
tion with a change to the retail safe harbor
method if, on the date the taxpayer files a
copy of the Form 3115 with the national
office, the taxpayer’s present method of
estimating inventory shrinkage is an issue
under consideration within the meaning of
section 3.09 of this revenue procedure.
(5)Future change. A taxpayer that
changes to the retail safe harbor method
described in Rev. Proc. 98–29 will not
be precluded, solely by reason of such
change, from changing to another safe
harbor method for estimating inventory
shrinkage in computing ending inventory
in the first year such other safe harbor
method is available.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.02
of this APPENDIX is “49.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Steven Gee at
202–622–4970 (not a toll-free call).
.03Small taxpayer exception from
requirement to account for inventories
under § 471.
(1)Description of change. This change
applies to either a taxpayer (other than a
taxpayer described § 448(a)(3)) with “av-
erage annual gross receipts” (as defined in
section 5.01 of Rev. Proc. 2001–10, as
modified by Announcement 2004–16 and
Rev. Proc. 2011–14) of $1,000,000 or
less or a qualifying taxpayer (other than a
taxpayer described in § 448) with “aver-
age annual gross receipts” (as defined in
section 5.02 of Rev. Proc. 2002–28, as
modified by Announcement 2004–16 and
Rev. Proc. 2011–14) of $10,000,000 or
less that wants to change from a method of
accounting for inventoriable items (includ-
ing, if applicable, from the method of capi-
talizing costs under § 263A) to the method
described in Rev. Proc. 2001–10 and
Rev. Proc. 2002–28, for treating inven-
toriable items in the same manner as ma-
terials and supplies that are not incidental
under § 1.162–3.
(2)Scope limitations applicable.The
scopelimitationsinsection4.02ofthis
revenue procedure (including the limita-
tion regarding a prior change within five
taxable years of section 4.02(6)) and the re-
quirements in sections 6.03 (regarding tax-
payers under examination), 6.04 (regard-
ing taxpayers before an appeals office) and
6.05 (regarding taxpayers before a federal
court) of this revenue procedure apply to a
change in method of accounting made un-
der this section 21.03 of the APPENDIX.
Seesections 14.05 and 14.06 of Rev. Proc.
2011–14.
(3)Manner of making change.SeeRev.
Proc. 2001–10 or Rev. Proc. 2002–28
(as applicable) for additional guidance on
the computation of the § 481(a) adjustment
and the completion of the Form 3115.
(4)Concurrent automatic change to
the overall cash method under Rev. Proc.
2001–10 or Rev. Proc. 2002–28.Atax-
payer that wants to make both this change
and a change to the overall cash method
under Rev. Proc. 2001–10 or Rev. Proc.
2002–28 (seesection 14.03 of this AP-
PENDIX) 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.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.03
of this APPENDIX for the small taxpayer
($1 million) inventory exception con-
tained in Rev. Proc. 2001–10 is “50.” The
designated automatic accounting method
change number for a change under section
21.03 of this APPENDIX for the small
taxpayer ($10 million) inventory excep-
tion contained in Rev. Proc. 2002–28 is
“51.”Seesection 6.02(4) of this revenue
procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Kari Fisher, at
202–622–4970 (not a toll-free call).
.04Qualifying 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 reduc-
tion in the cost of merchandise purchased
at the time the discount is recognized in ac-
cordance with § 1.471–3(b). A “qualify-
ing 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 ser-
vices in exchange for the discount; and
(c) the discount is not a reimbursement
of any expenditure incurred or to be in-
curred by the taxpayer.
(2)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) ad-
justment in the case of a change to the
net invoice method of accounting for cash
discounts.Seesection 21.01(2) of this
APPENDIX.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.04
of this APPENDIX is “53.”Seesection
6.02(4) of this revenue procedure.
2011–4 I.R.B.408January 24, 2011

(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.05Impermissible methods of
identification and valuation.
(1)Description of change. This change
applies to a taxpayer:
(a) changing from an impermissi-
ble method of accounting described in
§§ 1.471–2(f)(1) through (5), including
a LIFO taxpayer restoring a write down
of inventory below cost or discontinuing
maintaining an inventory reserve;
(b) changing from a gross profit method
or from a method of determining market
that is not in accordance with § 1.471–4;
or
(c) changing from a method that is not
in accordance with § 1.471–2(c) for deter-
mining the value of “subnormal” goods.
(i)Gross profit method. A gross profit
method is a method in which the taxpayer
estimates the cost of goods sold by reduc-
ing its gross sales by a percentage “mark-
up” from cost. The estimated cost of goods
sold is subtracted from the sum of the be-
ginning inventory and purchases and the
result is used as the ending inventory.
(ii)Method of determining market.An
example of a method of determining mar-
ket that is not in accordance with § 1.471–4
is where a taxpayer, under ordinary cir-
cumstances, determines the market value
of purchased merchandise using judgment
factors, and not using the prevailing cur-
rent bid price on the inventory date for the
particular merchandise in the volume in
which it is usually purchased by the tax-
payer.
(2)Applicability. For purposes of this
change, a taxpayer must be changing to an
inventory method (identification or valua-
tion, or both) specifically permitted by the
Code, the regulations, or a decision of the
United States Supreme Court, a revenue
ruling, a revenue procedure, or other guid-
ance published in the IRB for the inventory
goods, and the taxpayer is neither prohib-
ited from using that method nor required to
use a different inventory method for those
inventory goods. This change does not ap-
ply to a change described in another sec-
tion of this revenue procedure or in other
guidance published in the IRB.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.05
of this APPENDIX is “54.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.06Core 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 remanu-
factured 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 values its
inventory of cores at cost (including
a taxpayer using the LIFO inventory
method) unless the taxpayer concurrently
changes (under section 6.02 of Rev. Proc.
2003–20) from cost to the LCM method
for its cores (including labor and over-
head related to the cores in raw materials,
work-in-process and finished goods).
(2)Concurrent automatic change.A
taxpayer that wants to make both this
change and (i) a change from the cost
method to the LCM method under section
21.11 of this APPENDIX, or (ii) a change
from the LIFO inventory method to a
permitted method for identification under
(and as determined and defined in) section
22.01(1)(b) of this APPENDIX 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.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.06
of this APPENDIX is “55.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Eric D. Brauer at
202–622–4970 (not a toll-free call).
.07Replacement 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 agree-
ment with one or more vehicle manufac-
turers or distributors to sell new automo-
biles or new light, medium, or heavy-duty
trucks, and that wants to use the replace-
ment cost method described in section 4 of
Rev. Proc. 2002–17, 2002–1 C.B. 676, for
its vehicle parts inventory. See Rev. Proc.
2002–17 for further information regarding
this change.
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories on or after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. 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 section 21.07
of this APPENDIX is “63.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Eric D. Brauer at
202–622–4970 (not a toll-free call).
.08Replacement 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 sell-
ing heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy equip-
ment, and that wants to use the replace-
ment cost method described in section 4 of
Rev. Proc. 2006–14, 2006–1 C.B. 350, for
its heavy equipment parts inventory.
(2)Manner of making the change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
(3)Concurrent automatic change.A
taxpayer that wants to make both this
change and another automatic change in
January 24, 20114092011–4 I.R.B.

method of accounting under § 263A (see
section11ofthisAPPENDIX)forthe
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).
(4)Designated automatic accounting
method change number. The taxpayer
must prepare and file a Form 3115 in
accordance with section 6 of Rev. Proc.
2006–14. The designated automatic ac-
counting method change number for a
change under section 21.08 of this AP-
PENDIX is “96.”Seesection 6.02(4) of
this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Eric D. Brauer at
202–622–4970 (not a toll-free call).
.09Rotable 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, 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
treating its rotable spare parts as deprecia-
ble 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 chang-
ing its method of accounting for rotable
spare parts under this section 21.09 of the
APPENDIX, must use a proper inventory
method to identify and value its rotable
spare parts.
(2)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to a tax-
payer that is required to make the change
in method of accounting pursuant to sec-
tion 5.06 of Rev. Proc. 2007–48.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.09
of this APPENDIX is “110.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Gwen Turner at
202–622–5020 (not a toll-free call).
.10Advance Trade Discount Method.
(1)Description of change. This change
applies to a taxpayer that wants to use
the Advance Trade Discount Method de-
scribed in Rev. Proc. 2007–53, 2007–2
C.B. 233.
(2)Scope. This change in method of
accounting applies to an accrual method
taxpayer required to use an inventory
method of accounting and maintaining
inventories, as provided in § 471 and the
regulations thereunder, that receives ad-
vance trade discounts as defined in § 4.03
of Rev. Proc. 2007–53.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.10
of this APPENDIX is “111.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Eric D. Brauer, at
202–622–4970 (not a toll-free call).
.11Permissible methods of
identification and valuation.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer that wants to change from
one permissible methodof identifying and
valuing inventories to another permissi-
ble method of identifying and valuing in-
ventories. For example, a taxpayer us-
ing first-in, first-out (FIFO) as its inven-
tory-identification method may change its
inventory-valuation method from cost to
cost or market, whichever is lower (LCM).
(Note, however, a real estate developer
may not value real property or improve-
ments to the real property at LCM because
real property is not inventoriable property
under § 1.471–1. Also, a taxpayer who
meets the definition of a “dealer in secu-
rities” under both § 1.471–5 and § 475 is
required to account for securities, as de-
fined in § 475, under § 475 and may not use
the rules described in § 1.471–5 for those
securities.) Furthermore, a taxpayer may
change to a permissible method of valuing
“subnormal” goods under § 1.471–2(c).
However, this change does not apply to
any change described in another section
of the APPENDIX of this revenue proce-
dure or in other guidance published in the
IRB, or to any changes within the last-in,
first-out (LIFO) inventory method. For ex-
ample, this change does not apply to a tax-
payer that wants to change to a rolling-av-
erage method (seesection 21.14 of this
APPENDIX).
(b)Permissible method defined.For
purposes of this change, a permissible
method is an inventory method (identifi-
cation or valuation, or both) specifically
permitted by the Code, the regulations,
a decision of the United States Supreme
Court, a revenue ruling, a revenue proce-
dure, or other guidance published in the
IRB for inventories. However, an other-
wise permissible inventory method is not
permissible under this section 21.11 of
the APPENDIX of this revenue procedure
for a specific taxpayer if that taxpayer is
prohibited from using that method or if
that taxpayer is required to use a different
method.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.11
of this APPENDIX is “137.”See
section
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.12Change in the official used vehicle
guide utilized in valuing used vehicles.
(1)Description of change.Usedvehi-
cles taken in trade as part payment on the
sale of vehicles by a dealer may be val-
ued for inventory purposes at valuations
comparable to those listed in an official
used vehicle guide as the average whole-
sale 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 ve-
hicle guide for valuing used vehicles; or
(b) a taxpayer that wants to change to a dif-
ferent official used vehicle guide for valu-
ing used vehicles.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.12
of this APPENDIX is “138.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
2011–4 I.R.B.410January 24, 2011

.13Invoiced 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 au-
tomobiles or new light-duty trucks (“deal-
ership”) that wants to discontinue capital-
izing certain advertising costs as acquisi-
tion 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 ve-
hicles from the manufacturer; (b) the ad-
vertising costs are separately coded and in-
cluded in the manufacturer’s invoice cost
of the new vehicle; (c) the advertising cost
is a flat fee per vehicle or a fixed percent-
age 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
new method, the dealership will exclude
advertising costs that meet the above cri-
teria 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)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.13
of this APPENDIX is “139.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.14Rolling-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 I.R.B. 186, as modified
by Rev. Proc. 2008–52 (seesection 13).
(2)Certain scope limitation temporar-
ily inapplicable. The scope limitation in
section 4.02(7) of this revenue procedure
does not apply to the change to a rolling-
average method in thetaxpayer’s first or
second taxable year ending on or after De-
cember 31, 2007.
(3)Manner of making change.This
change is made on a cut-off basis unless
the taxpayer’s books and records con-
tain sufficient information to compute a
§ 481(a) adjustment, in which case the tax-
payer may choose to implement the change
with a § 481(a) adjustment as provided
in section 5.04 of this revenue procedure.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 21.14
of this APPENDIX is “114.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 22. LAST-IN, FIRST-OUT
(LIFO) INVENTORIES (§ 472)
.01Change 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
22.01(1)(b) of this APPENDIX.
(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 sub-
ject 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 exam-
ple, 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 pur-
poses of section 22.01 of this APPENDIX,
an inventory method (identification or val-
uation, or both) is a permitted method if
it is specifically permitted by the Code,
the regulations, a decision of the United
States Supreme Court, a revenue ruling, a
revenue procedure, or other guidance pub-
lished in the IRB for the inventory goods
and if the taxpayer is neither prohibited
from using that method nor required to use
a different inventory method for those in-
ventory goods.
(iii)Determining permitted method.
Whether an inventory method is a permit-
ted method is determined without regard
to the types and amounts of costs cap-
italized 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)Certain scope limitation inapplica-
ble. The scope limitation in section 4.02(7)
of this revenue procedure does not apply in
the first taxable year that the taxpayer does
notorwillnotcomplywiththerequire-
ments of § 472(e)(2) because the taxpayer
has applied or will apply International Fi-
nancial Reporting Standards in its finan-
cial statements or because the taxpayer has
been acquired by an entity that has not or
will not use the LIFO method in its finan-
cial statements.
(3)Limitation on LIFO election.The
taxpayer may not re-elect the LIFO in-
ventory 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 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
Rev. Proc. 97–27 (or any successor). A
taxpayer that wants to re-elect the LIFO
inventory method after a period of five
taxable years (beginning with the year of
change) is not required to file a Form 3115
in accordance with Rev. Proc. 97–27, but
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.
(a)S election effective for year of LIFO
discontinuance. If a C corporation elects
to be treated as an S corporation for the
taxable year in which it discontinues use
of the LIFO inventory method, § 1363(d)
requires an increase in the taxpayer’s gross
income for the LIFO recapture amount (as
January 24, 20114112011–4 I.R.B.

defined in § 1363(d)(3)) for the taxable
year preceding the year of change (the tax-
payer’s last taxable year as a C corpora-
tion) and a corresponding adjustment to
the basis of the taxpayer’s inventory as
of the end of the taxable year preceding
the year of change. Any increase in in-
come tax as a result of the inclusion of the
LIFO recapture amount is payable in four
equal installments, beginning with the tax-
payer’s last taxable year as a C corpora-
tion as provided in § 1363(d)(2). Any cor-
responding basis adjustment is taken into
account in computing the § 481(a) adjust-
ment (if any) that results upon the discon-
tinuance of the LIFO inventory method by
the corporation.
(b)S election effective for a year af-
ter LIFO discontinuance. If a C corpora-
tion elects to be treated as an S corpora-
tion for a taxable year after the taxable year
in which it discontinued use of the LIFO
inventory method, the remaining balance
of any positive § 481(a) adjustment must
be included in its gross income in its last
taxable year as a C corporation. If this in-
clusion results in an increase in tax for its
last taxable year as a C corporation, this
increase in tax is payable in four equal in-
stallments, beginning with the taxpayer’s
last taxable year as a C corporation as pro-
vided in § 1363(d)(2), unless the taxpayer
is required to take the remaining balance
of the § 481(a) adjustment into account in
the last taxable year as a C corporation un-
der another acceleration provision in sec-
tion 5.04(3)(c) of this revenue procedure.
(5)Additional requirements. The tax-
payer must complete the following state-
ments 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 com-
plete the statements for each of those dif-
ferent types of inventory goods.
(a) “The new method of identifying [In-
sert description of inventory goods]isthe
[Insert method, as appropriate; that is,
specific identification; FIFO; retail; etc.]
method.”
(b) “The new method of valuing [In-
sert description of inventory goods]is[In-
sert method, as appropriate; that is, cost;
LCM; etc.].”
(6)Pool split and partial termination.
If a taxpayer must remove goods from a
pool because those goods are not within
the scope of that pool (for example,re-
moving 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 22.10 of this AP-
PENDIX and then may change from the
LIFO method pursuant to section 22.01 of
this APPENDIX.Seesection 22.10(2) of
this APPENDIX. The taxpayer must file a
separate Form 3115 for each such change.
(7)Section 481(a) adjustment required.
(a)General rule. A taxpayer chang-
ing from a LIFO method must compute a
section 481(a) adjustment for the year of
change.Seesection 5.03 of this revenue
procedure.
(b)Special rule for changes that would
otherwise be implemented with a cutoff.
If a taxpayer is changing from the LIFO
method to a method that is implemented
on a cut-off basis under another section of
this revenue procedure (see, e.g.,sections
21.07, 21.08, and 21.14 of this APPEN-
DIX), the taxpayer’s § 481(a) adjustment
is “the LIFO recapture amount” as defined
in § 312(n)(4)(B) and (C). A taxpayer com-
puting the § 481(a) adjustment under this
special rule must then compute its ending
inventory value for the year of change us-
ing the new method (i.e., treat the deemed
change from the FIFO method to the new
method on a cut-off basis).
(8)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.01
of this APPENDIX is “56.”Seesection
6.02(4) of this revenue procedure.
(9)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.02Determining 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-re-
cent-acquisitions method);
(ii) the actual cost of the goods pur-
chased or produced during the taxable year
in the order of acquisition (earliest-acqui-
sitions 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 tax-
payer 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 (see
section 13).
(b)Inapplicability. This change does
not apply to a taxpayer using the lower of
cost or market method to determine cur-
rent-year cost. A taxpayer using the lower
of cost or market method that valued in-
ventory below cost may not change to a
proper cost valuation under this section
22.02 of the APPENDIX.
(2)Certain scope limitation temporar-
ily inapplicable. The scope limitation in
section 4.02(7) of this revenue procedure
does not apply to the change to a rolling-
average method in the taxpayer’s first or
second taxable year ending on or after De-
cember 31, 2007.
(3)Manner of making change.This
change is made using a cut-off basis and
applies only to the computations of cur-
rent-year cost after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(4)Concurrent change to a rolling-av-
erage method. A taxpayer that wants to
make both a change to a rolling-average
method of determining current-year cost
for its LIFO inventory under this section
22.02 of the APPENDIX and a change to a
rolling-average method of accounting for
non-LIFO inventories under Rev. Proc.
2008–43 (seesection 21.14 of this AP-
PENDIX) should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.02
of this APPENDIX is “57.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
2011–4 I.R.B.412January 24, 2011

der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.03Alternative LIFO inventory method
for retail automobile dealers.
(1)Description of change.
(a)Applicability. This change applies
to a taxpayer engaged in the trade or busi-
ness of retail sales of new automobiles
or new light-duty trucks (“automobile
dealer”) that wants to change to the “Alter-
native 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 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 af-
ter the beginning of the year of change.
See section 2.06 of this revenue procedure
and 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 concur-
rently changes to the Vehicle-Pool Method
(seesection 22.08 of this APPENDIX).
Further, the automobile dealer must estab-
lish a separate inventory pool for the parts
and accessories.
(c)Additional requirements.Anauto-
mobile dealer also must comply with the
following:
(i) the conditions in section 5.03 of Rev.
Proc. 97–36; and
(ii) for an automobile dealer changing
from the IPIC method, the automobile
dealer also must attach to the application
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 section 22.03 of this APPENDIX
for each class of goods.
(3)Concurrent change to the Vehi-
cle-Pool Method. A taxpayer that wants
to make both a change to the Alternative
LIFO Method under this section 22.03
of the APPENDIX and a change to the
Vehicle-Pool Method under Rev. Proc.
2008–23 (seesection 22.08 of this AP-
PENDIX) should file a single Form 3115
for both changes, in which case the tax-
payer must enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.03
of this APPENDIX is “58.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.04Used vehicle alternative LIFO
method.
(1)Description of change. This change
applies to a taxpayer that sells used auto-
mobiles 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.
(2)Additional requirements.Atax-
payer 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 sec-
tion 5.04(5) of Rev. Proc. 2001–23. See
section 2.06 of this revenue procedure for
more information regarding a cut-off basis.
Accordingly, a § 481(a) adjustment is nei-
ther 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.Commis-
sioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change.SeeAnnouncement 91–173,
1991–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.04 of this APPENDIX except
for complying with section 22.04(3)(b) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. How-
ever, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain pur-
chase. Accordingly, the examining agent
may make any necessary adjustments in
any open year to effect compliance with
Hamilton Industries, Inc.
(c)New base year. Ineffectinga
change to the Used Vehicle Alternative
LIFO Method under this revenue proce-
dure, any LIFO inventory cost increments
previously determined and the value of
those increments must be retained. Instead
of using the earliest taxable year for which
the taxpayer adopted LIFO as the base
year, the year of change must be used 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 will be 1.00). The
base-year cost of all LIFO cost increments
at the beginning of the year of change
must be restated in terms of new base-year
costs, using the year of change as the new
base year, and the indexes for previously
determined inventory increments must
be recomputed 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)Application. Taxpayers are re-
minded to complete all applicable parts of
the Form 3115, including Part I of Sched-
ule C.
January 24, 20114132011–4 I.R.B.

(4)Concurrent change from IPIC
method. A used vehicle dealer using the
IPIC method that also has parts and acces-
sories, new automobiles, or new light-duty
trucks (other goods) inventory may in-
corporate 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 es-
tablish separate inventory pools for new
automobiles and new light-duty trucks,
unless the used vehicle dealer also concur-
rently changes to the Vehicle-Pool Method
(seesection 22.08 of this APPENDIX).
Further, the used vehicle dealer must es-
tablish a separate inventory pool for the
parts and accessories.
(5)Concurrent change to the Vehicle-
Pool Method. A taxpayer that wants to
make both a change to the Used Vehi-
cle Alternative LIFO Method under this
section 22.04 of the APPENDIX and a
change to the Vehicle-Pool Method under
Rev. Proc. 2008–23 (seesection 22.08 of
this APPENDIX) should file a single Form
3115 for both changes, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line on
that Form 3115.
(6)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.04
of this APPENDIX is “59.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.05Determining the cost of used
vehicles purchased or taken as a trade-in.
(1)Description of change and scope.
(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.
SeeRev. Rul. 67–107, 1967–1 C.B.
115. The official used vehicle guide se-
lected must be consistently used unless
the taxpayer receives permission to use a
different guide;
(ii) use a different official used vehicle
guide for determining the cost of used ve-
hicles acquired by trade-in;
(iii) determine the cost of used vehicles
purchased for cash using the actual pur-
chase price of the vehicle; or
(iv) reconstruct the beginning-of-the-
year cost of used vehicles purchased for
cash using values computed by national
auto auction companiesbasedonvehicles
purchased for cash. The national auto
auction company selected must be consis-
tently used.
(b)Inapplicability. This change does
not apply to a taxpayer that adopted or
changed to the Used Vehicle Alternative
LIFO Method (seesection 22.04 of the AP-
PENDIX of this revenue procedure).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
pliesonlytousedvehiclesacquiredonor
after the beginning of the year of change.
See section 2.06 of this revenue procedure
for more information regarding a cut-off
basis. 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 section 22.05
of this APPENDIX is “60.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Patty Ward at
202–622–4970 (not a toll-free call).
.06Change 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 accor-
dance 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 T.D. 8976, 2002–1
C.B. 421, (January 8, 2002) (the new IPIC
method), which includes the following re-
quired changes (if applicable):
(i) from using 80% of the inventory
price index (IPI) to using 100% of the IPI
to determine the base-year cost and dol-
lar-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 inven-
tory items.
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment 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.Commis-
sioner, 97 T.C. 120 (1991), and compute
a § 481(a) adjustment for that part of
the change.SeeAnnouncement 91–173,
1991–47 I.R.B. 29. Upon examination,
if a taxpayer has properly changed under
section 22.06 of this APPENDIX except
for complying with section 22.06(3) of
this APPENDIX, an examining agent may
not deny the taxpayer the change. How-
ever, the taxpayer does not receive audit
protection under section 7 of this revenue
procedure with respect to the improper
method of accounting for the bargain pur-
chase. Accordingly, the examining agent
may make any necessary adjustments in
any open year to effect compliance with
Hamilton Industries, Inc.
(4)Concurrent automatic changes.
(a) A taxpayer that wants to make this
change and to change its method of de-
termining current-year cost under section
22.02 of this APPENDIX for the same year
of change may file a single Form 3115 for
both changes, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(b) A taxpayer that wants to make this
change and to change its method of pool-
ing to IPIC-method pools described in
§ 1.472–8(b)(4) or § 1.472–8(c)(2) under
section 22.07 of this APPENDIX for the
same year of change may file a single
Form 3115, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
2011–4 I.R.B.414January 24, 2011

(c) A taxpayer that wants to make this
change and to change its method of pool-
ing under section 22.10 of this APPENDIX
for the same year of change may file a sin-
gle Form 3115, provided the taxpayer en-
ters the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.06
of this APPENDIX is “61.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.07Changes within the inventory price
index computation (IPIC) method.
(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-exten-
sion IPIC method to the link-chain
IPIC method, orvice versa.See
§ 1.472–8(e)(3)(iii)(E) for principles con-
cerning 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 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 6 (Producer price indexes percent
changes for commodity groupings and in-
dividual items, not seasonally adjusted) of
the monthly PPI Detailed Report, orvice
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 (Consumer Price In-
dex for All Urban Consumers (CPI-U):
U.S. City average, detailed expenditure
categories) of the monthly CPI Detailed
Report or Table 6 (Producer price indexes
and percent changes for commodity group-
ings and individual items, not seasonally
adjusted) of the monthly PPI Detailed
Report. 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 ap-
propriate pool. See § 1.472–8(g)(2) for
principles concerning the manner of com-
bining 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 22.02 of this AP-
PENDIX. 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 deter-
mining 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.Seesection 6.02(4) of this
revenue procedure; and
(h) change from using preliminary
BLS price indexes to using final BLS
price indexes to compute an inven-
tory price index, orvice versa.See
§ 1.472–8(e)(3)(iii)(D)(2) for principles
concerning the selection of BLS price in-
dexes under the IPIC method.
(2)Certain scope limitation inapplica-
ble. The scope limitation in section 4.02(7)
of this revenue procedure does not ap-
ply to the changes described in sections
22.07(1)(d) and (g) of this APPENDIX.
(3)Manner of making change.These
changes are made on a cut-off basis and ap-
ply only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
A taxpayer that changes pursuant to sec-
tions 22.07(1)(a), (b) and (e) of this AP-
PENDIX 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 section 22.07
of this APPENDIX is “62.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.08Changes to the Vehicle-Pool
Method.
(1)Description of change. This change
applies to a retail dealer or wholesale dis-
tributor (“reseller”) of cars and light-duty
trucks that wants to change to the “Ve-
hicle-Pool Method” as described in Rev.
Proc. 2008–23, 2008–1 C.B. 664.
(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. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a)
adjustment is neither permitted nor re-
quired. A reseller that changes its method
of pooling under Rev. Proc. 2008–23
and this section 22.08 of the APPENDIX
must comply with § 1.472–8(g). 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 (i.e., the cumulative index at
the beginning of the year of change will
be 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)Scope limitations temporarily inap-
plicable. The scope limitation in section
4.02(7) of this revenue procedure does not
apply for the reseller’s first taxable year
ending on or after December 31, 2007.
(4)Concurrent change to the Alter-
native LIFO Method or the Used Vehicle
Alternative LIFO Method. A reseller
that wants to make both a change to the
January 24, 20114152011–4 I.R.B.

Vehicle-Pool Method under this section
22.08 of the APPENDIX and a change to
the Alternative LIFO Method under Rev.
Proc. 97–36 (seesection 22.03 of this AP-
PENDIX) or the Used Vehicle Alternative
LIFO Method under Rev. Proc. 2001–23
(seesection 22.04 of this APPENDIX)
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.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 22.08
of this APPENDIX is “112.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.09Changes within the used vehicle
alternative LIFO method.
(1)Description of change. This change
applies to a taxpayer using the “Used Ve-
hicle Alternative LIFO Method” as de-
scribed 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 vehi-
cle guide” utilized by the taxpayer in con-
nection with the Used Vehicle Alternative
LIFO Method or any change in the precise
manner of its utilization (e.g., a change in
the specific guide category that a taxpayer
uses to represent vehicles of average con-
dition for purposes of section 4.02(5)(a) of
Rev. Proc. 2001–23).
(2)Manner of making change.This
change is made on a cut-off basis and ap-
plies only to the computation of ending in-
ventories after the beginning of the year of
change. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
A taxpayer that changes its method pur-
suant to section 22.09 of this APPENDIX
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 section 22.09
of this APPENDIX is “140.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
.10Changes to dollar-value pools of
manufacturers.
(1)Description of change. This change
applies to a manufacturer that:
(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 us-
ing natural business unit (NBU) pools de-
scribed in § 1.472–8(b)(1), orvice 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 end-
ing inventories after the beginning of the
year of change. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required. A taxpayer that changes
its method of pooling pursuant to section
22.10 of this APPENDIX 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 section
22.10 of this APPENDIX, 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 22.01 of this
APPENDIX, 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 section 22.10
of this APPENDIX is “141.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information.Forfur-
ther information regarding a change un-
der this section, contact Leo Nolan at
202–622–4970 (not a toll-free call).
SECTION 23. MARK-TO-MARKET
ACCOUNTING METHOD FOR
DEALERS IN SECURITIES (§ 475)
.01Commodities 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 an
election under § 475(e) or (f), then begin-
ning 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 ac-
counting for its taxable year immediately
preceding the election year is inconsis-
tent 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.Seesection 4 of
Rev. Proc. 99–17.
(2)Scope
. 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)(seesection 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.
(3)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(4)Election under Rev. Proc. 99–17.
In accordance with section 5.03(1) of Rev.
Proc. 99–17, in order to make a section
475(e) or (f) election, a taxpayer must file
a statement satisfying the requirements in
section 5.04 of Rev. Proc. 99–17. The
statement must be filed not later than the
due date (without regard to extensions) of
2011–4 I.R.B.416January 24, 2011

the original federal income tax return for
the taxable year immediately preceding the
election year and must be attached either
to that return or, if applicable, to a request
for an extension of time to file that re-
turn. For example, if a calendar year in-
dividual taxpayer wants to make a section
475(e) or (f) election for 2009 (the elec-
tion year), the taxpayer must file the state-
ment on or before April 15, 2009, with the
taxpayer’s timely filed (without regard to
extensions) federal income tax return for
2008 or the taxpayer’s timely filed request
for an extension of time to file the 2008
federal income tax return. On the Form
3115 filed for the year of change, a tax-
payer should indicate that the taxpayer has
filed the statement in compliance with sec-
tion 5.03(1) of Rev. Proc. 99–17.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 23.01
of this APPENDIX is “64.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information. For further
information regarding a change under
this section, contact Eric E. Boody at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 24. BANK RESERVES FOR
BAD DEBTS (§ 585)
.01Changing from the § 585 reserve
method to the § 166 specific charge-off
method.
(1)Description of change.
(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 account-
ing 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 scope limitations inapplica-
ble. A bank that changed from the § 593
reserve method under § 593(g) to the § 585
reserve method will not be prohibited un-
der section 4.02(7) of this revenue pro-
cedure from changing its method of ac-
counting for bad debts under this section
24.01 of the APPENDIX solely because of
the § 593(g) change. A bank for which a
Qsub election is filed will not be prohib-
ited under section 4.02(7) of this revenue
procedure from changing its method of ac-
counting for bad debts under this section
24.01 of the APPENDIX solely because of
the deemed liquidation of the bank arising
from a Qsub election.
(3)Section 481(a) adjustment. Gener-
ally, the amount of the § 481(a) adjust-
ment for a change in method of account-
ing under this section 24.01 of the AP-
PENDIX is the amount of the bank’s re-
serve 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
§593reservemethodtothe§585re-
serve 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 5.04(3)(c) of this revenue proce-
dure, a bank that ceases to be a bank under
§ 581 must accelerate its § 481(a) adjust-
ment.
(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 Busi-
ness Corporation, or the filing by a bank’s
parent of Form 8869,Qualified Subchap-
ter S Subsidiary Election, with respect to
the bank will constitute an agreement by
the bank to change its method of account-
ing 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 ac-
cordance with all of the applicable provi-
sions of this revenue procedure (including
section 6 of this revenue procedure, which
requires filing a Form 3115 in duplicate).
The resulting § 481(a) adjustment is rec-
ognized built-in gain under § 1374, unless
the bank elects under § 1361(g) and section
24.01(4)(b) of this APPENDIX to take the
§ 481(a) adjustment into account in deter-
mining taxable income for the taxable year
immediately preceding the year of change.
See§ 1.1374–4 (d).
(b)Election to include § 481(a) adjust-
ment in taxable year immediately preced-
ing the year of change.
(i)Election requirements. A bank that
changes its method of accounting for bad
debts under this section 24.01 of the AP-
PENDIX, 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 tax-
able income for the taxable year immedi-
ately preceding the year of change. To
make this election, a bank must (1) file
an original and copy of Form 3115 under
section 6.02(3) of this revenue procedure
for the year of change, (2) file an addi-
tional copy of the Form 3115 with its origi-
nal (or amended) federal income tax return
for the taxable year immediately preced-
ing the year of change filed no later than
the date the original Form 3115 is properly
filed under section 6.02(3) of this revenue
procedure, 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) ad-
justment into account in determining tax-
able income for the taxable year immedi-
ately preceding the year of change.
(ii)Special rule for Qsub banks.In
the case of a Qsub bank, the S corpora-
tion parent must file an original and copy
of Form 3115 under section 6.02(3) of this
revenue procedure for the year of change.
TheQsubbankmustfileanadditional
copy of the Form 3115 with its original
(or amended) federal income tax return
for the taxable year immediately preced-
ing the year of change filed no later than
the date the original Form 3115 is prop-
erly filed under section 6.02(3) of this rev-
enue procedure, 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.
January 24, 20114172011–4 I.R.B.

(iii) The following example illustrates
the principles of section 24.01(4)(b) of this
APPENDIX.
Example.X, a calendar year taxpayer, is a
bank as defined in § 581 and is not a large bank
as defined in § 585(c)(2). For taxable years be-
fore 2010,Xaccounted for its bad debts under
the § 585 reserve method. By March 15, 2010,
Xproperly filed a Form 2553 electing to be an S
corporation effective January 1, 2010. Pursuant
to section 24.01(4)(a) of this APPENDIX, the fil-
ing of the Form 2553 constituted an agreement
byXto change from the § 585 reserve method to
the § 166 specific charge-off method in 2010 in
accordance with all of the applicable provisions
of this revenue procedure. Thus, for example,X
must file a Form 3115 for this 2010 change in
duplicate, in accordancewith section 6.02(3) of
this revenue procedure, by attaching the original
Form 3115 toX’s timely filed (including exten-
sions) original federal income tax return for 2010
and filing a copy of the Form 3115 with the na-
tional office. The amount ofX’s § 481(a) ad-
justment for the change is the amount ofX’s bad
debt reserve as of the close of December 31, 2009.
Xwishes to elect under § 1361(g) to include the
§ 481(a) adjustment in income in the taxable year
ending December 31, 2009, the taxable year im-
mediately preceding theyear of change. To make
this election,Xmust (1) file an original and copy
of Form 3115 for the 2010 change under section
6.02(3) of this revenue procedure, (2) file an ad-
ditional copy of that Form 3115 with its original
(or amended) federal income tax return for 2009
filed no later than the date the original Form 3115
is properly filed under section 6.02(3) of this rev-
enue procedure, and (3) include the amount of its
§ 481(a) adjustment in gross income in its return
for 2009.Xmust attach a statement to the orig-
inal and both copies of Form 3115 stating thatX
elects under § 1361(g) to take the § 481(a) adjust-
ment into account in determining taxable income
for 2009, the taxable yearimmediately preceding
the year of change.
(5)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 24.01
of this APPENDIX is “66.”Seesection
6.02(4) of this revenue procedure.
(6)Contact information.Forfur-
ther information regarding a change un-
der this section, contact David B. Sil-
ber at 202–622–3930 or Laura Fields at
202–622–3050 (not a toll-free call).
.02Reserved.
SECTION 25. INSURANCE
COMPANIES (§§ 832, 833)
.01Safe 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 per-
mitted 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; (b) the difference
between the unpaid premium acquisition
expenses shown on the company’s annual
statement for the taxable year and the un-
paid premium acquisition expenses shown
on the company annual statement for the
preceding taxable year; and (c) the differ-
ence between the amount of the insurance
company’spro formapremium acquisition
expenses at the end ofthe taxable year and
the company’spro formapremium acqui-
sition expenses at the end of the preceding
taxable year. The amount taken into ac-
count as a net increase in thepro forma
premium acquisition expenses, however,
cannot exceed the insurance company’s
unearned premium reserve offset amount
for that year. A special rule applies to pre-
mium acquisition expenses with respect to
certain contracts with installment premi-
ums.SeeRev. Proc. 2002–46.
(2)Scope. This automatic change in
accounting method applies to any insur-
ance company that is subject to tax un-
der § 831(a) and determines its premiums
earned for insurance contracts during the
taxable year under § 832(b)(4) in accor-
dance with the provisions of § 1.832–4.
The automatic change does not apply to an
existing Blue Cross or Blue Shield organ-
ization or any other organization to which
§ 833 applies.
(3)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to this
change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 25.01
of this APPENDIX is “67.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky at
202–622–3970 (not a toll-free call).
.02Certain changes in method of
accounting for organizations to which
§ 833 applies.
(1)Description of change. This change
appliestoanexistingBlueCrossorBlue
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 pre-
miums by reason of failing to meet the
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.SeeNotice
2011–4, 2011–2 I.R.B. 282.
(2)Scope limitations inapplicable.The
scope limitations of section 4.02 of this
revenue procedure do not apply to this
change.
(3)Accelerated § 481(a) adjustment
period in certain situations. In addition
to the circumstances set forth in section
5.04(3) of this revenue procedure, the
§ 481 adjustment period provided in sec-
tion 5.04(1) 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 account-
ing described in this APPENDIX section
25.02 is required to effect another change
in method of accounting described in this
APPENDIX section 25.02. Thus, for ex-
ample, a taxpayer that fails to satisfy the
requirements of § 833(c)(5) and as a result
has a positive § 481(a) adjustment is re-
quired 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 section 25.02
of this APPENDIX is “155.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regardingthis section, contact
Rebecca L. Baxter at (202) 622–7117 (not
a toll-free call).
SECTION 26. DISCOUNTED UNPAID
LOSSES (§ 846)
.01Composite 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 insur-
ance 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
2011–4 I.R.B.418January 24, 2011

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 us-
ing 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 esti-
mated salvage recoverable. An insurance
company that currently uses a permissi-
ble 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, with-
out the consent of the Commissioner. This
change applies to insurance companies
that are required to discount unpaid losses
under § 846.SeeRev. Proc. 2002–74.
(2)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 26.01
of this APPENDIX is “68.”Seesection
6.02(4) of this revenue procedure.
(3)Contact information. For further
information regarding a change under
this section, contact Kay Hossofsky at
202–622–3970 (not a toll-free call).
.02Reserved.
SECTION 27. REAL ESTATE
MORTGAGE INVESTMENT CONDUIT
(REMIC) (§§ 860A–860G)
.01REMIC inducement fees.
(1)Description of change. A taxpayer
that receives an inducement fee in connec-
tion with becoming the holder of a noneco-
nomic residual interest in a REMIC must
take that fee into account over the remain-
ing expected life of the applicable 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).SeeRev. Proc. 2004–30, 2004–1 C.B.
950, for additional guidance relating to this
change.
(2)Manner of making change.Atax-
payer making this change must identify
thespecificsafeharbor 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 section 27.01
of this APPENDIX is “79.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further in-
formation regarding a change under this
section, contact John W. Rogers, III at
202–622–4695 (not a toll-free call).
.02Reserved.
SECTION 28. RESERVED
SECTION 29. FUNCTIONAL
CURRENCY (§ 985)
.01Change 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.Atax-
payer 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 ex-
change 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 amount into account.
Finally, the statement must provide a de-
tailed 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 section 29.01
of this APPENDIX is “70.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under
this section, contact Peter Merkel at
202–622–3870 (not a toll-free call).
.02Reserved.
SECTION 30. RESERVED
SECTION 31. ORIGINAL ISSUE
DISCOUNT (§§ 1272, 1273)
.01De 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 ac-
counting described in section 5 of Rev.
Proc. 97–39, 1997–2 C.B. 485. The prin-
cipal-reduction method of accounting is
an aggregate method of accounting forde
minimisOID (discount) on certain loans
originated by the taxpayer.
(2)Scope limitations inapplicable.The
scope limitations in section 4.02 of this
revenue procedure do not apply to this
change.
(3)Description. The principal-reduc-
tion method of accounting is a permissi-
ble 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-re-
duction 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 ap-
plies only to loans described in section 3 of
Rev. Proc. 97–39.
(4)Manner of making change.
(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. See section 2.06 of this
revenue procedure for more information
regarding a cut-off basis. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.
(b) The taxpayer must maintain books
and records sufficient to satisfy the direc-
tor that old and new loans have been ade-
quately segregated.
(5)Additional requirements. On a state-
ment attached to the Form 3115, the tax-
payer must:
(a) identify the categories of loans to
which the new 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 7 of this revenue procedure in con-
nection with this change.
January 24, 20114192011–4 I.R.B.

(7)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 31.01
of this APPENDIX is “72.”Seesection
6.02(4) of this revenue procedure.
(8)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 32. MARKET DISCOUNT
BONDS (§ 1278)
.01Revocation of § 1278(b) election.
(1)Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market dis-
count bonds by revoking its § 1278(b)
election. Under § 1278(b), a taxpayer
may elect a method of accounting under
which market discount is currently in-
cluded in gross income for the taxable
years to which the discount is attributable.
SeeRev. Proc. 92–67, 1992–2 C.B. 429,
for the procedures to make a § 1278(b)
election (including a deemed § 1278(b)
election). The procedures for revoking a
§ 1278 election were formerly provided in
section 7 of Rev. Proc. 92–67.
(2)Revocation of election. The revoca-
tion of a § 1278(b) election applies to all
market discount bonds that are held by the
taxpayer on the first day of the first tax-
able year for which the revocation is effec-
tive (year of change), and to all market dis-
count bonds that are subsequently acquired
by the taxpayer. If a § 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 in-
cluded in income while the bond was sub-
ject to the § 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. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis. Accordingly, a § 481(a) ad-
justment is neither permitted nor required.
Market discount accruing on a bond prior
to the year of change was currently in-
cluded 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 state-
ment attached to the Form 3115, the tax-
payer 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 revoca-
tion, the taxpayer will not make a constant
interest rate election for any bond that has
been subject to the §1278(b) election (or
deemed § 1278(b) election) being revoked
and for which a constant interest rate elec-
tion was not effective in the year of acqui-
sition.
(5)Audit protection. A taxpayer re-
ceives audit protection under section 7 of
this revenue procedure in connection with
this change. However, the audit protec-
tion applicable to this change does not pre-
clude the Commissioner from examining
the method used by the taxpayer to deter-
mine the amount of accrued market dis-
count 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 section 32.01
of this APPENDIX is “73.”Seesection
6.02(4) of this revenue procedure.
(7)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Reserved.
SECTION 33. SHORT-TERM
OBLIGATIONS (§ 1281)
.01Interest income on short
obligations.
(1)Description of change.
(a) This change applies to a taxpayer
that wants to change its method of account-
ing to comply with § 1281 for interest in-
come 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 in-
come, including acquisition discount, orig-
inal issue discount (OID), and stated inter-
est.SeeS. Rep. No. 99–313, 99
th
Cong.,
2d Sess. 903 (1986), 1986–3 (Vol. 3) C.B.
903.
(c) Section 1283(a)(1) generally de-
fines a short-term obligation as any bond,
debenture, note, certificate, or other evi-
dence 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 por-
tions of the acquisition discount or OID,
whichever is applicable, on the obligation
for each day during the taxable year that
theobligationisheldbytheholder.See
§ 1283(b), as modified by § 1283(c), to
determine the daily portions of acquisition
discount or OID. In addition, § 1281(a) re-
quires the holder to include in gross in-
come 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 tax-
able income for the year of change.
(3)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.01
of this APPENDIX is “74.”Seesection
6.02(4) of this revenue procedure.
(4)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
.02Stated 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 ac-
counting as its overall accounting method
and that wants to change its method of
accounting from accruing stated interest
2011–4 I.R.B.420January 24, 2011

on short-term loans made in the ordi-
nary course of business to using the cash
method for that interest. For example,
see Security State Bank v. Commissioner,
214F.3d1254(10
th
Cir. 2000),aff’g111
T.C. 210 (1998),acq., 2001–1 C.B. xix;
andSecurity Bank Minnesota v. Commis-
sioner, 994 F.2d 432 (8
th
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)Scope limitations inapplicable.The
scopelimitationsinsection4.02ofthis
revenue procedure are not applicable 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 taxableincome for the year
of change.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 33.02
of this APPENDIX is “75.”Seesection
6.02(4) of this revenue procedure.
(5)Contact information. For further
information regarding a change under this
section, contact William E. Blanchard at
202–622–3950 (not a toll-free call).
APPENDIX CONTACT LIST
APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
1.0191David B. Silber202–622–3930FI&P
2.011William Ruane202–622–4920IT&A
3.012Martin Osborne202–622–7900IT&A
3.023Martin Osborne202–622–7900IT&A
3.034Martin Osborne202–622–7900IT&A
3.0486Martin Osborne202–622–7900IT&A
3.05
143Justin G. Meeks
202–622–5020
IT&A
3.06144Alan Williams
202–622–4950
IT&A
4.01
5
Justin G. Meeks
202–622–5020
IT&A
5.01
16William E. Blanchard
202–622–3950
FI&P
6.017Douglas Kim202–622–4930IT&A
6.028Douglas Kim202–622–4930IT&A
6.0310Edward Schwartz202–622–4960IT&A
6.0411Douglas Kim202–622–4930IT&A
6.05
12Douglas Kim202–622–4930IT&A
6.0613Douglas Kim202–622–4930IT&A
6.0714Douglas Kim202–622–4930IT&A
6.08
15
Douglas Kim202–622–4930IT&A
6.0987Douglas Kim202–622–4930IT&A
6.1088Douglas Kim202–622–4930IT&A
6.1189Bernard Harvey202–622–4930IT&A
6.1297Douglas Kim202–622–4930IT&A
6.1398Mark Weiss
202–622–7750
CORP
6.14ReservedReservedReserved
6.15
ReservedReservedReserved
6.16ReservedReservedReserved
6.17107Douglas Kim202–622–4930IT&A
6.18116Douglas Kim202–622–4930IT&A
6.19117Douglas Kim202–622–4930IT&A
6.20118Douglas Kim202–622–4930IT&A
6.21119Douglas Kim202–622–4930IT&A
6.22
115
Douglas Kim202–622–4930IT&A
6.23
145
Ruba Nasrallah202–622–4930IT&A
6.24146Charles Magee202–622–4930IT&A
6.25
147Charles Magee202–622–4930IT&A
7.0117Grant D. Anderson202–622–4930IT&A
8.01ReservedReservedReserved
8.02ReservedReservedReserved
8.03ReservedReservedReserved
8.04
152
Jennifer Bernardini202–622–3110P&SI
9.0118Douglas Kim202–622–4930IT&A
9.02ReservedReservedReserved
10.0119Gwen Turner
202–622–5020
IT&A
January 24, 20114212011–4 I.R.B.

APPENDIX CONTACT LIST
APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
10.0220Gwen Turner
202–622–5020
IT&A
10.0321Gwen Turner
202–622–5020
IT&A
10.0447Gwen Turner
202–622–5020
IT&A
10.05
78Gwen Turner
202–622–5020
IT&A
10.06109Gwen Turner
202–622–5020
IT&A
10.07121Gwen Turner
202–622–5020
IT&A
11.0122Alexander R. Roche202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.0223Alexander R. Roche202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.0324Alexander R. Roche202–622–4970IT&A
Kari Fisher202–622–4970IT&A
11.04
25
Cheryl Oseekey202–622–4970IT&A
11.05
77John Faron202–622–4930IT&A
11.0692John Faron202–622–4930IT&A
11.07
150, 151
Kari Fisher202–622–4970IT&A
12.0126Steven Gee202–622–4970IT&A
13.0127Maryellen Furr202–622–6030TEGE
13.0228Maryellen Furr202–622–6030TEGE
13.0329James Holland202–283–9699EP
Carlton Watkins
202–283–9625
EP
14.01122, 123Karen Myrick202–622–4970IT&A
Kari Fisher202–622–4970IT&A
14.0231Erika Reigle
202–622–4950
IT&A
14.0332,33Karen Myrick202–622–4970IT&A
Kari Fisher202–622–4970IT&A
14.04
34, 35
Karla M. Meola202–622–4930IT&A
14.05
71William E. Blanchard
202–622–3950
FI&P
14.06
85
Bernard Harvey202–622–4930IT&A
14.0790Kay Hossofsky202–622–3970FI&P
14.08108Timothy Sebastian202–622–3920FI&P
14.09124Gwen Turner
202–622–5020
IT&A
14.10
125
Erika Reigle
202–622–4950
IT&A
14.11126Kari Fisher202–622–4970IT&A
14.12127David B. Silber202–622–3930FI&P
14.13128Robert Basso
202–622–4950
IT&A
Renay France
202–622–5020
IT&A
14.14129David H. McDonnell202–622–3040P&SI
14.15
148Sonja Kotlica
202–622–3950
FI&P
15.01
36Timothy Sebastian202–622–3920FI&P
15.02
37R. Matthew Kelley202–622–7900IT&A
15.03
38R. Matthew Kelley202–622–7900IT&A
15.04
39R. Matthew Kelley202–622–7900IT&A
15.05
80, 81Jon Silver202–622–3930FI&P
15.06
82Jon Silver202–622–3930FI&P
15.07
83, 84R. Matthew Kelley202–622–7900IT&A
15.08
94Jon Silver202–622–3930FI&P
15.09
ReservedReservedReserved
15.10
130R. Matthew Kelley202–622–7900IT&A
15.11153
Nancy Lee
202–622–5020
IT&A
16.01131William E. Blanchard
202–622–3950
FI&P
17.01132Patrick M. Clinton202–622–4970IT&A
18.0141Lore Cavanaugh202–622–4960IT&A
19.0142, 133, 134Sandra Cheston202–622–7900IT&A
19.0243Jamie Kim
202–622–4950
IT&A
19.0344Jamie Kim
202–622–4950
IT&A
19.04
45, 113
Jamie Kim
202–622–4950
IT&A
2011–4 I.R.B.422January 24, 2011

APPENDIX CONTACT LIST
APPENDIX
Section
Number
Designated
Automatic
Accounting
Change NumberContact NameTelephone NumberOffice
19.05
46Jamie Kim
202–622–4950
IT&A
19.06106Charles Kim
202–622–5020
IT&A
19.07
135
Jamie Kim
202–622–4950
IT&A
19.08149Daniel Cassano202–622–7900IT&A
19.09
154
Charles Kim
202–622–5020
IT&A
19.10
156
Sean M. Dwyer
202–622–5020
IT&A
20.01136William Ruane202–622–4920IT&A
21.0148Patty Ward202–622–4970IT&A
21.0249Steven Gee202–622–4970IT&A
21.03
50, 51
Kari Fisher202–622–4970IT&A
21.04
53
Patty Ward202–622–4970IT&A
21.0554
Patty Ward202–622–4970IT&A
21.06
55
Eric D. Brauer202–622–4970IT&A
21.0763Eric D. Brauer202–622–4970IT&A
21.0896Eric D. Brauer202–622–4970IT&A
21.09110Gwen Turner
202–622–5020
IT&A
21.10111Eric D. Brauer202–622–4970IT&A
21.11137Patty Ward202–622–4970IT&A
21.12138Patty Ward202–622–4970IT&A
21.13139Patty Ward202–622–4970IT&A
21.14114Leo Nolan202–622–4970IT&A
22.01
56
Leo Nolan202–622–4970IT&A
22.02
57
Leo Nolan202–622–4970IT&A
22.03
58
Leo Nolan202–622–4970IT&A
22.04
59
Leo Nolan202–622–4970IT&A
22.05
60Patty Ward202–622–4970IT&A
22.0661Leo Nolan202–622–4970IT&A
22.0762Leo Nolan202–622–4970IT&A
22.08112Leo Nolan202–622–4970IT&A
22.09140Leo Nolan202–622–4970IT&A
22.10141Leo Nolan202–622–4970IT&A
23.0164Eric E. Boody
202–622–3950
FI&P
24.0166David B. Silber202–622–3930FI&P
Laura Fields
202–622–3050
P&SI
25.01
67Kay Hossofsky202–622–3970FI&P
25.02155
Rebecca L. Baxter202–622–7117FI&P
26.0168Kay Hossofsky202–622–3970FI&P
27.0179John W. Rogers, III
202–622–4695
FI&P
28ReservedReservedReserved
29.0170Peter Merkel202–622–3870INTL
30.01ReservedReservedReserved
31.0172William E. Blanchard
202–622–3950
FI&P
32.0173William E. Blanchard
202–622–3950
FI&P
33.0174William E. Blanchard
202–622–3950
FI&P
33.02
75
William E. Blanchard
202–622–3950
FI&P
January 24, 20114232011–4 I.R.B.

Part IV. Items o
fGeneralInterest
Announcement of Disciplinary Sanctions From the Office
of Professional Responsibility
Announcement 2011-4
TheOfficeofProfessionalResponsi-
bility (OPR) announcesrecent disciplinary
sanctions involving attorneys, certified
public accountants, enrolled agents, en-
rolled actuaries, enrolled retirement plan
agents, and appraisers. These individuals
are subject to the regulations governing
practice before the Internal Revenue Ser-
vice (IRS), which are set out in Title 31,
Code of Federal Regulations, Part 10, and
which are published in pamphlet form as
Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for
violating the regulations.
The disciplinary sanctions to be im-
posed for violation of the regulations are:
Disbarred from practice before the
IRS—An individual who is disbarred is
not eligible to represent taxpayers before
the IRS.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to represent taxpayers before
the IRS during the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to represent taxpayers before the IRS, but
OPR may subject the individual’s future
representations to conditions designed to
promote high standards of conduct.
Monetary penalty—A monetary
penalty may be imposed on an individual
who engages in conduct subject to sanc-
tion or on an employer, firm, or entity
if the individual was acting on its behalf
and if it knew, or reasonably should have
known, of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Under the regulations, attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, and enrolled retirement
plan agents may not assist, or accept assis-
tance from, individuals who are suspended
or disbarred with respect to matters consti-
tuting practice (i.e., representation) before
the IRS, and they may not aid or abet sus-
pended or disbarred individuals to practice
before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision after hearing,
Suspended by decision after hearing,
Censured by decision after hearing,
Monetary penalty imposed after hear-
ing, and Disqualified after hearing—An
administrative law judge (ALJ) conducted
an evidentiary hearing upon OPR’s com-
plaint alleging violation of the regulations
and issued a decision imposing one of
these sanctions. After 30 days from the
issuance of the decision, in the absence of
an appeal, the ALJ’s decision became the
final agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured by
default decision, Monetary penalty im-
posed by default decision, and Disqual-
ified by default decision—An ALJ, after
findingthatnoanswertoOPR’scomplaint
had been filed, granted OPR’s motion for a
default judgment and issued a decision im-
posing one of these sanctions.
Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent—In lieu of a
disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer
of consent will provide for: suspension
for an indefinite term; conditions that the
individual must observe during the sus-
pension; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement af-
firming compliance with the terms of the
consent and affirming current eligibility
to practice (i.e., an active professional
license or active enrollment status). An
enrolled agent or an enrolled retirement
plan agent may also offer to resign in order
to avoid a disciplinary proceeding.
Suspended by decision in expedited
proceeding, Suspended by default de-
cision in expedited proceeding, Sus-
pended by consent in expedited pro-
ceeding—OPR instituted an expedited
proceeding for suspension (based on cer-
tain limited grounds, including loss of a
professional license and criminal convic-
tions).
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a decision
on or after September 26, 2007, which was
theeffectivedateofamendmentstothe
regulations that permit making such deci-
sions publicly available; (2) the individual
has settled a disciplinary case by signing
OPR’s “consent to sanction” form, which
requires consenting individuals to admit to
one or more violations of the regulations
and to consent to the disclosure of the in-
dividual’s own return information related
to the admitted violations (for example,
failure to file Federal income tax returns);
or (3) OPR has issued a decision in an
expedited proceeding for suspension.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by the names of states and sec-
ond by the last names of individuals. Un-
less otherwise indicated, section numbers
(e.g., §10.51) refer to the regulations.
2011–4 I.R.B.424January 24, 2011

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Alabama
AthensMcLain V, John H.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
October 14, 2010
Alaska
AnchorageShipps, Ra P.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
October 14, 2010
Arkansas
Forrest CityStilley, Oscar A.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (conviction
under 18 U.S.C. § 371,
conspiracy to defraud the
United States; 26 U.S.C.
§ 7201 and 18 U.S.C. § 2,
tax evasion and aiding
and abetting; suspension
of attorney license)
Indefinite from
September 10, 2010
California
OaklandCox, Cynthia L.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
October 14, 2010
NovatoHopkins, Maximilian
J.B.
AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
November 3, 2010
Diamond BarKwon, Steve S.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
October 14, 2010
San RafaelLosey, F. RichardAttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
October 14, 2010
Los AngelesRoberts IV, Walter J.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
October 14, 2010
January 24, 20114252011–4 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
California (Continued)
Long BeachWilliams, Jr., Frank H. AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
September 22, 2010
Colorado
Colorado SpringsDeHaven, Steven D.CPASuspended by default
decision in expedited
proceeding under §10.82
(surrender of CPA license
with effect of revocation)
Indefinite from
November 3, 2010
LittletonFried, David M.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
November 3, 2010
Georgia
LawrencevilleArizechi, MichaelCPASuspended by default
decision in expedited
proceeding under § 10.82
(conviction under
26 U.S.C. § 7201 and
18 U.S.C. § 2, income tax
evasion)
Indefinite from
November 5, 2010
SavannahGraham, Michael H.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
November 3, 2010
2011–4 I.R.B.426January 24, 2011

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Georgia (Continued)
AtlantaNjie, SaloumCPASuspended by default
decision in expedited
proceeding under §10.82
(permanently enjoined
by U.S. District Court
from preparing, filing,
orassistinginthe
preparation or filing
any Federal tax return,
providing any tax advice
or tax services for
compensation, including
preparing or filing returns,
providing consultative
services, or representing
customers in connection
with any matter before
the IRS, engaging in
conduct subject to penalty
under 26 U.S.C. §§ 6694
or 6695, engaging
in any conduct that
interferes with the
proper administration
and enforcement of the
internal revenue laws
through the preparation or
filing false tax returns).
Indefinite from
November 3, 2010
Illinois
PalatineKaiser, Kenneth E.AttorneyCensured by consent for
admitted violations of
§ 10.51 (failed to pay
and/or timely pay tax
balances associated with
his personal income tax
returns (Form 1040)
and three business
entities (Form 941)
through which he was a
financially responsible
representative)
September 28, 2010
Louisiana
LafayetteBack, Kenneth A.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
September 20, 2010
January 24, 20114272011–4 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Maryland
PotomacBleecker, Lorin H.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
September 20, 2010
CambridgeEckel, Grason J.AttorneySuspended by decision
in expedited proceeding
under § 10.82 (suspension
of attorney license)
Indefinite from
October 29, 2010
Massachusetts
BrocktonHanserd, Valerie F.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
September 20, 2010
SpringfieldMacKay, Ellen M.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
September 20, 2010
WakefieldSurette,III,J.Edward AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
November 5, 2010
Minnesota
St. Louis ParkWard, Thomas R.AttorneyReinstated to
practice before
theIRS,effective
November 5, 2010
Missouri
BransonTaylor, David L.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
November 5, 2010
Montana
BillingsAllen, Cathy B.CPASuspended by decision
in expedited proceeding
under §10.82 (revocation
of CPA license)
Indefinite from
November 3, 2010
Nevada
Las VegasEisenberg, SusanCPASuspended by default
decision in expedited
proceeding under §10.82
(revocation of CPA
license)
Indefinite from
September 20, 2010
2011–4 I.R.B.428January 24, 2011

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
New Jersey
Pompton PlainsThompson, Gary R.AttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
September 21, 2010
New York
Putnam ValleyCoren, Steven M.AttorneySuspended by decision
in expedited proceeding
under §10.82 (attorney
disbarment)
Indefinite from
September 14, 2010
SyracuseStrunk, BonnieAttorneySuspended by default
decision in expedited
proceeding under §10.82
(attorney disbarment)
Indefinite from
September 20, 2010
North Carolina
RaleighGaskins, Johnny S.AttorneySuspended by default
decision in expedited
proceeding under
§ 10.82 (conviction
under 31 U.S.C. § 5324,
structuring transactions
to evade reporting
requirements)
Indefinite from
November 5, 2010
RaleighMixon, A. Amanda —
aka Abbott, Allie A.
CPASuspended by default
decision in expedited
proceeding under §10.82
(revocation of CPA
license)
Indefinite from
October 1, 2010
Pennsylvania
LancasterMartin, Spencer R.CPAReinstated to
practice before
theIRS,effective
October 1, 2010
Tennessee
East RidgeStanbery, Jr., CharlesE. AttorneySuspended by default
decision in expedited
proceeding under §10.82
(suspension of attorney
license)
Indefinite from
October 28, 2010
January 24, 20114292011–4 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Texas
AustinErnstmeyer, Leslie S.CPA/AttorneySuspended by decision
in expedited proceeding
under §10.82 (revocation
of CPA license)
Indefinite from
October 14, 2010
HoustonManner, Ronald P.CPASuspended by default
decision in expedited
proceeding under §10.82
(revocation of CPA
license)
Indefinite from
October 28, 2010
Fort WorthParrack, Jeffrey B.CPADisbarred by consent for
violation of §§ 10.51,
10.22, (failed to pay
individual federal income
tax assessed for 2000,
2001, 2002, 2003, 2007,
and 2008; failed to
timely file Forms 1040,
individual income tax
return for 2008 and 2009;
failed to exercise due
diligence in preparing
a client’s 1998, 1999,
and 2000 Form 1040,
individual income tax
return;failedtoexercise
due diligence in providing
tax preparer identifying
information on client’s
Form 1040, individual
income tax return from
1997 through 2003; failed
to file accurate Forms
1040, individual income
tax returns for 2004,
2005, 2006, and 2007;
andfailedtopaythe
correct amount of federal
income tax due.
Indefinite from
July 1, 2010
ShermanPutman, Clinton W.CPASuspended by decision
in expedited proceeding
under §10.82 (revocation
of CPA license)
Indefinite from
October 28, 2010
Extension of Fast Track
Settlement for SB/SE
Taxpayers Pilot Program
Announcement 2011–5
This announcement provides an oppor-
tunity for small business/self employed
2011–4 I.R.B.430January 24, 2011

taxpayers to use Fast Track Settlement
(FTS) to expedite case resolution within
the IRS’s Small Business/Self Employed
(SB/SE) organization in the following lo-
cations: Chicago, IL; Houston, TX; St.
Paul, MN; Philadelphia, PA; central New
Jersey; and San Diego, Laguna Niguel,
and Riverside, CA. Additional locations
may be identified and added to this pro-
gram by mutual agreement between SB/SE
and the Office of Appeals.
The SB/SE FTS will enable SB/SE tax-
payers that currently have unagreed issues
in at least one open year under examination
to work together with SB/SE and the Of-
fice of Appeals to resolve outstanding dis-
puted issues while the case is still in SB/SE
jurisdiction.
DESCRIPTION OF SB/SE FAST
TRACK SETTLEMENT
This announcement provides an oppor-
tunity for small business/self employed
taxpayers to use Fast Track Settlement
(FTS) to expedite case resolution at the
earliest opportunity within the IRS’s Small
Business/Self Employed organization
(SB/SE). The purpose of SB/SE FTS is
to enable SB/SE taxpayers that currently
have unagreed issues in at least one open
year under examination to work together
with SB/SE and the Office of Appeals
(Appeals) to resolve outstanding disputed
issues while the case is still in SB/SE ju-
risdiction. SB/SE and Appeals will jointly
administer the SB/SE FTS process. SB/SE
FTS will be used to resolve factual and le-
gal issues and may be initiated at any time
after an issue has been fully developed,
preferably before the issuance of a 30-day
letter or equivalent notice.
SB/SE FTS will be available to taxpay-
ers in the pilot locations until further notice
and may be made available to taxpayers
nationwide, as determined by SB/SE and
Appeals.
RELIANCE ON AND DIFFERENCES
FROM LMSB FAST TRACK
SETTLEMENT
The procedures for using FTS for
SB/SE taxpayers rely on the provisions
of Revenue Procedure 2003–40, 2003–1
C.B. 1044, which implemented a Large
and Mid-Size Business Fast Track Set-
tlement Dispute Resolution Program and
allows the use of Appeals settlement au-
thority in SB/SE cases.Seesection 3.02
of Rev. Proc. 2003–40.
SB/SE FTS extends the provisions of
the LMSB Fast Track program to SB/SE
cases and provides for direct oversight
of the program by SB/SE and Appeals.
SB/SE FTS therefore involves procedures
almost identical to the LMSB FTS proce-
dures described in Rev. Proc. 2003–40.
The key differences between the LMSB
and SB/SE FTS procedures are as follows:
•The SB/SE Group Manager or de-
signee fulfills the duties of the LMSB
Team manager, as described in Rev.
Proc. 2003–40;
•SB/SE Group Managers and Appeals
Team Managers select and manage
cases eligible for SB/SE FTS; and
•The SB/SE FTS process is designed to
be completed within 60 days of accep-
tance of the SB/SE-Appeals FTS Ap-
plication.
CASE ELIGIBILITY AND
EXCLUSIONS
Subject to the limitations set forth be-
low, SB/SE FTS is generally available for
cases under the jurisdiction of the SB/SE
Division if:
•Issues are fully developed;
•The taxpayer has stated a position in
writing (or filed a small case request
for cases in which the total amount for
any tax period is less than $25,000, as
describedinPublication5,Your Ap-
peal Rights and How To Prepare a
Protest If You Don’t Agree);and
•There are a limited number of una-
greed issues.
SB/SE FTS isnotavailable for:
•Collection Appeals Program, Collec-
tion Due Process, Offer-In-Compro-
mise and Trust Fund Recovery cases,
except as provided in any guidance is-
sued by the Service;
•Correspondence examination cases
worked solely in a Campus/Service
Center site;
•Cases in which the taxpayer has failed
to respond to Service communications
and no documentation has been previ-
ously submitted for consideration by
Compliance;
•Tax Equity & Fiscal Responsibility Act
(TEFRA) partnership cases;
•Issues outside SB/SE jurisdiction, ex-
cept as provided below;
•Issues designated for litigation;
•Issues under consideration for designa-
tion for litigation;
•Issues for which the taxpayer has sub-
mitted a request for competent author-
ity assistance;
•Issues for which the taxpayer has
requested the simultaneous Ap-
peal/Competent Authority procedure
described in section 8 of Rev. Proc.
2002–52, 2002–2 C.B. 242, or the cor-
responding provision of any successor
guidance;
•Frivolous issues, such as, but not lim-
ited to, those identified in Rev. Proc.
2006–2, 2006–1 C.B. 89, or any suc-
cessor guidance;
•“Whipsaw” issues,i.e., issues for
which resolution with respect to one
party might result in inconsistent treat-
ment in the absence of the participation
of another party; or
•Issues that have been identified in
a Chief Counsel Notice, or equiva-
lent publication, as excluded from the
SB/SE FTS process.
If an issue is determined not to be eli-
gible for the SB/SE FTS program, all is-
suesinthecaseshallnotbeeligibleforthe
SB/SE FTS program.
SB/SE FTS may not be the appropri-
ate dispute resolutionprocess for all cases
involving SB/SE taxpayers. The SB/SE
Group Manager or designee and the tax-
payer will evaluate their individual cir-
cumstances to determine if this process
meets their needs.
SB/SE FTS may also be available for
cases under the jurisdiction of the Tax Ex-
empt and Government Entities (TE/GE)
Division, depending on the circumstances
and operational needs of the case. The use
of SB/SE FTS procedures for such cases
will require the consent of the taxpayer,
the local Appeals Team Manager and the
TE/GE Field Manager, or equivalent. For
TE/GE cases approved for SB/SE FTS,
the appropriate TE/GE Field Manager, or
equivalent, will carry out the responsibil-
ities of the SB/SE Group Manager as set
forth in this announcement. The applica-
tion process for TE/GE taxpayers wishing
January 24, 20114312011–4 I.R.B.

to use SB/SE FTS procedures may be mod-
ified by subsequent published guidance.
APPLICATION PROCESS
A taxpayer that is interested in partici-
pating in SB/SE FTS, or that has questions
about the program and its suitability for
the taxpayer’s case, may contact the SB/SE
Group Manager for the year currently un-
der examination. Either the taxpayer, Ex-
amining Agent or the SB/SE Group Man-
ager can initiate the process to take part in
the SB/SE FTS program at any time af-
ter an issue has been fully developed but
preferably before a 30-day or equivalent
letter is issued.
To apply for the SB/SE FTS pro-
gram, the taxpayer and the SB/SE Group
Manager should submit a SB/SE-Ap-
peals FTS Application, available at
http://www.irs.gov/individuals/arti-
cle/0,,id=96779,00.htmlto the local Ap-
peals Team Manager. A Summary of Is-
sues or Examination Re-engineering Lead
sheets (the equivalent to a Form 5701,
Notice of Proposed Adjustment)willbe
prepared by the SB/SE Compliance team,
and a written response from the taxpayer
should be included with the SB/SE-Ap-
peals FTS Application to complete the
package for the parties to understand op-
posing views.
If the case is not accepted for inclu-
sion in SB/SE FTS, the SB/SE or Ap-
peals representative will inform the tax-
payer of the basis for this decision and dis-
cuss other dispute resolution opportunities
with the taxpayer, including 30-day letter
procedures contained in IRS Publication 5,
Your Appeal Rights and How To Prepare
aProtestIfYouDon’tAgree.The deci-
sion not to accept a case into the SB/SE
FTS program is not subject to administra-
tive appeal or judicial review.
SETTLEMENT PROCESS
SB/SE FTS employs various alterna-
tive dispute resolution techniques to pro-
mote case resolution. An Appeals Officer,
trained in mediation, will serve as a neu-
tral party (the FTS Appeals Official). The
FTS Appeals Official will not perform in
a traditional Appeals role, but will use dis-
pute resolution techniques to facilitate set-
tlement between the parties.
During SB/SE FTS, the taxpayer and
SB/SE representatives hold a conference
with the FTS Appeals Official (the FTS
Session). The taxpayer and SB/SE rep-
resentatives at the FTS Session should
include individuals with decision-making
authority and the information and exper-
tise necessary to assist the parties and the
FTS Appeals Official during the settle-
ment process. The FTS Appeals Official
may ask the parties to limit the number of
participants at the FTS Session to facilitate
the process. A taxpayer is not required
to have a representative to participate in
SB/SE FTS. If the taxpayer is represented
by a person engaged in practice before
the Service, however, this individual must
have a power of attorney from the tax-
payer (Form 2848,Power of Attorney and
Declaration of Representative) in addition
to the FTS Agreement.
The FTS Appeals Official will hold
the FTS Session at the date and location
agreed to by both parties. Prior to the FTS
Session, the FTS Appeals Official will
advise the participants of the procedures
and establish ground rules. The FTS Ap-
peals Official may modify the rules and
procedures during the session to adapt to
changes in circumstances. The FTS Ses-
sion may include conferences attended by
all of the parties, separate meetings with
each party, or both as determined appro-
priate in the sole judgment of the FTS
Appeals Official.
The FTS Appeals Official will use a
FTS Session Report to assist in planning
the FTS Session and to report on develop-
ments during the FTS Session. The FTS
Session Report will include a list of all is-
sues approved for the FTS program, a de-
scription of the issues, the amounts in dis-
pute, conference dates, a plan of action
for the FTS Session and other informa-
tion useful to the process as determined by
the parties and the FTS Appeals Official.
The FTS Appeals Official may also pre-
pare and update an Agenda, which guides
the communication, sets the order of is-
sue discussion, poses questions to clarify
the issues and guides the meetings. Dur-
ing the FTS Session, the FTS Appeals Of-
ficial will provide decision makers from
both parties with copies of the Agenda and
the FTS Session Report.
Generally, the FTS Appeals Official
will consider only those issues outlined
in the FTS Session Report, except by
mutual agreement of the parties. If the tax-
payer presents information during the FTS
Session that the taxpayer had not previ-
ously presented during the audit, the FTS
Appeals Official will adjust the targeted
completion date to give the appropriate
Service officials time to evaluate the in-
formation/documentation.
During the FTS Session, the FTS Ap-
peals Official may propose settlement
terms for any or all issues and may con-
sider settlement terms proposed by either
party. If the taxpayer accepts the FTS
Appeals Official’s settlement proposal,
but the SB/SE Group Manager rejects it,
the SB/SE Territory Manager must re-
view SB/SE’s rejection of the settlement
proposal and either concur in writing, or
accept the settlement proposal on behalf
of SB/SE. If the SB/SE Territory Manager
concurs with the Group Manager’s rejec-
tion of the settlement proposal, and an
acceptable alternative settlement cannot
be reached, the issue will be closed out of
the FTS program as unagreed.
If the parties resolve any of the disputed
issues at the conclusion of the FTS Ses-
sion, the parties and the FTS Appeals Of-
ficial shall sign the FTS Session Report
acknowledging acceptance of the terms of
settlement for purposes of preparing com-
putations. The signature of the parties on
the FTS Session Report does not constitute
a final settlement, nor does it waive restric-
tions on assessment, terminate consents to
extend periods of limitation, start the run-
ning of any periods of limitation, or con-
stitute agreement to close the case.
The SB/SE FTS process is confiden-
tial. IRS employees involved in any way
with the SB/SE FTS process are subject
to the confidentiality and disclosure pro-
visions of the Internal Revenue Code, in-
cluding section 6103. To participate in
SB/SE FTS, the taxpayer must consent un-
der section 6103(c) to the disclosure of the
taxpayer’s returns and return information
pertaining to the issues being considered
in the SB/SE FTS process to those persons
named on the Agreement as participants in
the process. IRS employees, the taxpayer
and persons invited to participate by the
IRS or the taxpayer shall not voluntarily
disclose information regarding any com-
munication made during the SB/SE FTS
Session, except as provided by statute.
The prohibition againstex partecom-
munications between Appeals Officers
and other IRS employees provided by
section 1001(a) of the Internal Revenue
2011–4 I.R.B.432January 24, 2011

Service Restructuring and Reform Act of
1998 does not apply to the communica-
tions arising in the SB/SE FTS process
because the Appeals personnel are facili-
tating an agreement between the taxpayer
andSB/SEandarenotactingintheirtra-
ditional Appeals settlement role.
Any recommended settlement by the
FTS Appeals Official of an issue in FTS
shall be subject to the procedures that
wouldbeapplicableiftheissuewerebeing
considered by Appeals, including proce-
dures in the Internal Revenue Manual and
existing published guidance. FTS there-
fore creates no special authority for set-
tlement by the FTS Appeals Official. For
example, if the FTS issue is coordinated in
either the Technical Advisor Program or
the Appeals Technical Guidance program,
the proposed settlement of that issue is
subject to established procedures, includ-
ing submission of the proposed settlement
to the Appeals Coordinator for review and
concurrence.
If the parties fail to resolve any issue
in FTS, the taxpayer retains the option of
requesting that the issue be heard through
the traditional Appeals process.
Except as specifically provided above,
both parties retain the right to withdraw
throughout the entire SB/SE FTS process.
A party wishing to withdraw should pro-
vide written notice to the FTS Appeals Of-
ficial and the other party.
POST-SETTLEMENT PROCEDURE
If the parties reach an agreement on all
or some issues through the SB/SE FTS
process, the SB/SE representative or FTS
Appeals Official, as appropriate, will use
established issue or case closing proce-
dures and applicable agreement forms, in-
cluding preparation of a Form 906 specific
matters closing agreement, if appropriate.
If applicable, the Service will report
a proposed resolution reached as a result
of SB/SE FTS to the Joint Committee on
Taxation in accordance with section 6405.
The taxpayer acknowledges that the Ser-
vice may reconsider a proposed settlement,
as reflected in a signed FTS Session Re-
port, upon receipt of comments on the pro-
posed settlement from the Joint Commit-
tee on Taxation. If the taxpayer declines
to agree with any changes by the Service
upon reconsideration, SB/SE will close the
case unagreed and the taxpayer will retain
all the usual rights to request Appeals con-
sideration of any unagreed issues.
GENERAL PROVISIONS
A resolution reached by the parties
through the SB/SE FTS process will not
bind the parties for taxable years or issues
not covered by the SB/SE-Appeals FTS
agreement, unless such taxable years or
issues are expressly addressed in a formal
closing agreement reached as part of the
SB/SE FTS process.
For SB/SE FTS cases that are returned
for traditional Appeals consideration for
any reason,ex parterestrictions will not
be imposed on intra-Appeals communica-
tions. Appeals management will take ap-
propriate measures to ensure these cases
are handled impartially.
DELEGATION OF AUTHORITY
This announcement constitutes a del-
egation by the Commissioner of Internal
Revenue of settlement authority to Grade
14, 13, and 12 Appeals Officers who are
assigned to be Appeals FTS Officials for
SB/SE FTS cases described in this an-
nouncement. This delegation of settle-
ment authority includes the responsibility
for arriving at the final disposition from
the Government’s perspective, approving
the final settlement in accordance with the
delegated authority, and executing the ap-
propriate closing documents. This author-
ity may not be redelegated.
EFFECTIVE DATE
SB/SE FTS is effective beginning De-
cember 1, 2010, in the pilot locations.
FURTHER INFORMATION
For further information regard-
ing this announcement, contact
Nancy J. Talajkowski, Appeals, Tax
Policy & Valuation at (415) 227–5007
(not a toll-free number) or by e-mail at
Nancy.J.Talajkowski@irs.gov.
Test of Procedures for
Mediation and Arbitration
for Offer in Compromise and
Trust Fund Recovery Penalty
Cases in Appeals
Announcement 2011–6
SECTION 1. PURPOSE
Section 7123 requires the Internal Rev-
enue Service to prescribe procedures by
which a taxpayer or the Office of Appeals
may request non-binding mediation on
any issue unresolved at the conclusion
of Appeals procedures, or unsuccessful
attempts to enter into a closing agree-
ment under section 7121 or a compromise
under section 7122. Section 7123 also
requires the Internal Revenue Service
to establish a pilot program by which a
taxpayer and the Office of Appeals may
jointly request binding arbitration for any
issue unresolved under the same circum-
stances. This announcement modifies
Revenue Procedure 2009–44, 2009–40
I.R.B. 462, Announcement 2008–111,
2008–48 I.R.B. 1224, and Revenue Pro-
cedure 2006–44, 2006–2 C.B. 800, by
extending the two-year test of the media-
tion and arbitrationprocedures for Offer
in Compromise (OIC) and Trust Fund
Recovery Penalty (TFRP) cases that are
under the jurisdiction of the Office of Ap-
peals until December 31, 2012.
SECTION 2. DESCRIPTION
Alternative dispute resolution (ADR)
programs are consistent with the IRS’s ef-
forts to improve tax administration and en-
hance customer service. Appeals will seek
appropriate OIC and TFRP cases for both
mediation and arbitration during the test
period in order to evaluate the effective-
ness of alternative dispute resolution for
such cases.
During the extended test period, Ap-
peals will continue to offer mediation and
arbitration for OIC and TFRP cases for
taxpayers whose appeals are considered at
an Appeals office located in one of the fol-
lowing cities:
•Atlanta, Georgia
•Chicago, Illinois
•Cincinnati, Ohio
•Houston, Texas
January 24, 20114332011–4 I.R.B.

•Indianapolis, Indiana
•Louisville, Kentucky
•Phoenix, Arizona
•San Francisco, California
Appeals may expand the availability of
this program to other locations during the
two-year extension. Upon completion of
the test period, Appeals will evaluate this
program, consider necessary adjustments
to both the mediation and arbitration com-
ponents of the program, and determine
whether to make the arbitration compo-
nent permanent.
SECTION 3. GENERAL SCOPE OF
MEDIATION AND ARBITRATION
PROCEDURES
01. The general provisions set forth
in Revenue Procedures 2009–44 and
2006–44 apply to the mediation and ar-
bitration, respectively, of OIC and TFRP
cases under this program except as specif-
ically stated in this announcement. In
accordance with Revenue Procedure
2006–44, arbitration is not available for
legal issues.
02. The mediation and arbitration
procedures do not create any special au-
thority for settlement by Appeals. During
the mediation and arbitration processes,
Appeals is still subject to the procedures
that would apply if the issue were be-
ing considered via the standard Appeals
process, including procedures in the In-
ternal Revenue Manual (IRM), found at
http://www.irs.gov/irm/index.html,and
other administrative guidance.
03. The overall determination whether
a taxpayer was required to collect, truth-
fully account for, and pay over income,
employment or excise taxes, and/or
whether a taxpayer willfully failed to col-
lect or truthfully account for and pay over
such tax or willfully attempted in any
manner to evade or defeat the payment of
such tax are legal issues for which arbitra-
tion is not available. These legal issues,
however, are based on factual components
that are eligible for arbitration.
04. The overall determination whether
a taxpayer’s offer is acceptable under sec-
tion 7122 may only be made by the Sec-
retary or his delegate and is not a matter
for arbitration. See section 7122(a) (giv-
ing the Secretary the discretionary author-
ity to compromise tax liabilities) and Del-
egation Order 5–1 (delegating that discre-
tionary authority to Appeals). Factual de-
terminations are generally required as part
of making the overall offer acceptability
determination, however, and these individ-
ual factual determinations are eligible for
arbitration.
05. The Appeals Area Director must
approve the acceptance of all cases for me-
diation or arbitration.
SECTION 4. SCOPE OF MEDIATION
AND ARBITRATION FOR OIC CASES
01. In addition to the exclusions con-
tained in Revenue Procedure 2009–44 and
Revenue Procedure 2006–44, the follow-
ing limitations on OIC cases apply:
(1) Neither mediation nor arbitration is
available for:
i. Cases in which the taxpayer has the
ability to pay in full based on the unad-
justed financial information submit-
ted by the taxpayer, except when eco-
nomic hardship exists;
ii. Cases in which the taxpayer declines
to amend or increase the offer without
stating any specific disagreement with
the valuations, figures, or methodol-
ogy used by Appeals in determining
reasonable collection potential;
iii. Cases in which the disputed issue is
explicitly addressed in established
guidance (for example, the issues ad-
dressed in the instructions for Form
656,“Offer in Compromise,”such as
unsecured debt, college expenses, and
non-qualifying charitable contribu-
tions);
iv. Cases in which an OIC is submitted as
an alternative to collection in a Collec-
tion Due Process or equivalent hear-
ing case;
v. Cases in which the issue of liability
was previously determined by Ap-
peals; or
vi. Cases in which Delegation Order 5–1
requires a level of approval higher
than that of the Appeals Team Man-
ager, such as Effective Tax Admin-
istration offers or those in which a
determination is made by Appeals that
acceptance is not in the best interest of
the government (see Policy Statement
P–5–100 and IRM 5.8.7.6(6)).
(2) Meditation is not available for:
i. Cases in which the taxpayer has al-
ready attempted to resolve the matter
through Fast Track Mediation.
(3) Arbitration is not available for:
i. Corporate OIC cases in which the is-
sue to be arbitrated is whether an indi-
vidual is responsible for a Trust Fund
Recovery Penalty or Personal Liabil-
ity for Excise Tax assessment; or
ii. Doubt as to liability cases.
02. Provided all facts are known by
both parties, appropriate issues for medi-
ation or arbitration in OIC cases generally
include:
(1) The value of assets, including those
held by a third party;
(2) The value of dissipated assets and
what amount should be included in the
overall determination of reasonable collec-
tion potential;
(3) A taxpayer’s proportionate interest
in jointly held assets;
(4) Projections of future income based
on calculations other than current income;
(5) The calculation of a taxpayer’s fu-
ture ability to pay when living expenses are
shared with a non-liable person; and
(6) Other factual determinations, such
as whether a taxpayer’s contributions into
a retirement savings account are discre-
tionary or mandatory as a condition of em-
ployment.
03. Additionally, provided all facts are
known by both parties, appropriate issues
for mediation in OIC cases generally in-
clude whether the taxpayer meets the crite-
ria for deviating from national and/or local
expense standards.
04. For cases with liabilities of $50,000
or more, any settlement or agreement
reached through mediation or arbitration
must be reviewed by the Office of Chief
Counsel pursuant to section 7122(b) be-
fore being finalized. When review is
required, Appeals will forward the case to
Area Counsel for an opinion concerning
whether the case is subject to compromise.
See IRM sections 5.8.8.5 and 8.23.4.2.2.
SECTION 5. SCOPE OF MEDIATION
AND ARBITRATION FOR TFRP
CASES
01. Appropriate issues for mediation in
TFRP cases generally include:
2011–4 I.R.B.434January 24, 2011

(1) Whether a person was required to
collect, truthfully account for, and pay
over income, employment, or excise taxes;
(2) Whether a responsible person will-
fully failed to collector truthfully account
for and pay over such tax, or willfully at-
tempted in any manner to evade or defeat
the payment of such tax;
(3) Whether a taxpayer sufficiently des-
ignated a payment to the trust fund portion
of the unpaid tax; and
(4) Whether the taxpayer provided
sufficient corporate payroll records to es-
tablish that a corporate tax deposit was
in the amount required by Treas. Reg.
§ 31.6302–1(c) and therefore was consid-
ered a designated payment to be applied to
both the trust fund and non-trust fund por-
tions of the employment taxes associated
with that specific payroll. See the Note to
IRM 5.7.4.3(7).
02. Appropriate issues for arbitration in
TFRP cases generally include:
(1) Specific factual determinations con-
cerning whether a person was required to
collect, account for, and pay over income,
employment, or excise taxes. Common
factors include whether the taxpayer:
a. was an officer, director, or shareholder
of the corporation;
b. had the authority to sign checks;
c. exercised significant control over the
corporation’s financial affairs;
d. had the authority to determine which
creditors would be paid;
e. was involved in payroll disburse-
ments;
f. had control over the voting stock of
the corporation;
g. was involved in making federal tax
deposits; and
h. had the ability to hire and fire employ-
ees.
(2) Specific factual determinations con-
cerning whether a responsible person will-
fully failed to collector truthfully account
for and pay over such tax, or willfully at-
tempted in any manner to evade or defeat
the payment of such tax. Common factors
to be determined include:
a. when the taxpayer became aware of
the failure to pay over the withheld
tax;
b. whether the taxpayer had knowledge
of payments to other creditors, includ-
ing employees, after becoming aware
of the failure to pay over the withheld
tax;
c. whether there were unencumbered
funds available to satisfy pre-existing
employment tax liabilities; and
d. whether the taxpayer failed to use
unencumbered funds to satisfy pre-ex-
isting tax liabilities after becoming
aware of such liabilities.
(3) A factual determination of the
amount designated by the taxpayer as a
payment to the trust fund portion of the
unpaid tax; and
(4) A factual determination whether
the taxpayer provided sufficient corporate
payroll records to establish that a corpo-
rate tax deposit was in the amount required
by Treas.Reg. § 31.6302–1(c) and there-
fore was considered a designated payment
to be applied to both the trust fund and
non-trust fund portions of the employment
taxes associated with that specific payroll.
See Note to IRM 5.7.4.3(7).
SECTION 6. APPLICATION PROCESS
01. Either the taxpayer or Appeals may
submit a request to mediate or arbitrate af-
ter consulting with and obtaining the con-
currence of the other party.
02. A taxpayer may submit a request to
mediate or arbitrate by sending a written
request to the appropriate Appeals Team
Manager and a copy to:
ChiefofAppeals
Attn: Tax Policy & Procedure —
Collection & Processing
1099 14th St. NW, Suite 4200 East
Washington, DC 20005
03. For an OIC case, the written request
to mediate or arbitrate should include:
a. The taxpayer’s name, address, and
taxpayer identification number, and
the name, title, address, and telephone
number of the person to contact;
b. The name of the Appeals Team Man-
ager, Appeals Officer, or Settlement
Officer;
c. The taxable periods involved;
d. A detailed description of the issue(s)
for which the taxpayer is requesting
mediation or arbitration, including
both the specific dollar amount and
the basis by which that amount was
determined; and
e. A representation that the disputed is-
sue is not an excluded issue listed in
section 4.01 above or in Revenue Pro-
cedure 2009–44 or Revenue Proce-
dure 2006–44.
04. For a TFRP case, the written re-
quest to mediate or arbitrate should contain
items a through e in section 6.03 above and
a detailed explanation of the taxpayer’s po-
sition, including explanations of the fol-
lowing (where applicable):
a. Why the taxpayer was not required to
collect, truthfully account for, and pay
over the income, employment or ex-
cise taxes;
b. Why the taxpayer did not willfully fail
to collect or truthfully account for and
pay over such tax, or willfully attempt
in any manner to evade or defeat the
payment of such tax; and
c. Why the computation of the Trust
Fund Recovery Penalty should reflect
payment(s) designated specifically to
the trust fund portion of the unpaid
tax.
05. If the taxpayer wants to use a
non-IRS co-mediator (at the taxpayer’s
expense) or a non-IRS arbitrator (expense
shared equally by the taxpayer and Ap-
peals), the application should state this
preference.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Revenue Procedure 2009–44, An-
nouncement 2008–111, and Revenue Pro-
cedure 2006–44 are modified.
SECTION 8. EFFECTIVE DATE
The procedures in this announcement
are effective December 1, 2010.
SECTION 9. CONTACT
INFORMATION
The principal author of this announce-
ment is Grace Kim, Office of Associate
Chief Counsel (Procedure & Administra-
tion). For further information regarding
this announcement, contact Dale Veer, Ap-
peals, Tax Policy & Procedure (Alternative
Dispute Resolution — Collection) at (651)
726–7430 (not a toll-free number) or by
e-mail atDale.R.Veer@irs.gov.
January 24, 20114352011–4 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2011–4 I.R.B.iJanuary 24, 2011

Numerical Finding List
1
Bulletin 2011–1 through 2011–4
Announcements:
2011-1, 2011-2 I.R.B.304
2011-2, 2011-3 I.R.B.324
2011-3, 2011-3 I.R.B.324
2011-4, 2011-4 I.R.B.424
2011-5, 2011-4 I.R.B.430
2011-6, 2011-4 I.R.B.433
Notices:
2011-1, 2011-2 I.R.B.259
2011-2, 2011-2 I.R.B.260
2011-3, 2011-2 I.R.B.263
2011-4, 2011-2 I.R.B.282
2011-5, 2011-3 I.R.B.314
2011-6, 2011-3 I.R.B.315
Proposed Regulations:
REG-124018-10, 2011-2 I.R.B.301
Revenue Procedures:
2011-1, 2011-1 I.R.B.1
2011-2, 2011-1 I.R.B.90
2011-3, 2011-1 I.R.B.111
2011-4, 2011-1 I.R.B.123
2011-5, 2011-1 I.R.B.167
2011-6, 2011-1 I.R.B.195
2011-7, 2011-1 I.R.B.233
2011-8, 2011-1 I.R.B.237
2011-9, 2011-2 I.R.B.283
2011-10, 2011-2 I.R.B.294
2011-11, 2011-4 I.R.B.329
2011-12, 2011-2 I.R.B.297
2011-13, 2011-3 I.R.B.318
2011-14, 2011-4 I.R.B.330
2011-15, 2011-3 I.R.B.322
Revenue Rulings:
2011-1, 2011-2 I.R.B.251
2011-2, 2011-2 I.R.B.256
2011-3, 2011-4 I.R.B.326
Treasury Decisions:
9507, 2011-3 I.R.B.305
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2010–27 through 2010–52 is in Internal Revenue Bulletin
2010–52, dated December 27, 2010.
January 24, 2011ii2011–4 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2011–1 through 2011–4
Announcements:
85-88
Obsoleted by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
2008-11
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2009-62
Obsoleted by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
Notices:
2010-59
Modified by
Notice 2011-5, 2011-3 I.R.B.314
2010-79
Clarified and modified by
Notice 2011-4, 2011-2 I.R.B.282
Revenue Procedures:
72-50
Modified and superseded by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
76-34
Modified and supersed by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
83-23
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
94-17
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
97-27
Clarified and modified by
Rev. Proc. 2011-4, 2011-1 I.R.B.330
2001-10
Modified by
Rev. Proc. 2011-4, 2011-4 I.R.B.330
2002-28
Modified by
Rev. Proc. 2011-4, 2011-4 I.R.B.330
2003-21
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
2004-34
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
Revenue Procedures— Continued:
2006-44
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2006-56
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2008-52
Modified by
Notice 2011-4, 2011-2 I.R.B.282
Superseded in part by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2009-39
Superseded in part by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2009-44
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2010-1
Superseded by
Rev. Proc. 2011-1, 2011-1 I.R.B.1
2010-2
Superseded by
Rev. Proc. 2011-2, 2011-1 I.R.B.283
2010-3
Superseded by
Rev. Proc. 2011-3, 2011-1 I.R.B.111
2010-4
Superseded by
Rev. Proc. 2011-4, 2011-1 I.R.B.123
2010-5
Superseded by
Rev. Proc. 2011-5, 2011-1 I.R.B.167
2010-6
Superseded by
Rev. Proc. 2011-6, 2011-1 I.R.B.195
2010-7
Superseded by
Rev. Proc. 2011-7, 2011-1 I.R.B.233
2010-8
Superseded by
Rev. Proc. 2011-8, 2011-1 I.R.B.237
2010-9
Superseded by
Rev. Proc. 2011-9, 2011-2 I.R.B.283
2010-15
Updated by
Rev. Proc. 2011-13, 2011-3 I.R.B.318
Revenue Rulings:
81-100
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
2004-67
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
2008-40
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–27 through 2010–52 is in Internal Revenue Bulletin 2010–52, dated December 27,
2010.
2011–4 I.R.B.iiiJanuary 24, 2011

January 24, 20112011–4 I.R.B.

2011–4 I.R.B.January 24, 2011

January 24, 20112011–4 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select
More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.
Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300