Internal Revenue Bulletin 2015-5 (PDF rendition): IRS Notices

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.

<!-- PageHeader="Bulletin No. 2015-5 February 2, 2015" -->

# Internal Revenue bulletin

## 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

### REG-153656-3, page 566.

This NPRM provides proposed rules relating to internal use
software under § 41(d)(4)(E). Generally, § 41 provides for the
research credit based on expenses incurred for qualified re-
search; however, research with respect to internal use soft-
ware is not qualified research except to the extent provided by
regulations.

### Notice 2015-4, page 407.

This notice provides guidance on the performance and quality
standards that small wind energy property must meet to qualify
for the energy credit under § 48 of the Code. The notice allows
a taxpayer to rely on a certification from an eligible certifier in
determining whether a wind turbine meets the performance
and quality standards. The notice also sets forth the required
contents of a certification as well as the definition of an eligible
certifier.

### Rev. Proc. 2015-13, page 419.

This revenue procedure updates and revises the general pro-
cedures under § 446(e) of the Internal Revenue Code and
§ 1.446-1(e) of the Income Tax Regulations to obtain the
consent of the Commissioner of Internal Revenue (Commis-
sioner) to change a method of accounting for federal income
tax purposes. Specifically, this revenue procedure provides the
general procedures to obtain the advance (non-automatic) con-
sent of the Commissioner to change a method of accounting
and provides the procedures to obtain the automatic consent
of the Commissioner to change a method of accounting de-
scribed in Rev. Proc. 2015-14, 2015-5 I.R.B. 450 (or suc-
cessor) (List of Automatic Changes).

### Rev. Proc. 2015-14, page 450.

This revenue procedure provides the List of Automatic Changes
to which the automatic change procedures in Rev. Proc. 2015-

Finding Lists begin on page ii.

MIRS

13, 2015-5 I.R.B. 419, (or successor) apply. The definitions in
section 3 of Rev. Proc. 2015-13 apply to this revenue procedure.

### Rev. Proc. 2015-15, page 564.

Revenue Procedure 2015-15 provides the 2015 monthly na-
tional average premium for qualified health plans that have a
bronze level of coverage for taxpayers to use in determining their
maximum individual shared responsibility payment under
§ 5000A(c)(1)(B) of the Internal Revenue Code and § 1.5000A-4
of the Income Tax Regulations.

## EMPLOYEE PLANS

### Notice 2015-5, page 408.

This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for Decem-
ber 2014 used under § 417(e)(3)(D), the 24-month average
segment rates applicable for January 2015, and the 30-year
Treasury rates. These rates reflect the application of
§ 430(h)(2)(C)(iv), which was added by the Moving Ahead for
Progress in the 21st Century Act, Public Law 112-141 (MAP-
21) and amended by section 2003 of the Highway and Trans-
portation Funding Act of 2014 (HATFA).

## EXEMPT ORGANIZATIONS

### T.D. 9708, page 337.

Final regulations under section 501(r) of the Code providing
guidance regarding the requirements for charitable hospital
organizations added by the Patient Protection and Affordable
Care Act of 2010.

(Continued on the next page)

<!-- PageBreak -->

## EMPLOYMENT TAX

### Notice 2015-6, page 412.

This notice explains liability for and reporting of Federal Insur-
ance Contributions Act (FICA) tax, Federal Unemployment Tax
Act (FUTA) tax, and federal income tax withholding with respect
to sick pay that is paid by third parties rather than employers.
The notice also explains the filing requirements for new Form
8922, Third-Party Sick Pay Recap.

## TAX CONVENTIONS

### Announcement 2015-4, page 565.

The Competent Authority Agreement ("the Agreement") was
released to the public on February 2, 2015, by the Competent
Authorities of the United States and Kazakhstan regarding the
eligibility of entities that are treated as fiscally transparent
under the laws of either Contracting State to benefits under the
Convention Between the Government of the United States of
America and the Government of the Republic of Kazakhstan for
the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital, signed
on October 24, 1993 (the "Treaty").

<!-- PageBreak -->

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with 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.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing 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 .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal 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, Legisla-
tion 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 Sec-
retary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

<!-- PageFooter="February 2, 2015" -->
<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

26 CFR 1.501(r)-0: Outline of regulations.

26 CFR 1.501(r)-1: Definitions.

26 CFR 1.501(r)-2: Failures to satisfy section
501(r).

26 CFR 1.501 (r)-3: Community health needs assess-
ments.

26 CFR 1.501(r)-4: Financial assistance policy and
emergency medical care policy.

26 CFR 1.501(r)-5: Limitation on charges.

26 CFR 1.501(r)-6: Billing and collection.

26 CFR 1.501(r)-7: Effective/applicability dates.

26 CFR 1.6012-2: Corporations required to make
returns of income.

26 CFR 1.6012-3: Returns by fiduciaries.

26 CFR 1.6033-2: Returns by exempt organizations
(taxable years beginning after December 31, 1969)
and returns by certain nonexempt organizations
(taxable years beginning after December 31, 1980).
26 CFR 53.4959-1: Taxes on failures by hospital
organizations to meet section 501(r)(3).

26 CFR 53.6011-1: General requirement of return,
statement, or list.

26 CFR 53.6071-1: Time for filing returns.

26 CFR 602.101: OMB Control Numbers.

TD 9708

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1, 53, and 602

Additional Requirements for
Charitable Hospitals;
Community Health Needs
Assessments for Charitable
Hospitals; Requirement of a
Section 4959 Excise Tax
Return and Time for Filing the
Return

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations and removal
of temporary regulations.

SUMMARY: This document contains fi-
nal regulations that provide guidance re-
garding the requirements for charitable
hospital organizations added by the Pa-
tient Protection and Affordable Care Act
of 2010. The regulations will affect char-
itable hospital organizations.

DATES: Effective date: The final regula-
tions are effective on December 29, 2014.

Applicability date: For dates of applica-
bility, see §§ 1.501(r)-7(a); 1.6033-2(k)(4);
53.4959-1(b); and 53.6071-1(i)(2).

FOR FURTHER INFORMATION

CONTACT: Amy F. Giuliano, Amber L.
Mackenzie, or Stephanie N. Robbins at
(202) 317-5800 (not a toll-free number).

SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act

The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-0047. The collection of in-
formation in the final regulations is in
§§ 1.501(r)-3, 1.501(r)-4, and 1.501(r)-
6(c). The collection of information is re-
quired for hospital organizations to re-
ceive the benefits of being described in
section 501(c)(3) of the Internal Revenue
Code (Code) and flows from section
501(r)(3), which requires a hospital orga-
nization to conduct a community health
needs assessment (CHNA) and adopt an
implementation strategy to meet the com-
munity health needs identified through the
CHNA at least once every three years;
section 501(r)(4), which requires a hospi-
tal organization to establish a written fi-
nancial assistance policy (FAP) and a
written policy related to care for emer-
gency medical conditions; and section
501(r)(6), which requires a hospital orga-
nization to make reasonable efforts to de-
termine whether an individual is eligible
for assistance under a FAP before engag-
ing in extraordinary collection actions.
The expected recordkeepers are hospital or-
ganizations described in sections 501(c)(3)
and 501(r)(2).

### 1. 2012 Proposed Regulations

On June 26, 2012, the Department of
the Treasury (Treasury Department) and
the IRS published a notice of proposed
rulemaking (NPRM) (REG-130266-11;

77 FR 38148) that contained proposed
regulations regarding the requirements of
sections 501(r)(4) through 501(r)(6) relat-
ing to FAPs, limitations on charges, and
billing and collections (the 2012 proposed
regulations). The 2012 proposed regula-
tions estimated that the collection of in-
formation in the proposed regulations re-
lating to sections 501(r)(4) and 501(r)(6)
would result in an average annual paper-
work burden per recordkeeper of 11.5
hours. (The requirements of section
501(r)(3) were addressed in different pro-
posed regulations, released in 2013, and the
collection of information associated with
those proposed regulations is addressed in
section 2 of this portion of the preamble
relating to the Paperwork Reduction Act.)

In response to this burden estimate, the
Treasury Department and the IRS re-
ceived 15 comments generally stating that
the estimates set forth in the 2012 pro-
posed regulations were too low and that
the burden was significantly higher, with
some commenters offering estimates
ranging between 15 and 38,500 hours an-
nually. However, these commenters pro-
vided insufficient information regarding
the hours necessary to comply with the
information collection requirements of
§§ 1.501(r)-4 and 1.501(r)-6(c) of the
2012 proposed regulations for the IRS to
determine why, or by how much, the pro-
posed burden estimate should be increased.
A few commenters noted that they would
have to devote significant resources up-front
to amending policies and procedures and
altering information systems.

The Treasury Department and the IRS
anticipated an up-front commitment of re-
sources when they derived the 11.5-hour
annual burden estimate proposed in the
2012 proposed regulations by dividing an
estimated 34.5-hour burden over three
years (the maximum OMB approval pe-
riod for a collection of information burden
estimate) by three. It was anticipated that
a large share of those 34.5 hours would be
devoted to updating policies, procedures,
and information systems in the first year.
The Treasury Department and the IRS
also expected that hospitals would be
building upon existing policies and pro-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

cesses rather than establishing entirely
new policies. For example, § 1.501(r)-
6(c)(2) of the 2012 proposed regulations
was intended to enable hospitals to notify
patients about the FAP primarily by add-
ing information to billing statements, ne-
cessitating some time to change the tem-
plate of the billing statement but
presumably relatively little time thereaf-
ter. However, in light of the comments
received, the Treasury Department and the
IRS have increased their estimate of the
average amount of time a hospital organi-
zation will devote to amending policies and
procedures and altering information systems
in the first year to come into compliance
with §§ 1.501(r)-4 and 1.501(r)-6(c) to 60
hours (with additional time needed each
year to implement the requirements).

One commenter stated that hospitals'
experience in administering charity care
programs under existing state law re-
quired more than 100 annual staff hours
per hospital, and that the 2012 proposed
regulations would increase that burden.
However, the total amount of time spent
administering charity care programs in
general under the commenter's state law
is not equivalent to the amount of time
necessary to comply with the collection of
information requirements, in particular, in
the 2012 proposed regulations.

Most of the 38,500 burden hours that
one commenter estimated for the paper-
work burden resulting from the 2012 pro-
posed regulations was based on the time
the commenter estimated would be spent
by 16 financial counseling staff members
to provide direct patient counseling.
While providing direct patient financial
counseling is a commendable activity that
would help ensure that patients obtain the
financial assistance for which they are el-
igible, the burden estimates under the Pa-
perwork Reduction Act are limited to col-
lections of information authorized or
imposed by the statute and regulations,
and, therefore, such counseling activity
would not be captured in the estimates.

The Treasury Department and the IRS
also note that, in response to comments,
these final regulations contain several
changes intended to reduce the paperwork
burden of the 2012 proposed regulations.
Most significantly, numerous commenters
noted that the requirement in § 1.501(r)-
6(c)(2) to include a plain language sum-

mary of the FAP with all (and at least
three) billing statements during a 120-day
notification period would add significantly
to the cost of mailing the billing state-
ments and be a waste of paper. In response
to these comments, rather than requiring a
plain language summary with every bill
issued during the notification period, the
final regulations instead require a hospital
facility to include on each billing state-
ment a conspicuous written notice that
notifies and informs patients about the
availability of financial assistance, includ-
ing both a telephone number of the office
or department that can provide informa-
tion about the FAP and FAP application
process and the direct Web site address
(or URL) where copies of the FAP, FAP
application form, and plain language sum-
mary of the FAP may be obtained. Addi-
tionally, the final regulations require a
plain language summary to be included
with only one post-discharge communica-
tion and give a hospital facility the flexi-
bility to send this one plain language sum-
mary only to the subset of patients against
whom the hospital facility actually intends
to engage in extraordinary collection ac-
tions. These changes are intended to main-
tain the frequent reminders to patients of the
availability of financial aid while reducing
the burden and cost of mailing multiple cop-
ies of a plain language summary of the FAP.

The one change in the final regulations
that may materially increase the paper-
work burden relates to translations of the
FAP and related documents. The 2012
proposed regulations required a hospital
facility to translate its FAP (as well as the
FAP application form and plain language
summary of the FAP) into the primary
language of any populations with limited
English proficiency (LEP) that constitute
more than 10 percent of the residents of
the community served by the hospital fa-
cility. In response to comments discussed
in section 4.a.iv.F of this preamble, the
final regulations change that threshold to 5
percent or 1,000, whichever is less, of the
population of individuals likely to be af-
fected or encountered by the hospital facil-
ity. This may increase the overall number of
translations that hospital organizations af-
fected by the final regulations will be re-
quired to make.

Taking into account all of the com-
ments received, as well as the changes

made in these final regulations that will
affect the paperwork burden, the Treasury
Department and the IRS have adjusted
their burden estimate for §§ 1.501(r)-4
and 1.501(r)-6(c) to 60 hours per record-
keeper of up-front time to update informa-
tion systems and draft and amend policies,
procedures, and template billing state-
ments and notifications, plus 15 hours per
recordkeeper per year for each of three
years to implement the collection of infor-
mation requirements. This results in a to-
tal of 105 hours over a three-year period,
or an average of 35 hours per year per
recordkeeper, up from the estimate of 11.5
hours per year per recordkeeper proposed
in the 2012 proposed regulations. The
Treasury Department and the IRS note that
the burden estimates must be updated every
three years and that future estimates can be
amended to reflect hospitals' actual experi-
ence in implementing the collection of in-
formation requirements in §§ 1.501(r)-4
and 1.501(r)-6(c).

### 2. 2013 Proposed Regulations

On April 5, 2013, the Treasury Depart-
ment and the IRS published a NPRM
(REG-106499-12; 78 FR 20523) that
contained proposed regulations regarding
the CHNA requirements under section
501(r)(3) (the 2013 proposed regulations).
The 2013 proposed regulations estimated
that the collection of information in the
proposed regulations would result in an
average annual paperwork burden per re-
cordkeeper of 80 hours. In response to this
burden estimate, the Treasury Department
and the IRS received 10 comments stating
generally that the estimates set forth in the
2013 proposed regulations were too low
and that the burden was significantly
higher, with most commenters stating that
satisfying the requirements described in
the 2013 proposed regulations would ne-
cessitate "thousands of hours." However,
because commenters provided little spe-
cific information regarding the hourly bur-
den of activities that are required to com-
ply with the collection of information
required by section 501(r)(3), it is difficult
for the Treasury Department and the IRS
to determine how to appropriately revise
the burden estimate.

The Treasury Department and the IRS
note that a hospital organization only has

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

to satisfy the CHNA requirements once
every three years, and the burden estimate
reflected in the 2013 proposed regulations
was 240 hours per CHNA, averaged over
three years. In addition, the Treasury De-
partment and the IRS recognize that the
amount of time hospitals devote to their
CHNAs will vary greatly depending on
their size and resources and whether they
choose to collaborate with other organiza-
tions and facilities in conducting their
CHNAs.

One commenter asked that the IRS
clarify its definition of "recordkeeper" to
indicate that the estimate is for a hospital
organization with a single hospital facility
and that a hospital organization with mul-
tiple hospital facilities would have an es-
timated burden that would be multiplied
by the number of hospital facilities. How-
ever, both the 2013 proposed regulations
and these final regulations allow hospital
organizations with multiple hospital facil-
ities to collaborate and produce one joint
CHNA report and implementation strat-
egy for all of its hospital facilities, pro-
vided the hospital facilities define their
communities to be the same. As a result,
the Treasury Department and the IRS do
not believe the burden estimate will nec-
essarily increase in direct relation to the
number of hospital facilities operated. On
the other hand, the Treasury Department
and the IRS do recognize that some hos-
pital facilities operated by the same orga-
nization will define their communities to
be different and will therefore conduct
separate CHNAs and produce separate
CHNA reports. For purposes of estimating
the total paperwork burden, and in the
absence of data on which hospital facili-
ties will conduct joint CHNAs and which
will not, the Treasury Department and the
IRS have assumed that hospital facilities
operated by hospital organizations with
three or fewer hospital facilities will pro-
duce joint CHNA reports and hospital fa-
cilities operated by hospital organizations
with more than three hospital facilities
will conduct separate CHNA reports.
Based on the latest available IRS data on
the number of hospital organizations and
facilities, the assumption that hospital or-
ganizations operating more than three
hospital facilities will conduct separate
CHNAs for each hospital facility in-
creases the average annual burden associ-

ated with the CHNA requirements per
hospital organization from 80 to 101
hours. The Treasury Department and the
IRS note that the burden estimates must
be updated every three years and that fu-
ture estimates can be amended to reflect
hospitals' actual experience in implement-
ing the collection of information require-
ments in § 1.501(r)-3.

### 3. Adjusted Burden Estimates for Final Regulations

After taking into account all the com-
ments and information available and
based on the latest IRS data on the number
of hospital organizations and facilities, the
Treasury Department and the IRS have
reached the following reporting burden
estimates:

Estimated total annual reporting bur-
den: 401,905

Estimated average annual burden hours
per recordkeeper: 136 hours

Estimated number of recordkeepers:
2,955

Estimated frequency of collections of
such information: Annual

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number
assigned by the Office of Management
and Budget.

Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103.

#### Background

Section 501(r) was added to the Code
by the Patient Protection and Affordable
Care Act, Public Law 111-148 (124 Stat.
119 (2010)) (the Affordable Care Act),
enacted March 23, 2010, and imposes addi-
tional requirements on charitable hospital
organizations. Section 501(r)(1) provides
that a hospital organization described in sec-
tion 501(r)(2) will not be treated as a tax-
exempt organization described in section
501(c)(3) unless the organization meets the
requirements of sections 501(r)(3) through
501(r)(6). Section 501(r)(3) requires a hos-
pital organization to conduct a community

health needs assessment (CHNA) at least
once every three years and to adopt an im-
plementation strategy to meet the commu-
nity health needs identified through the
CHNA. Section 501(r)(4) requires a hospital
organization to establish a written financial
assistance policy (FAP) and a written policy
relating to emergency medical care. Section
501(r)(5) requires a hospital organization to
not use gross charges and to limit amounts
charged for emergency or other medically
necessary care provided to individuals eligi-
ble for assistance under the organization's
FAP (FAP-eligible individuals) to not more
than the amounts generally billed to individ-
uals who have insurance covering such care
(AGB). Section 501(r)(6) requires a hospital
organization to make reasonable efforts to
determine whether an individual is FAP-
eligible before engaging in extraordinary
collection actions. Section 501(r)(2)(B) re-
quires a hospital organization to meet each
of these requirements separately with re-
spect to each hospital facility it operates.

The statutory requirements of section
501(r) (except for section 501(r)(3)) apply
to taxable years beginning after March 23,
2010. Section 501(r)(3) applies to taxable
years beginning after March 23, 2012. A
hospital organization has had to comply
with the statutory requirements of section
501(r) since these applicability dates.

The Affordable Care Act also added
section 4959, which imposes a $50,000
excise tax on a hospital organization that
fails to meet the CHNA requirements for
any taxable year, and amended section
6033 to add certain reporting require-
ments related to section 4959 and the
CHNA requirements and to require hospi-
tal organizations to file a copy of their
audited financial statements with their an-
nual information returns.

In May 2010, the Department of the
Treasury (Treasury Department) and the
IRS issued Notice 2010-39 (2010-24
IRB 756 (June 14, 2010)), which solicited
comments regarding the additional re-
quirements imposed by section 501(r).
Approximately 125 comments were re-
ceived in response to Notice 2010-39.

In July 2011, the Treasury Department
and the IRS issued Notice 2011-52
(2011-30 IRB 60 (July 25, 2011)), which
described (and solicited comments regard-
ing) provisions related to the CHNA re-
quirements that the Treasury Department

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

and the IRS anticipated would be included
in proposed regulations. More than 80
comments were received in response to
Notice 2011-52.

On June 26, 2012, the Treasury De-
partment and the IRS published a notice
of proposed rulemaking in the Federal
Register (REG-130266-11, 77 FR
38148) (2012 proposed regulations) that
contained proposed regulations regarding
the requirements of sections 501(r)(4)
through 501(r)(6) relating to FAPs, limi-
tations on charges, and billing and collec-
tions. The 2012 proposed regulations also
defined key terms used throughout the
regulations, such as "hospital organiza-
tion" and "hospital facility." More than
200 written comments were received in
response to the 2012 proposed regula-
tions, and a public hearing was held on
December 5, 2012.

On April 5, 2013, the Treasury Depart-
ment and the IRS published a notice of
proposed rulemaking in the Federal Reg-
ister (REG-106499-12, 78 FR 20523)
(2013 proposed regulations) that con-
tained proposed regulations regarding the
CHNA requirements of section 501(r)(3),
the related reporting obligations under
section 6033, the excise tax under section
4959, and the consequences for failing to
meet any of the section 501(r) require-
ments. The 2013 proposed regulations
also added a few additional defined terms
and made minor amendments to the defi-
nitions of "hospital organization" and
"hospital facility" contained in the 2012
proposed regulations. More than 90 writ-
ten comments were received in response
to the 2013 proposed regulations. No pub-
lic hearing was requested or held.

On August 15, 2013, the Treasury
Department and the IRS published final
and temporary regulations and a cross-
reference notice of proposed rulemaking
in the Federal Register (TD 9629, 78 FR
49681; REG-115300-13, 78 FR 49700)
under sections 6011 and 6071, which pro-
vided guidance regarding the requirement
that a return accompany payment of the
section 4959 excise tax for failure to meet
the CHNA requirements for any taxable
year. Specifically, the temporary regula-
tions direct hospital organizations liable
for the tax imposed by section 4959 to file
Form 4720, "Return of Certain Excise
Taxes Under Chapters 41 and 42 of the

Internal Revenue Code," by the 15th day
of the fifth month after the end of the
organization's taxable year in which the
liability was incurred. The cross-reference
notice of proposed rulemaking solicited
public comments. No public comments
were received, and no public hearing was
requested or held.

In January 2014, the Treasury Depart-
ment and the IRS published Notice
2014-2 (2014-3 IRB 407 (January 13,
2014)) to confirm that hospital organiza-
tions could rely on both the 2012 pro-
posed regulations and the 2013 proposed
regulations, pending the publication of fi-
nal regulations or other applicable guid-
ance. This Treasury decision obsoletes
Notice 2014-2, but the final regulations
contained in this Treasury decision con-
tinue to allow reliance on both the 2012
proposed regulations and the 2013 pro-
posed regulations until a hospital organi-
zation's first taxable year beginning after
December 29, 2015.

Also in January 2014, the Treasury De-
partment and the IRS published Notice
2014-3 (2014-3 IRB 408 (January 13,
2014)), which contained, and solicited
public comments on, a proposed revenue
procedure that provides correction and re-
porting procedures under which certain
failures to meet the requirements of sec-
tion 501(r) will be excused for purposes of
sections 501(r)(1) and 501(r)(2)(B). The
Treasury Department and the IRS re-
ceived six comments in response to No-
tice 2014-3.

After consideration of the comments
received on the 2012 and 2013 proposed
regulations, both sets of proposed regula-
tions under section 501(r) are adopted as
amended by this Treasury decision. In ad-
dition, this Treasury decision removes the
temporary regulations under sections
6011 and 6071 and adopts as amended the
proposed regulations that cross-referenced
the text of those temporary regulations.
The major areas of comment and the re-
visions are discussed in this preamble.
The comments are available for public
inspection at www.regulations.gov or on
request.

### Summary of Comments and Explanation of Revisions

These final regulations provide guid-
ance on the requirements described in sec-

tion 501(r), the entities that must meet
these requirements, and the reporting ob-
ligations relating to these requirements
under section 6033. In addition, the final
regulations provide guidance on the con-
sequences described in sections 501(r)(1),
501(r)(2)(B), and 4959 for failing to sat-
isfy the section 501(r) requirements.

#### 1. Hospital Facilities and Organizations

##### a. In general

In accordance with section 501(r)(2)(A)(i)
and consistent with the proposed regula-
tions, the final regulations define "hospital
organization" as an organization recog-
nized (or seeking to be recognized) as
described in section 501(c)(3) that oper-
ates one or more hospital facilities and
define "hospital facility" as a facility that
is required by a state to be licensed, reg-
istered, or similarly recognized as a hos-
pital. The final regulations refer to hospi-
tal facilities taking certain actions, and
such references are intended to include
instances in which the hospital organiza-
tion operating the hospital facility takes
action through or on behalf of the hospital
facility.

Section 501(r)(2)(A)(ii) provides that a
hospital organization also includes "any
other organization that the Secretary de-
termines has the provision of hospital care
as its principal function or purpose con-
stituting the basis for its exemption" under
section 501(c)(3). One commenter re-
quested that this language be incorporated
into the definition of "hospital organiza-
tion" contained in the final regulations.

At this time, the Treasury Department
and the IRS have not identified any addi-
tional categories of organizations or facil-
ities (other than hospital facilities and or-
ganizations operating them) with the
principal function or purpose of providing
hospital care. If any such categories of
organizations or facilities are later identi-
fied, the Treasury Department and the IRS
will issue proposed regulations identify-
ing them, with the expanded definition
applying prospectively only if, and when,
the proposed regulations are finalized, af-
ter an opportunity for notice and com-
ment.

b. Multiple buildings under a single
hospital license

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

The definition of "hospital facility" in
the 2012 proposed regulations provided
that a hospital organization "may treat"
multiple buildings operated under a single
state license as a single hospital facility.
To increase the certainty and consistency
in the designation of hospital facilities, the
2013 proposed regulations revised this
definition to indicate that multiple build-
ings operated by a hospital organization
under a single state license "are" consid-
ered a single hospital facility for purposes
of section 501(r).

In response to the 2013 proposed reg-
ulations, several commenters stated that
buildings in different geographic locations
that share a license (for example, a hospi-
tal facility with satellite sites in various
locations) may serve distinct communities
and stakeholders, whose needs could be
missed or unaddressed if they are aggre-
gated into one large community served for
purposes of the CHNA requirements.
Multiple commenters asked that such a
hospital facility be given the flexibility to
conduct separate CHNAs for its separate
buildings, noting that state law may re-
quire the facility to file separate imple-
mentation strategies for each building de-
scribing how each building plans to meet
the health needs in its community.

The Treasury Department and the IRS
believe that a fixed rule regarding the
treatment of multiple buildings under a
single state license will provide for con-
sistency and certainty in tax administra-
tion and increase the ability of both the
IRS and the public to understand and to
evaluate information reported on hospital
organizations' Forms 990 from year to
year. Accordingly, the final regulations
continue to provide that multiple build-
ings operated by a hospital organization
under a single state license are considered
to be a single hospital facility. The final
regulations also clarify that, in the case of
a hospital facility consisting of multiple
buildings that operate under a single state
license and serve different geographic ar-
eas or populations, the community served
by the hospital facility is the aggregate of
such areas or populations. However, in
such a case, the hospital facility consisting
of multiple buildings could, if desired,
assess the health needs of the different
geographic areas or populations served by
the different buildings separately and doc-

ument the assessments in separate chap-
ters or sections of the hospital facility's
CHNA report and implementation strat-
egy.

c. One building under multiple state
licenses

A few commenters asked that the final
regulations allow a hospital organization
to treat operations in a single building
under more than one state license as a
single "hospital facility," a situation the
proposed regulations did not address.
These commenters stated that entities op-
erating within the same building have a
high degree of integration and similar pa-
tient populations and that requiring each
licensed facility to comply separately with
section 501(r) would impose burdens
without benefitting the community served.

The final regulations do not adopt this
suggestion because the Treasury Depart-
ment and the IRS believe that having one
definition of "hospital facility" based on
state licensure alone is simpler and more
administrable. However, the Treasury De-
partment and the IRS note that, as dis-
cussed in section 4.c of this preamble,
separate hospital facilities within the same
building may have identical FAPs and
other policies established for them or
share one policy document as long as the
information in the policy or policies is
accurate for all such facilities and any
joint policy clearly states that it is ap-
plicable to each facility. Furthermore, as
discussed in sections 3.a.v and 3.b.iii of
this preamble, separate hospital facilities
within the same building that define their
communities to be the same may conduct
a joint CHNA and adopt a joint imple-
mentation strategy addressing the signifi-
cant health needs identified in the joint
CHNA. Thus, the final regulations allow
for hospital facilities within the same
building to jointly comply with many of
the section 501(r) requirements.

d. Government hospital organizations

The statutory language of section
501(r) applies to all hospital organizations
that are (or seek to be) recognized as de-
scribed in section 501(c)(3) and does not
provide an exception for government
hospital organizations. Accordingly, the
preamble to the 2012 proposed regula-
tions stated that the Treasury Depart-
ment and the IRS intend to apply section
501(r) to every hospital organization that

has been recognized (or seeks recogni-
tion) as an organization described in sec-
tion 501(c)(3), regardless of whether a
hospital organization is a government hos-
pital organization. However, in recogni-
tion of the unique position of government
hospital organizations, the Treasury De-
partment and the IRS also requested com-
ments regarding alternative methods a
government hospital organization could
use to satisfy the requirements of section
501(r).

A number of commenters noted that
government hospital organizations have
long-standing relationships with their
communities, are already known as
"safety net" health care providers, and
are already obligated to provide care re-
gardless of ability to pay (although care is
sometimes limited to or prioritized for cit-
izens of the locality that is supporting the
hospital). Commenters also stated that
government hospital organizations dispro-
portionately serve patients who are unin-
sured, Medicaid beneficiaries, or hard to
reach (such as homeless individuals, mi-
grant workers, and undocumented indi-
viduals), and have governance structures
that reflect a level of public accountabil-
ity. Commenters added that, as stewards
of public funds, government hospital or-
ganizations have an obligation to local
taxpayers to ensure that scarce financial
resources go toward patient care and not
toward unnecessary administrative costs.
However, rather than offering alternative
methods a government hospital organiza-
tion could use to satisfy the requirements
of section 501(r), these commenters in-
stead effectively requested that the Trea-
sury Department and the IRS provide ex-
emptions from the requirements imposed
by section 501(r) for government hospital
organizations. For example, commenters
recommended that government hospital
organizations be exempted from all of the
documentation requirements related to
CHNAs, be deemed to have met the FAP
requirements by virtue of their public sta-
tus, or be permitted to charge some FAP-
eligible individuals more than AGB as
long as the average annual discounted
charge provided to FAP-eligible individ-
uals did not exceed AGB.

Other commenters expressed support
for applying the requirements of section
501(r) to government hospital organiza-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

tions, stating that no exceptions for par-
ticular categories of section 501(c)(3) or-
ganizations are permitted by the statute.
Commenters also stated that, from the
point of view of individuals seeking or
receiving care, most government hospital
organizations are indistinguishable from
any other section 501(c)(3) hospital orga-
nization and that their practices with re-
gard to charges, billing, and collections
are substantially the same.

Because section 501(r) has no express
or implicit exceptions for government
hospital organizations, the final regula-
tions require the section 501(r) require-
ments to be met by all hospital organiza-
tions that are (or seek to be) recognized as
described in section 501(c)(3), including
those that are government hospital orga-
nizations. The Treasury Department and
the IRS note, however, that government
hospital organizations that have previ-
ously been recognized as described in sec-
tion 501(c)(3) but do not wish to comply
with the requirements of section 501(r)
may submit a request to voluntarily termi-
nate their section 501(c)(3) recognition as
described in section 7.04(14) of Rev.
Proc. 2014-4 (2014-1 IRB 125) (or a
successor revenue procedure).

A number of commenters asked
whether and how government hospital or-
ganizations can satisfy the reporting re-
quirements related to CHNAs, given that
they are excused from filing a Form 990,
"Return of Organization Exempt From In-
come Tax," under Rev. Proc. 95-48
(1995-2 CB 418). The Affordable Care
Act did not change the requirements re-
garding which organizations are required
to file a Form 990. Rev. Proc. 95-48
provides that certain government entities
are relieved from any requirement to file a
Form 990 (and therefore are relieved from
having to disclose information or docu-
ments on or with a Form 990). Accord-
ingly, a government hospital organization
(other than one that is described in section
509(a)(3)) described in Rev. Proc. 95-48
or a successor revenue procedure is not

required to file a Form 990 or include any
CHNA-related information with a Form
990. However, to be treated as described
in section 501(c)(3), government hospital
organizations still must meet all section
501(r) requirements that do not involve
disclosure on or with the Form 990, in-
cluding making their CHNA reports and
FAPs widely available on a Web site.

##### e. Accountable care organizations

Several commenters asked that sepa-
rate entities cooperating in accountable
care organizations (ACOs) or similar in-
tegrated care models be treated as a single
"hospital organization" for purposes of
section 501(r), arguing that this would
create administrative efficiencies as the
participating organizations develop one
standard set of policies and procedures
and result in less confusion for patients as
they move through a "continuum of care."
The final regulations do not adopt this
suggestion, but the Treasury Department
and the IRS note that, as discussed in
section 4.c of this preamble, multiple hos-
pital facilities may have identical FAPs
and other policies established for them or
share one joint policy document as long as
the information in the policy or policies is
accurate for all such facilities and any
joint policy clearly states that it is appli-
cable to each facility. Furthermore, as dis-
cussed in sections 3.a.v and 3.b.iii of this
preamble, separate hospital facilities that
define their community to be the same
may conduct a joint CHNA and adopt a
joint implementation strategy addressing
the significant health needs identified in
the joint CHNA. Thus, the final regula-
tions provide opportunities for separate
hospital facilities participating in an ACO
to jointly comply with many of the section
501(r) requirements.

##### f. "Operating" a hospital facility

The 2013 proposed regulations gener-
ally provided that an organization oper-
ates a hospital facility if it owns a capital
or profits interest in an entity treated as a
partnership for federal tax purposes that
operates the hospital facility. The final

regulations maintain this general rule with
two additions.1 First, the final regulations
clarify that an organization is considered
to own a capital or profits interest in an
entity treated as a partnership for federal
tax purposes if it owns such an interest
directly or indirectly through one or more
lower-tier entities that are treated as part-
nerships for federal tax purposes.2

Second, the final regulations clarify
how the question of whether an organiza-
tion "operates" a hospital facility relates
to the question of whether the organiza-
tion needs to meet the requirements of
section 501(r) (and, therefore, would be
subject to any consequences for failing to
meet such requirements). Specifically,
§ 1.501(r)-2(e) of the final regulations
clarifies that a hospital organization is not
required to meet the requirements of sec-
tion 501(r) with respect to any hospital
facility it is not "operating" within the
meaning of that defined term. In addition,
as stated in the preamble to the 2013 pro-
posed regulations, the final regulations
provide that a hospital organization is not
required to meet the requirements of sec-
tion 501(r) with respect to the operation of
a facility that is not a "hospital facility"
because it is not required by a state to be
licensed, registered, or similarly recog-
nized as a hospital. The final regulations
also provide that a hospital organization is
not required to meet the requirements of
section 501(r) with respect to any activi-
ties that constitute an unrelated trade or
business described in section 513 with
respect to the hospital organization.

g. Providing care in a hospital facility
through hospital-owned entities

A number of commenters asked that
the final regulations clarify the extent to
which certain section 501(r) requirements
apply to hospital-owned physician prac-
tices providing care in the hospital, with a
few commenters requesting that the sec-
tion 501(r) requirements apply to all care

"The final regulations delete the specific reference to joint ventures and limited liability companies contained in the 2013 proposed regulations because those entities are sufficiently covered
by the general phrase "entity treated as a partnership for federal tax purposes." The final regulations also delete the reference to "members of" an entity treated as a partnership for federal
tax purposes because the intended organizations should be captured by the references to owners of a capital or profits interest in the partnership. These changes are not intended to be
substantive changes.

2The final regulations also provide that an organization operates a hospital facility if it is the sole member or owner of a disregarded entity that operates the hospital facility. Section
301.7701-2(a) provides that a disregarded entity's activities are treated in the same manner as a branch or division of the owner. Accordingly, if a hospital organization is the sole owner
of one disregarded entity that is, in turn, the sole owner of another disregarded entity that operates a hospital facility, the hospital organization would be considered to operate the hospital
facility.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

provided in a hospital facility by such
practices.3

Whether or not the section 501(r) re-
quirements apply to hospital-owned phy-
sician practices or other entities providing
care in a hospital facility depends upon
how the entities are classified for federal
tax purposes. For example, a hospital fa-
cility would not be required to meet the
section 501(r) requirements with respect
to a taxable corporation providing care in
the hospital facility, even if the corpora-
tion is wholly or partially owned by the
hospital organization that operates the
hospital facility, because the corporation
is a separate taxable entity to which sec-
tion 501(r) does not apply.

By contrast, if a hospital organization
is the sole member or owner of an entity
providing care in one of its hospital facil-
ities and that entity is disregarded as sep-
arate from the hospital organization for
federal tax purposes, the care provided by
the entity would be considered to be care
provided by the hospital organization
through its hospital facility. Accordingly,
the hospital organization would be re-
quired to meet the section 501(r) require-
ments with respect to care provided by the
disregarded entity in any hospital facility
that the hospital organization operates.

If a hospital organization owns a capi-
tal or profits interest in an entity providing
care in a hospital facility that is treated as
a partnership for federal tax purposes, the
activities of the partnership are treated as
the activities of the hospital organization
for purposes of determining whether the
hospital organization is operated exclu-
sively for exempt purposes or engaged in
an unrelated trade or business under gen-
erally applicable tax principles. See Rev.
Rul. 2004-51 (2004-1 CB 974); Rev.
Rul. 98-15 (1998-1 CB 718). Accord-
ingly, emergency or other medically nec-
essary care provided in a hospital facility
by a partnership in which the hospital
organization operating the facility has a
capital or profits interest is treated as care
provided by the hospital organization in

its hospital facility for purposes of section
501(r). If the provision of such care by the
partnership is an unrelated trade or busi-
ness with respect to the hospital organiza-
tion, the hospital organization does not
have to meet the section 501(r) require-
ments with respect to the care because, as
noted in section 1.f of this preamble, the
final regulations provide that a hospital
organization is not required to meet the
requirements of section 501(r) with re-
spect to any activity that constitutes an
unrelated trade or business with respect to
the hospital organization. On the other
hand, if the provision of emergency or
other medically necessary care by the
partnership is not an unrelated trade or
business with respect to the hospital organi-
zation, the final regulations clarify that the
hospital organization must meet the re-
quirements of sections 501(r)(4) through
501(r)(6) with respect to such care. The
final regulations use a new defined term,
"substantially-related entity," to refer to
an entity that is treated as a partnership for
federal tax purposes in which a hospital
organization owns a capital or profits in-
terest (or a disregarded entity of which the
hospital organization is the sole owner or
member) and that provides, in a hospital
facility operated by the hospital organi-
zation, emergency or other medically
necessary care that is not an unrelated
trade or business with respect to the
hospital organization.4

#### h. Authorized body

The 2013 proposed regulations defined
the term "authorized body of a hospital
facility" to include: (1) the governing
body (that is, the board of directors, board
of trustees, or equivalent controlling
body) of the hospital organization; (2) a
committee of, or other party authorized
by, the governing body of the hospital
organization, to the extent permitted under
state law; or (3) in the case of a hospital
facility that has its own governing body
and is recognized as an entity under state
law but is a disregarded entity for federal
tax purposes, the governing body of that

hospital facility, or a committee of, or
other party authorized by, that governing
body to the extent permitted under state
law.

In cases in which a hospital organiza-
tion owns a capital or profits interest in a
partnership that operates a hospital facil-
ity, the Treasury Department and the IRS
believe the governing body of the partner-
ship should also be considered an autho-
rized body of the hospital facility, and the
final regulations are amended to reflect
this change. In particular, the final regu-
lations provide that an authorized body of
a hospital facility may include the govern-
ing body of an entity that operates the
hospital facility and is disregarded or
treated as a partnership for federal tax
purposes (or a committee of, or other
party authorized by, that governing body
to the extent such committee or other
party is permitted under state law to act on
behalf of the governing body), and thus
either the governing body (or committee
or other authorized party) of the hospital
organization or of the disregarded entity
or partnership may be considered the au-
thorized body of the hospital facility.

Some questions have arisen regarding
whether adoption of a CHNA report, im-
plementation strategy, FAP, or other pol-
icy by one authorized official of a hospital
facility would constitute adoption by an
authorized body of the hospital facility for
purposes of the regulatory requirements.
Under the regulatory definition of "autho-
rized body of a hospital facility" in both
the 2013 proposed regulations and these
final regulations, a single individual may
constitute either a committee of the gov-
erning body or a party authorized by the
governing body to act on its behalf, pro-
vided that state law allows a single indi-
vidual to act in either of these capacities.5

2\. Failures to Satisfy the Requirements
of Section 501(r)

The Treasury Department and the IRS
recognize that errors may occur even in

3 As discussed in section 4.a of this preamble, in response to comments, the final regulations require a hospital facility's FAP to identify the providers, other than the hospital facility itself,
that may deliver emergency or other medically necessary care in the hospital facility and specify which providers are covered by the hospital facility's FAP and which are not.

4The final regulations also clarify that the term "substantially-related entity" does not include any partnership that qualifies for a grandfather rule included in the 2013 proposed regulations
and adopted in the final regulations. Under that rule, an organization will not be considered to "operate" a hospital facility despite owning a capital or profits interest in an entity treated
as a partnership for federal tax purposes that operates the hospital facility if it has met certain conditions since March 23, 2010.

5This interpretation of "authorized body of a hospital facility" is consistent with the interpretation of the term "authorized body" under Treas. Reg. § 53.4958-6(c)(1)(i). See TD 8978 (67
FR 3076, 3082).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

circumstances in which a hospital facility
has practices and procedures in place that
are reasonably designed to facilitate over-
all compliance with section 501(r) and has
implemented safeguards reasonably cal-
culated to prevent errors. Thus, the 2013
proposed regulations provided that a hos-
pital facility's omission of required infor-
mation from a policy or report described
in § 1.501(r)-3 or § 1.501(r)-4, or an
error with respect to the implementation
or operational requirements described in
§§ 1.501(r)-3 through 1.501(r)-6, would
not be considered a failure to meet a re-
quirement of section 501(r) if: (1) the
omission or error was minor, inadvertent,
and due to reasonable cause, and (2) the
hospital facility corrected such omission
or error as promptly after discovery as is
reasonable given the nature of the omis-
sion or error.

In addition, to provide an incentive for
hospital facilities to take steps not only to
avoid errors but also to correct and provide
disclosure when they occur, the 2013 pro-
posed regulations provided that a hospital
facility's failure to meet one or more of the
requirements described in §§ 1.501(r)-3
through 1.501(r)-6 that is neither willful
nor egregious would be excused if the
hospital facility corrects and makes dis-
closure in accordance with guidance set
forth by revenue procedure, notice, or
other guidance published in the Internal
Revenue Bulletin. On January 13, 2014,
the Treasury Department and the IRS pub-
lished Notice 2014-3, which contained a
proposed revenue procedure setting forth
procedures for correction and disclosure
of such failures and solicited public com-
ments regarding the proposed revenue
procedure. The Treasury Department and
the IRS intend to release a revenue proce-
dure finalizing the guidance proposed in
Notice 2014-3 in the near future.

#### a. Minor omissions and errors

Several commenters supported the pro-
posed approach to minor and inadvertent
omissions and errors that are due to rea-
sonable cause, agreeing that if they are
promptly corrected upon discovery they
should not result in sanctions. Accord-
ingly, the final regulations retain this gen-
eral approach, with some modifications.

One commenter suggested modifying
the proposed rule so that it will apply to
omissions or errors that are minor, inad-

vertent, "or" due to reasonable cause
(rather than "and"), stating that an omis-
sion or error was unlikely to satisfy all
three conditions. The same commenter
noted that "reasonable cause" may be in-
terpreted differently in a variety of cir-
cumstances, potentially making this safe
harbor too narrow. The Treasury Depart-
ment and the IRS believe that the insig-
nificance of an omission or error should
always be a necessary condition for re-
ceiving the benefit of correcting under
§ 1.501(r)-2(b) without any obligation to
disclose to the IRS or the public. Thus, the
final regulations require an omission or
error to be minor in order to be corrected
and not considered a failure under
§ 1.501(r)-2(b). However, in response to
this comment, the final regulations pro-
vide that the option for correction without
disclosure provided in § 1.501(r)-2(b)
will be available if the omission or error is
minor and either inadvertent or due to
reasonable cause. As noted later in this
section of the preamble, the final regula-
tions also clarify the meaning of "reason-
able cause" for purposes § 1.501(r)-2(b).

Numerous commenters asked for fur-
ther guidance and specific examples with
respect to the types of omissions and er-
rors that would be considered minor, in-
advertent, and/or due to reasonable cause,
as opposed to those that are excused only
if they are corrected and disclosed, as
discussed in section 2.b of this preamble.
As more experience is gained regarding
the types of omissions or errors that typ-
ically occur in implementing the section
501(r) requirements, the Treasury Depart-
ment and the IRS will consider issuing
further guidance in this area. In the mean-
time, the final regulations provide addi-
tional guidance regarding the factors that
will be considered in determining whether
an omission or error is minor and either
inadvertent or due to reasonable cause.
With respect to minor, the final regula-
tions clarify that, in the case of multiple
omissions or errors, the omissions or er-
rors are considered minor only if they are
minor in the aggregate. The final regula-
tions further provide that the fact that the
same omission or error has occurred and
been corrected previously is a factor tend-
ing to show that an omission or error is
not inadvertent. Finally, with respect to
reasonable cause, the final regulations

provide that a hospital facility's establish-
ment of practices or procedures (formal or
informal) reasonably designed to promote
and facilitate overall compliance with the
section 501(r) requirements prior to the
occurrence of an omission or error is a
factor tending to show that the omission
or error was due to reasonable cause.

Commenters also asked for guidance
and examples demonstrating how minor
omissions or errors should be remedied to
avoid sanctions. The final regulations
specify that correction of minor omissions
or errors must include establishment (or
review and, if necessary, revision) of
practices or procedures (formal or infor-
mal) that are reasonably designed to
achieve overall compliance with the re-
quirements of section 501(r). As more ex-
perience is gained regarding the types of
omissions or errors that typically occur in
implementing the section 501(r) require-
ments, the Treasury Department and the
IRS will consider issuing further guidance
on the correction of minor omissions or
errors.

A few commenters asked that hospital
facilities be required to disclose the minor
omissions or errors that they correct, ei-
ther on a Web site or on the Form 990, to
increase transparency and encourage con-
tinuous improvement. The Treasury De-
partment and the IRS expect that minor
omissions or errors will not have a signif-
icant impact on individuals in a hospital
facility's community and, therefore, will
be sufficiently inconsequential that they
do not justify the additional burden of
disclosure. Instead, as discussed in section
2.b of this preamble, disclosure is a re-
quirement reserved for those omissions
and errors that rise above the level of
"minor" and have a broader scope and
greater impact on individuals within the
hospital facility's community, as well as
those that are neither inadvertent nor due
to reasonable cause and thus involve a
degree of culpability on the part of the
hospital facility.

b. Excusing certain failures if a hospi-
tal facility corrects and makes disclosure

The 2013 proposed regulations pro-
vided that a hospital facility's failure to
meet one or more of the requirements
described in §§ 1.501(r)-3 through
1.501(r)-6 that is neither willful nor egre-
gious would be excused if the hospital

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

facility corrects and provides disclosure in
accordance with guidance set forth by rev-
enue procedure, notice, or other guidance
published in the Internal Revenue Bulle-
tin. The 2013 proposed regulations indi-
cated that, for purposes of this provision, a
"willful" failure would be interpreted con-
sistent with the meaning of that term in
the context of civil penalties, which would
include a failure due to gross negligence,
reckless disregard, or willful neglect. Sev-
eral commenters indicated that the refer-
ence to "civil penalties" was unclear. In
response, the final regulations delete the
reference to civil penalties, but continue to
provide that a "willful" failure includes a
failure due to gross negligence, reckless
disregard, and willful neglect-all terms
with well-established meanings in case
law-to assist hospital facilities in distin-
guishing between a failure that is willful
and a failure that may be excused if it is
corrected and disclosed.

Similarly, several commenters asked
for guidance on what would qualify as
"egregious" noncompliance, recommend-
ing that the term should be reserved for
actions that are of the utmost seriousness
and that would undermine the intent of
section 501(r) as a whole. The Treasury
Department and the IRS agree with com-
menters that the term "egregious" should
encompass only a very serious failure, tak-
ing into account the severity of the impact
and the number of affected persons, and the
final regulations are amended to reflect this.
As the Treasury Department and the IRS
gain additional experience with the types of
failures to meet section 501(r) that occur,
examples of failures that are or are not will-
ful or egregious may be provided in future
guidance.

A number of commenters suggested
that the final regulations should create a
rebuttable presumption that a failure that
is corrected and disclosed is neither will-
ful nor egregious. Commenters reasoned
that such a presumption would ensure that
hospital facilities that correct and disclose
failures would get some benefit in return
for their efforts and reduce uncertainty
regarding their section 501(c)(3) status.
The final regulations do not provide for
such a presumption because correction
and disclosure of a failure are not deter-
minative of a hospital facility's willful-
ness or the egregiousness of the failure.

However, the Treasury Department and
the IRS do believe that a hospital facility
that corrects and discloses a failure to
meet a section 501(r) requirement is less
likely to have acted willfully in failing to
meet that requirement, and thus the final
regulations provide that correction and
disclosure of a failure is a factor tending
to show that an error or omission was not
willful.

A few commenters questioned whether
a system of correction and disclosure
should be sufficient to prevent revocation
of section 501(c)(3) status, with one com-
menter asking that proposed § 1.501(r)-
2(c) be struck in its entirety. The Treasury
Department and the IRS believe that the
statute's objectives of promoting transpar-
ency of hospital facilities' CHNAs and
FAPs and of providing protections to
FAP-eligible patients with respect to
charges and collections are well served by
a system that encourages hospitals to
adopt practices that prevent failures and
promptly discover and correct any failures
that happen to occur. In addition, disclo-
sure of failures and what has been done to
correct them provides significant transpar-
ency. Accordingly, the final regulations
retain § 1.501(r)-2(c).

The 2013 proposed regulations stated
that a hospital facility may, in the discre-
tion of the IRS, be subject to an excise tax
under section 4959 for a failure to meet
the CHNA requirements, notwithstanding
the hospital facility's correction and dis-
closure of the failure in accordance with
the relevant procedures. Several comment-
ers expressed confusion as to whether and
how the tax under section 4959 would ap-
ply in the event of a failure that was
corrected and disclosed. Although some
commenters did not think the excise tax
should apply upon correction and disclo-
sure, at least one commenter suggested
that the statute does not permit the excise
tax to be excused.

To eliminate the uncertainty, the final
regulations under section 4959 provide
that a hospital facility failing to meet the
CHNA requirements "will" (rather than
"may, in the discretion of the IRS") be
subject to an excise tax under section
4959, notwithstanding its correction and
disclosure of the failure. However, as dis-
cussed in section 2.a of this preamble, a
hospital facility's omission or error with

respect to the CHNA requirements will
not be considered a failure to meet the
CHNA requirements if the omission or
error is minor and either inadvertent or
due to reasonable cause and if the hospital
facility corrects the omission or error in
accordance with § 1.501(r)-2(b)(1)(ii) of
the final regulations. Accordingly, the fi-
nal regulations under section 4959 also
make clear that such a minor omission or
error related to the CHNA requirements
that is corrected will not give rise to an
excise tax under section 4959.

c. Facts and circumstances considered
in determining whether to revoke section
501(c)(3) status

Consistent with the 2013 proposed reg-
ulations, the final regulations provide that
the IRS will consider all relevant facts and
circumstances when determining whether
revocation of section 501(c)(3) status is
warranted as a result of a failure to meet
one or more requirements of section
501(r).

Several commenters asked that the reg-
ulatory text of the final regulations include
the statement found in the preamble to the
2013 proposed regulations that applica-
tion of these facts and circumstances will
ordinarily result in revocation of section
501(c)(3) status only if the organization's
failures to meet the requirements of sec-
tion 501(r) are willful or egregious. On the
other hand, one commenter expressed
concern that this statement signals that
revocation could result due to failures that
are willful, but not serious or material.

The final regulations provide that all of
the relevant facts and circumstances will
be considered in determining whether to
revoke a hospital organization's section
501(c)(3) status, including the size, scope,
nature, and significance of the organiza-
tion's failure, as well as the reason for the
failure and whether the same type of fail-
ure has previously occurred. The IRS will
also consider whether the hospital organi-
zation had, prior to the failure, established
practices or procedures (formal or infor-
mal) reasonably designed to promote and
facilitate overall compliance with the sec-
tion 501(r) requirements; whether such
practices or procedures were being rou-
tinely followed; and whether the failure
was corrected promptly.

d. Taxation of noncompliant hospital
facilities

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Like the 2013 proposed regulations,
the final regulations provide for a facility-
level tax for a hospital organization oper-
ating more than one hospital facility that
fails to meet one or more of the require-
ments of section 501(r) separately with
respect to a hospital facility during a tax-
able year. Specifically, this facility-level
tax applies to a hospital organization that
continues to be recognized as described in
section 501(c)(3) but would not continue
to be so recognized based on the facts and
circumstances described in section 2.c of
this preamble if the noncompliant facility
were the only hospital facility operated by
the organization. The facility-level tax is
applied to income derived from the non-
compliant hospital facility during the tax-
able year of non-compliance and is com-
puted as provided in section 11 (or as
provided in section 1(e) if the hospital
organization is a trust described in section
511(b)(2)).

The 2013 proposed regulations also
stated that the application of the facility-
level tax to income derived from a non-
compliant hospital facility would not, by
itself, affect the tax-exempt status of
bonds issued to finance the noncompliant
hospital facility. Numerous commenters
requested that the final regulations further
specify that a noncompliant hospital facil-
ity subject to the facility-level tax will not
be treated as an unrelated trade or busi-
ness for purposes of tax-exempt bonds
issued to finance the noncompliant facil-
ity. In response to these comments, the
final regulations clarify that application of
the facility-level tax will not, by itself,
result in the operation of the noncompliant
hospital facility being considered an unre-
lated trade or business described in sec-
tion 513.

#### 3. Community Health Needs Assessments

Consistent with section 501(r)(3)(A),
the final regulations provide that a hospi-
tal organization meets the requirements of
section 501(r)(3) in any taxable year with
respect to a hospital facility it operates
only if the hospital facility has conducted
a CHNA in such taxable year or in either
of the two immediately preceding taxable
years and an authorized body of the
hospital facility has adopted an imple-
mentation strategy to meet the commu-

nity health needs identified through the
CHNA.

a. Conducting a community health
needs assessment

Consistent with the 2013 proposed reg-
ulations, the final regulations provide that,
in conducting a CHNA, a hospital facility
must define the community it serves and
assess the health needs of that community.
In assessing the community's health
needs, the hospital facility must solicit and
take into account input received from per-
sons who represent the broad interests of
its community. The hospital facility must
also document the CHNA in a written
report (CHNA report) that is adopted for
the hospital facility by an authorized body
of the hospital facility. Finally, the hospi-
tal facility must make the CHNA report
widely available to the public. A hospital
facility is considered to have conducted a
CHNA on the date it has completed all of
these steps, including making the CHNA
report widely available to the public.

Several commenters suggested that a
hospital facility should be considered to
have conducted a CHNA if it updates a
previously conducted CHNA, as opposed
to being required to create an entirely new
CHNA every three years. The Treasury
Department and the IRS expect that, in
conducting CHNAs, hospital facilities
will build upon previously-conducted
CHNAs, and nothing in either the 2013
proposed regulations or the final regula-
tions is intended to prevent this practice.
Hospital facilities should note, however,
that both the 2013 proposed regulations
and these final regulations require the so-
licitation and consideration of input from
persons representing the broad interests of
the community anew with each CHNA,
even if the CHNA builds upon a previ-
ously conducted CHNA.

i. Community Served by the Hospital
Facility

The 2013 proposed regulations pro-
vided that a hospital facility may take into
account all of the relevant facts and cir-
cumstances in defining the community it
serves, including the geographic area
served by the hospital facility, target pop-
ulations served (for example, children,
women, or the aged), and principal func-
tions (for example, focus on a particular
specialty area or targeted disease). The
2013 proposed regulations further pro-

vided that a hospital facility may define its
community to include populations in ad-
dition to its patient populations and geo-
graphic areas outside of those in which its
patient populations reside. However, the
2013 proposed regulations did not permit
a hospital facility to define its community
in a way that excluded medically under-
served, low-income, or minority popula-
tions who are served by the hospital facil-
ity, live in the geographic areas in which
its patient populations reside (unless such
populations are not part of the hospital
facility's target population or affected by
its principal functions), or otherwise
should be included based on the method
used by the hospital facility to define its
community.

A few commenters expressed concern
that the sentence suggesting that a hospital
facility could define its community to in-
clude populations in addition to its patient
populations and geographic areas outside
of those in which its patient populations
reside could create confusion among both
hospital organizations and the public, as it
implies that the community that is defined
for CHNA purposes may not actually be
the community served by the hospital fa-
cility. To avoid potential confusion, the
final regulations delete this language.
However, the final regulations continue to
give hospital facilities broad flexibility to
define the communities they serve or in-
tend to serve (both in addressing needs
identified through their CHNAs and oth-
erwise) taking into account all relevant
facts and circumstances, provided that
they do not exclude medically under-
served, low-income, or minority popula-
tions.

With respect to the provision in the
2013 proposed regulations that a hospital
facility may not define its community in a
way that excludes medically underserved,
low-income, or minority populations, sev-
eral commenters asked that the final reg-
ulations prohibit exclusion of additional
populations, such as populations with lim-
ited English proficiency (LEP) or poten-
tial patients within the community who
are not currently receiving care. With re-
spect to potential patients not currently
receiving care, commenters noted that in-
dividuals may live within a hospital facil-
ity's service community but not use the
facility for reasons that include cost, lack

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

of transportation, lack of adequate lan-
guage access services, stigma, or other
barriers.

The 2013 proposed regulations and
these final regulations define "medically
underserved" populations as including
populations "at risk of not receiving ade-
quate medical care as a result of being
uninsured or underinsured or due to geo-
graphic, language, financial, or other bar-
riers." The reference to language barriers
in the definition of medically underserved
already encompasses LEP populations. In
addition, the definition of "medically un-
derserved" already prevents the exclusion
of those living within a hospital facility's
service area but not receiving adequate
medical care from the facility because of
cost, transportation difficulties, stigma, or
other barriers. The final regulations also
provide that hospital facilities may not
exclude low-income or minority popula-
tions living "in the geographic areas from
which the hospital facility draws its pa-
tients," and not only those already receiv-
ing care from the facility. Accordingly,
the Treasury Department and the IRS be-
lieve the concerns addressed by these
commenters are addressed by the final
regulations.

ii. Assessing Community Health Needs
The 2013 proposed regulations pro-
vided that, to assess the health needs of its
community, a hospital facility must iden-
tify the significant health needs of its com-
munity, prioritize those health needs, and
identify potential measures and resources
(such as programs, organizations, and fa-
cilities in the community) available to ad-
dress the health needs. For these purposes,
the 2013 proposed regulations stated that
health needs include requisites for the im-
provement or maintenance of health status
both in the community at large and in
particular parts of the community (such as
particular neighborhoods or populations
experiencing health disparities). The pre-
amble added that requisites for the im-
provement or maintenance of health status
in a community may include improving
access to care by removing financial and
other barriers to care, such as a lack of
information regarding sources of insur-
ance designed to benefit vulnerable popu-
lations. Numerous commenters asked for
clarification that the term "health needs"
also encompasses needs in addition to ac-

cess to care, such as access to proper
nutrition and housing, the mitigation of
social, environmental, and behavioral fac-
tors that influence health, or emergency
preparedness. In response to these com-
ments, the final regulations expand the
examples of health needs that a hospital
facility may consider in its CHNA to in-
clude not only the need to address finan-
cial and other barriers to care but also the
need to prevent illness, to ensure adequate
nutrition, or to address social, behavioral,
and environmental factors that influence
health in the community. The Treasury
Department and the IRS note that the list
of possible health needs in the final regu-
lations is only a list of examples, and a
hospital facility is not required to identify
all such types of health needs in its CHNA
report if all such types are not determined
by the hospital facility to be significant
health needs in its community.

The 2013 proposed regulations pro-
vided that a hospital facility may use any
criteria to prioritize the significant health
needs it identifies, including, but not lim-
ited to, the burden, scope, severity, or
urgency of the health need; the estimated
feasibility and effectiveness of possible
interventions; the health disparities asso-
ciated with the need; or the importance the
community places on addressing the need.
One commenter supported the flexibility
provided to hospital facilities in determin-
ing how to prioritize significant health
needs, while several other commenters ex-
pressed concern that the language in the
proposed rule that a hospital facility may
use "any" criteria when prioritizing signif-
icant health needs could be read to include
criteria that disregard community prefer-
ences. Two commenters recommended re-
quiring hospital facilities to use the listed
criteria, with one such commenter noting
that these are commonly-used criteria in
health planning and program evaluation.

Section 501(r)(3) does not mandate the
use of particular prioritization criteria. Ac-
cordingly, the list of prioritization criteria
in the final regulations remains a non-
exhaustive list of examples, and hospital
facilities have flexibility to choose how
best to prioritize the significant health
needs of their particular communities.
However, to ensure transparency with re-
spect to a hospital facility's prioritization,
the final regulations, like the 2013 pro-

posed regulations, require a hospital facil-
ity's CHNA report to describe the process
and criteria used in prioritizing the signif-
icant health needs identified. In addition,
the final regulations require a hospital fa-
cility to take into account community in-
put not only in identifying significant
health needs but also in prioritizing them.

A few commenters asked for clarifica-
tion regarding the requirement in the 2013
proposed regulations that hospital facili-
ties identify potential measures and re-
sources (such as programs, organizations,
and facilities in the community) available
to address significant health needs. For
example, one commenter asked whether
the term "measures" referred to how the
hospital facility would measure the
scope of the health need, rather than
actions the hospital facility might take
to address the health need. Another com-
menter interpreted the proposed require-
ment as referring to the potential measures
and resources only of parties in the com-
munity other than the hospital facility it-
self. To eliminate any confusion associ-
ated with the use of the term "measures,"
the final regulations eliminate the term
and require a hospital facility to identify
resources potentially available to address
the significant health needs, with the term
"resources" including programs, organi-
zations, or facilities. In addition, the final
regulations clarify that resources of the
hospital facility itself may be identified.

Numerous commenters recommended
removing the requirement that a CHNA
include potential measures and resources
to address the significant health needs
identified, stating that the implementation
strategy was a better place to discuss the
means to address health needs. Other
commenters supported this requirement,
with one such commenter stating that it is
important to consider potential measures
and resources early in the CHNA process
to provide a framework for determining
which health needs to address in the im-
plementation strategy. The Treasury De-
partment and the IRS agree that a vital
part of assessing and prioritizing health
needs is to begin considering what re-
sources in the community could poten-
tially be harnessed to help address those
health needs and thus believe that hospital
facilities should get community input on
this important aspect of assessing health

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

needs while the CHNA is being con-
ducted. The opportunity for contempora-
neous community input on potentially
available resources would not exist if such
resources were identified as part of the
implementation strategy because a hospi-
tal facility is not required to take into
account input on an implementation strat-
egy until it is conducting the subsequent
CHNA. Accordingly, the final regulations
retain the requirement that a CHNA iden-
tify resources potentially available to ad-
dress significant health needs.

iii. Input From Persons Representing
the Broad Interests of the Community

The 2013 proposed regulations pro-
vided that, in assessing the health needs of
its community, a hospital facility must
take into account input received from, at a
minimum, the following three sources: (1)
at least one state, local, tribal, or regional
governmental public health department
(or equivalent department or agency) with
knowledge, information, or expertise rel-
evant to the health needs of the community;
(2) members of medically underserved,
low-income, and minority populations in
the community, or individuals or organi-
zations serving or representing the inter-
ests of such populations; and (3) written
comments received on the hospital facili-
ty's most recently conducted CHNA and
most recently adopted implementation
strategy.

Several commenters asked that the fi-
nal regulations address the situation in
which a hospital facility, despite its best
efforts, is unable to secure input on its
CHNA from a required category of per-
sons. In response, the final regulations re-
tain the three categories of persons repre-
senting the broad interests of the
community specified in the 2013 proposed
regulations but clarify that a hospital fa-
cility must "solicit" input from these cat-
egories and take into account the input
"received." The Treasury Department and
the IRS expect, however, that a hospital
facility claiming that it solicited, but could
not obtain, input from one of the required
categories of persons will be able to doc-
ument that it made reasonable efforts to
obtain such input, and the final regulations
require the CHNA report to describe any
such efforts.

Numerous commenters requested that
the final regulations provide for public

input on the identification and prioritiza-
tion of significant health needs, with a few
of these commenters expressing a partic-
ular interest in ensuring ample opportu-
nity for community input and feedback on
which community health needs should be
deemed "significant." By requiring hospi-
tal facilities to take into account public
input "in assessing the health needs of the
community" and defining "assessing the
health needs of the community" to include
identifying and prioritizing significant
health needs, the 2013 proposed regula-
tions already required public input on the
identification and prioritization of signifi-
cant health needs. The final regulations
clarify that the requirement to take into
account input in assessing the health
needs of the community includes taking
into account input in identifying and pri-
oritizing significant health needs, as well
as identifying resources potentially avail-
able to address those health needs.

Finally, the final regulations do not
adopt a suggestion from several comment-
ers that a hospital facility be required to
take into account public input in defining
its community because such a requirement
would be circular, as a hospital facility
must define its community before it can
take into account input from persons who
represent the broad interests of that com-
munity.

A. Governmental public health depart-
ments

Numerous commenters supported re-
quiring hospital facilities to take into ac-
count input from a governmental public
health department (or equivalent depart-
ment or agency), noting that governmental
health departments typically have access
to statistical and other data that may be
helpful in assessing and prioritizing com-
munity health needs and, in many cases,
conduct community health assessments of
their own.

One commenter asked what is meant
by "or equivalent department or agency"
and whether the term was intended to be
an exception to the requirement that hos-
pital facilities collaborate with govern-
mental public health departments. The
parenthetical reference to an "equivalent
department or agency" in the 2013 pro-
posed regulations and the final regulations
is not intended to be an exception. Rather,
it is included in recognition of the fact that

governments may have different names
for the particular unit with jurisdiction
over and expertise in public health. For
example, the particular unit of a govern-
ment with jurisdiction over and expertise
in public health might be called an
"agency," "division," "authority," "bu-
reau," "office," or "center" rather than a
department and may or may not have the
term "public health" in its name. As long
as a hospital facility is soliciting and tak-
ing into account input received from the
unit of a local, state, tribal, or regional
government with jurisdiction over and ex-
pertise in public health, it will satisfy the
requirement to solicit and take into ac-
count input received from a governmental
public health department.

The 2013 proposed regulations pro-
vided flexibility in allowing a hospital fa-
cility to choose the level of government
that it concluded was most appropriate for
its CHNA, and did not require a hospital
facility to solicit input from a local public
health department, in particular, because
not all jurisdictions will have local public
health departments available to participate
in the CHNA process. Several comment-
ers asked that the final regulations require
a hospital facility to solicit input from a
local public health department if one ex-
ists in its community. Other commenters,
however, expressly supported allowing
flexibility to choose the particular govern-
mental health department from which to
seek input.

The Treasury Department and the IRS
believe that public health departments
represent the broad interests of the juris-
dictions they serve and have special
knowledge of and expertise in public
health, regardless of whether they are lo-
cal, state, tribal, or regional departments.
Several commenters noted that local pub-
lic health departments may vary greatly in
their capacity to participate in a CHNA
process. In addition, the community
served by a hospital facility may span
the jurisdictions of multiple local public
health departments. Thus, even when a
hospital facility's locality has a local pub-
lic health department, the hospital facility
still might reasonably decide that a public
health department at a different jurisdic-
tional level may be a more appropriate
source of input for its CHNA. Accord-
ingly, the final regulations preserve the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

flexible approach of the 2013 proposed
regulations and allow a hospital facility to
select the jurisdictional level (local, state,
tribal or regional) of the public health
department that is most appropriate for its
CHNA.

One commenter asked that the final
regulations identify State Offices of Rural
Health (SORHs) as governmental public
health entities from which hospital facili-
ties may seek input. This commenter
stated that SORHs operate on a statewide
basis and routinely conduct rural health
planning efforts, including both health
service access assessments and population
health status assessments. The Treasury
Department and the IRS note that the sub-
stantial majority of SORHs are located in
state health departments, such that rural hos-
pital facilities soliciting input from these
state SORHs would presumably be solicit-
ing input from a state public health depart-
ment. However, because some SORHs are
located in state universities or other non-
profits or government departments other
than public health departments, the final
regulations separately identify SORHs as
a source of input from which hospital fa-
cilities may solicit and take into account
input to satisfy the relevant requirement.

One commenter stated that hospital fa-
cilities are increasingly employing or con-
tracting with public health experts. This
commenter further stated that it would
seem illogical for a hospital facility to be
considered to have failed to meet the
CHNA requirements because it relied on
more specific, in-depth advice and input
from a public health expert without nec-
essarily working with a public health
agency with strained available resources
that is attempting to serve a larger geo-
graphic area with a broader set of public
health needs than those the hospital facil-
ity might address. The Treasury Depart-
ment and the IRS note that public health
expertise alone does not result in a per-
son's representing the broad interests of
the community, while a governmental
public health department both offers pub-
lic health expertise and is responsible for
ensuring that the broad interests of the
community are represented. Thus, while
hospital facilities are free to contract with
public health experts to assist with their
CHNAs, the final regulations require a
hospital facility to solicit and take into

account input received from a governmen-
tal public health department.

B. Medically underserved, low-income,
and minority populations

Several commenters asked that hospi-
tal facilities be required to seek input from
certain specified groups, such as the dis-
abled, individuals with chronic diseases,
women and children, and LEP popula-
tions, in addition to the requirement in the
2013 proposed regulations to seek input
from medically underserved, low-income,
and minority populations. As noted in sec-
tion 3.a.i of this preamble, "medically un-
derserved" populations are defined in the
2013 proposed regulations and these final
regulations as populations "at risk of not
receiving adequate medical care as a re-
sult of being uninsured or underinsured or
due to geographic, language, financial, or
other barriers." The Treasury Department
and the IRS believe this definition (along
with the inclusion of low-income and mi-
nority populations) should be sufficiently
broad to encompass many of the popula-
tions cited by commenters to the extent
such populations are at risk of not receiv-
ing adequate medical care. Moreover,
even if a hospital facility does not solicit
input from a particular population while
conducting its CHNA, any person can par-
ticipate in the CHNA process by submit-
ting written comments on the hospital fa-
cility's most recently conducted CHNA
and most recently adopted implementa-
tion strategy, as described in section
3.a.iii.C of this preamble. Accordingly,
the final regulations do not expand the
populations from whom a hospital facility
is required to solicit input beyond medi-
cally underserved, minority, and low-
income populations.

One commenter asked that the final
regulations define the broader category of
"minority populations" to include certain
sub-categories of persons, such as persons
with disabilities and LEP individuals, and
require hospital facilities to consult a
member or representative of each such
sub-category identified in their commu-
nity served. Because the sub-categories
within the broad categories of minority
and medically underserved populations
will likely vary greatly from community
to community, the final regulations con-
tinue to provide hospital facilities with the
flexibility to identify the significant mi-

nority and medically underserved popula-
tions in their communities with whom
they should consult and do not mandate
any specific approach.

### C. Written comments

While some comments in response to
Notice 2011-52 recommended a require-
ment that a hospital facility take into ac-
count public input on a draft version of its
CHNA report before finalizing the report,
this recommendation was not adopted in
the 2013 proposed regulations due to the
complexity of the additional timeframes
and procedures such a process would re-
quire. Instead, the 2013 proposed regula-
tions required hospital facilities to con-
sider written comments received from the
public on the hospital facility's most re-
cently conducted CHNA and most re-
cently adopted implementation strategy.
Because a new CHNA must be conducted
and an implementation strategy adopted at
least once every three years, the Treasury
Department and the IRS intended for this
requirement to establish the same sort of
continual feedback on CHNA reports sug-
gested by commenters, albeit over a dif-
ferent timeframe.

In response to the 2013 proposed reg-
ulations, some commenters continued to
advocate for requiring comments on a
draft CHNA report before it is finalized,
stating that the burdens of such a rule
would be reasonable and commensurate
with the benefits of giving interested indi-
viduals additional opportunities to partic-
ipate in the CHNA. These commenters
added that without a mandatory opportu-
nity to comment on the draft CHNA re-
port, interested individuals and organiza-
tions may not be aware that a hospital
facility is conducting its CHNA until the
CHNA is complete, and that opening up
the CHNA report for comment in "real
time" would yield findings more indica-
tive of community priorities and provide a
better framework for collaboration. Other
commenters, however, supported the pro-
posed requirement that hospital facilities
take into account input in the form of
written comments received on the hospital
facility's most recently conducted CHNA
and most recently adopted implementa-
tion strategy, stating that such comments
may provide extremely valuable informa-
tion to guide future assessments and im-
plementation strategies and that this is a

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

practical way of taking various perspec-
tives into account.

The Treasury Department and the IRS
continue to believe that the opportunity
for the public to submit written comments
on previously adopted CHNA reports and
implementation strategies will result in a
meaningful exchange over time and that
the longer timeframe will both give the
public sufficient time to provide com-
ments (including comments reflecting
changing circumstances) and give hospital
facilities sufficient time to take the com-
ments into account when conducting their
next CHNA. The Treasury Department
and the IRS also note that hospital facili-
ties' CHNA processes will be taking into
account input in "real time" from various
community stakeholders, including, at a
minimum, governmental public health de-
partments and medically underserved,
low-income, and minority populations (or
persons serving or representing them).
Accordingly, the final regulations retain
the requirement that a hospital facility
take into account written comments on the
hospital facility's most recently conducted
CHNA report and most recently adopted
implementation strategy and do not adopt
an additional requirement to post a draft
CHNA report for public comment before
it is finalized. In addition, the Treasury
Department and the IRS note that hospital
facilities may choose to post a draft
CHNA report for public comment, and
both the 2013 proposed regulations and
these final regulations facilitate this option
by specifying that the posting of a draft
CHNA report will not trigger the start of a
hospital facility's next three-year CHNA
cycle.

A few commenters asked how the pub-
lic is expected to comment on the imple-
mentation strategy if the information is
not made available outside of the Form
990 reporting process. As discussed in
section 8.a of this preamble, a hospital
organization must either attach to its Form
990 a copy of the most recently adopted
implementation strategy for each hospital
facility it operates or provide on the Form
990 the URL(s) of the Web page(s) on
which it has made each implementation
strategy widely available on a Web site.
Section 6104 requires Forms 990 to be
made available to the public by both the
filing organization and the IRS, and

members of the public may obtain a
copy of a hospital organization's Forms
990 from one of the privately-funded
organizations that gathers and dissemi-
nates Forms 990 online or by complet-
ing IRS Form 4506-A, "Request for
Public Inspection or Copy of Exempt or
Political Organization IRS Form."

One commenter requested clarification
on how hospital facilities should be col-
lecting written comments from the public,
asking, for example, if written comments
must be collected via a form on a Web site
or by email or mailed letter. The final
regulations do not require a specific
method for collection of these written
comments, providing hospital facilities
with the flexibility to set up a collection
and tracking system that works with their
internal systems and makes the most sense
for their particular community.

A few commenters asked that the final
regulations clarify how hospital facilities
should respond to written comments re-
ceived from the public. One commenter
proposed that a hospital facility designate
a representative or division responsible
for providing substantive responses to
written comments to demonstrate that the
hospital facility has received the comment
and to ensure that the public will be able
to provide continual feedback during the
interim period between formal CHNAs. In
contrast, another commenter stated that
requiring hospitals to individually address
each community concern through feed-
back could become burdensome. As dis-
cussed in section 3.a.iv of this preamble,
the final regulations require hospital facil-
ities to describe generally any input re-
ceived in the form of written comments
(or from any other source) in their CHNA
reports. The Treasury Department and the
IRS expect that this description in the
CHNA report will provide sufficient con-
firmation that comments have been re-
ceived and considered and intend that hos-
pital facilities will otherwise have
flexibility in determining whether further
responses are necessary. Thus, the final
regulations do not adopt any specific re-
quirements regarding how hospital facili-
ties must respond to written comments
received from the public.

Finally, one commenter sought confir-
mation that the requirement to take into
account written comments on the hospital

facility's "most recently conducted CHNA"
means that hospital facilities must take into
account public comments submitted after
the CHNA or implementation strategy is
finalized to inform and influence future
CHNAs and implementation strategies. This
is an accurate description of this provision in
both the 2013 proposed regulations and
these final regulations. The Treasury De-
partment and the IRS intend that the phrase
"most recently conducted CHNA" refers not
to a CHNA that is in process but rather to
the last CHNA that was "conducted," typi-
cally determined as of the date the hospital
facility makes an adopted and complete
CHNA report widely available to the public.

### D. Additional sources of input

The 2013 proposed regulations pro-
vided that, in addition to soliciting input
from the three required sources, a hospital
facility may take into account input from a
broad range of persons located in or
serving its community, including, but
not limited to, health care consumers
and consumer advocates, nonprofit and
community-based organizations, aca-
demic experts, local government offi-
cials, local school districts, health care
providers and community health cen-
ters, health insurance and managed care
organizations, private businesses, and
labor and workforce representatives.

Numerous commenters requested that
the final regulations require, rather than
simply permit, hospital facilities to solicit
input from additional sources, including
from patient and health care consumer
organizations located in or serving the
hospital facility's community, county
governing boards, experts in nutrition or
the local food system, and housing service
providers. While these sources may have
valuable input to contribute to a hospital
facility's CHNA, mandating input from
some or all of these sources could result in
a final rule that is unsuited for particular
communities and further complicate the
CHNA process and the ability to collabo-
rate. Accordingly, the final regulations do
not require hospitals to solicit input from
additional persons, although a hospital fa-
cility is free to solicit input from the sug-
gested sources (as well as other sources)
and must take into account input received
from any person (including these sources)
in the form of written comments on the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

most recently conducted CHNA or most
recently adopted implementation strategy.
E. Input on financial and other barriers

The 2012 proposed regulations re-
quested comments on the potential link
between the needs of a hospital facility's
community, as determined through the
hospital facility's most recently conducted
CHNA, and a hospital facility's FAP. The
preamble to the 2013 proposed regula-
tions recognized that the need to improve
access to care by removing financial bar-
riers can be among the significant health
needs assessed in a CHNA, and the 2013
proposed regulations themselves provided
that input from persons representing the
broad interests of the community includes,
but is not limited to, input on any financial
and other barriers to access to care in the
community.

Several commenters stated that the
CHNA process offers an opportunity to
inquire about financial and other barriers
to care, which could provide useful infor-
mation to a hospital facility in updating
and evaluating its FAP. However, other
commenters noted that section 501(r) does
not require a link between a hospital
facility's CHNA and its FAP. These
commenters further stated that because
CHNAs are already required to take into
account input from persons who repre-
sent the broad interests of the commu-
nity and the decision of how to meet
those needs is the responsibility of the
hospital's governing board, a linkage
should be allowed at the discretion of
the hospital facility but not required.

In acknowledgement of the importance
of assessing financial barriers to care in
the CHNA process, the final regulations
expressly provide that the health needs of
a community may include the need to
address financial and other barriers to ac-
cess to care in the community. However,
consistent with the approach taken in No-
tice 2011-52 and the 2013 proposed reg-
ulations, the final regulations focus on en-
suring transparency regarding the health
needs identified through a CHNA rather
than requiring hospital facilities to iden-
tify any particular categories of health
needs. As with all significant health needs
identified through a CHNA, a hospital fa-
cility's decision as to whether and how to
address a significant health need involv-
ing financial barriers to care (including

through an amendment to a hospital fa-
cility's FAP) will be disclosed publicly
in the hospital facility's implementation
strategy and subject to public comments
in preparing the next CHNA. Thus, the
final regulations do not require any addi-
tional link between a hospital facility's
CHNA and its FAP.

### iv. Documentation of a CHNA

Similar to the 2013 proposed regula-
tions, the final regulations provide that a
hospital facility must document its CHNA
in a CHNA report that is adopted by an
authorized body of the hospital facility
and includes: (1) a definition of the com-
munity served by the hospital facility and
a description of how the community was
determined; (2) a description of the pro-
cess and methods used to conduct the
CHNA; (3) a description of how the hos-
pital facility solicited and took into ac-
count input received from persons who
represent the broad interests of the com-
munity it serves; (4) a prioritized descrip-
tion of the significant health needs of the
community identified through the CHNA,
along with a description of the process
and criteria used in identifying certain
health needs as significant and prioritizing
those significant health needs; and (5) a
description of resources potentially avail-
able to address the significant health needs
identified through the CHNA.

Both the 2013 proposed regulations
and these final regulations provide that a
CHNA report will be considered to de-
scribe the process and methods used to
conduct the CHNA if the CHNA report
describes the data and other information
used in the assessment, as well as the
methods of collecting and analyzing this
data and information, and identifies any
parties with whom the hospital facility
collaborated, or with whom it contracted
for assistance, in conducting the CHNA.
Some commenters requested that this pro-
vision be modified to permit the referenc-
ing of publicly available source materials
(for example, public health agency data)
on which the hospital facility relied in
conducting its CHNA. The final regula-
tions clarify that a hospital facility may
rely on (and the CHNA report may de-
scribe) data collected or created by others
in conducting its CHNA and, in such
cases, may simply cite the data sources

rather than describe the "methods of col-
lecting" the data.

A few commenters requested clarifica-
tion on how a hospital facility's CHNA
report should describe input received in
the form of written comments, with one
such commenter asking if a general sum-
mary of the input provided, the number of
comments received, and the time period
during which the comments were received
will be sufficient. The final regulations
retain the provisions of the 2013 proposed
regulations, which stated that a CHNA
report will be considered to describe how
the hospital facility took into account
community input if it summarizes, in gen-
eral terms, the input provided and how
and over what time period it was pro-
vided. This language applies to written
comments, as well as to any other type of
input provided. In addition, like the 2013
proposed regulations, the final regulations
provide that a CHNA report does not need
to name or otherwise identify any specific
individual providing input on the CHNA,
which would include input provided by
individuals in the form of written com-
ments.

## v. Collaboration on CHNA Reports

The 2013 proposed regulations pro-
vided that a hospital organization may
choose to conduct its CHNA in collabo-
ration with other organizations and facil-
ities, including related and unrelated hos-
pital organizations and facilities, for-profit
and government hospitals, governmental
departments, and nonprofit organizations.
In general, every hospital facility must
document its CHNA in a separate CHNA
report. However, the 2013 proposed reg-
ulations made clear that portions of a hos-
pital facility's CHNA report may be sub-
stantively identical to portions of the
CHNA reports of other facilities or orga-
nizations, if appropriate under the facts
and circumstances. The 2013 proposed
regulations further provided that collabo-
rating hospital facilities that define their
community to be the same and that con-
duct a joint CHNA process may produce a
joint CHNA report. The final regulations
amend the proposed regulations to clarify
that joint CHNA reports must contain all
of the same basic information that sepa-
rate CHNA reports must contain (dis-
cussed in section 3.a.iv of this preamble).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Numerous commenters expressed sup-
port for allowing joint CHNA reports, not-
ing that the purpose of collaboration is to
make the most efficient use of resources in
assessing community needs and devising
strategies to address those needs and that
communities would benefit from strength-
ened collaborative partnerships that help
build broad-based support for community-
wide solutions to the underlying causes of
health problems. In addition, several of
these commenters stated that joint CHNA
reports would more effectively leverage
the health data expertise of governmental
public health departments without placing
an unreasonable burden on departments that
serve jurisdictions with more than one tax-
exempt hospital facility. Another com-
menter stated that joint CHNA reports
both enhance overall community health
and lessen confusion in the community by
providing a more comprehensive view of
the identified needs and associated strate-
gies for addressing those needs. For these
reasons, the final regulations continue to
permit collaborating hospital facilities to
produce joint CHNA reports.

Several commenters recommended
that the final regulations go beyond sim-
ply permitting collaboration to expressly
encouraging, or even requiring, hospital
facilities located in the same jurisdiction
to collaborate in conducting a CHNA and
developing an implementation strategy.
One of these commenters stated that this
would help ensure that the community is
not overburdened by multiple CHNA ef-
forts, noting that a "go it alone" approach
in a jurisdiction with multiple hospitals is
likely to be neither the most efficient nor
the most effective way to improve the
overall health of the community. Another
commenter, however, stated that the discre-
tion to work collaboratively with others
should be left to each particular hospital
facility, given the many health care provid-
ers operating in a typical community.

Like the 2013 proposed regulations,
the final regulations encourage and facil-
itate collaboration among hospital facili-
ties by allowing for joint CHNA reports.
However, section 501(r) applies sepa-
rately to each hospital organization (and,
in the case of hospital organizations oper-
ating more than one hospital facility, each
hospital facility) and, therefore, it is not
appropriate to require hospital organiza-

tions to meet the section 501(r)(3) re-
quirements collaboratively with other
organizations. Accordingly, the final
regulations facilitate, but do not require,
collaboration.

Two commenters asked whether the
requirement that collaborating hospital fa-
cilities must "conduct a joint CHNA pro-
cess" to adopt a joint CHNA report means
that the collaborating hospital facilities
must make the joint CHNA report widely
available to the public (including posting
the CHNA report on a Web site) on the
same day. The Treasury Department and
the IRS do not intend for collaborating
hospital facilities to have to make a joint
CHNA report widely available to the pub-
lic on the same day. Thus, in response to
these comments and to avoid potential
confusion, the final regulations remove
the reference to a joint CHNA process.

## A. Defining a common community

Several commenters expressed concern
regarding the requirement that hospital fa-
cilities that collaborate on a CHNA and
intend to produce a joint CHNA report
must define their communities to be the
same. Two of these commenters requested
that a hospital facility collaborating on a
CHNA being conducted for a larger
shared community also be able to identify
and address needs that are highly local-
ized in nature or occurring within only a
small portion of that community. The
2013 proposed regulations and these final
regulations define "health needs" to in-
clude requisites for the improvement or
maintenance of health status in particular
parts of the community, such as particular
neighborhoods or populations experienc-
ing health disparities. Accordingly, a joint
CHNA conducted for a larger area could
identify as a significant health need a need
that is highly localized in nature or occurs
within only a small portion of that larger
area. In addition, nothing in the final reg-
ulations prevents a hospital facility collab-
orating on a CHNA from supplementing a
joint CHNA report with its own assess-
ment of more highly localized needs.
Because the 2013 proposed regulations
already allowed collaborating hospital
facilities to address highly localized needs
experienced in a particular part of their
shared community, the final regulations
do not amend the proposed regulations in
response to these comments.

One commenter requested that collab-
orating hospital facilities that serve differ-
ent communities be allowed to adopt a
joint CHNA report, stating that requiring
all hospital facilities participating in a
joint CHNA report to define their commu-
nity to be the same would appear to pro-
hibit collaboration between general and
specialized hospital facilities in the same
geographic area if the specialized hospital
facilities define their communities in
terms of service area or principal function
and the general hospital facilities define
their communities geographically.

The 2013 proposed regulations and
these final regulations permit hospital fa-
cilities with different but overlapping
communities to collaborate in conducting
a CHNA and to include substantively
identical portions in their separate CHNA
reports if appropriate under the facts and
circumstances. The final regulations elab-
orate upon this point with an example of
two hospital facilities with overlapping,
but not identical, communities that are
collaborating in conducting a CHNA and
state that, in such a case, the portions of
each hospital facility's CHNA report rel-
evant to the shared areas of their commu-
nities may be identical. Thus, the final
regulations not only expressly permit hos-
pital facilities with different communities
(including general and specialized hospi-
tals) to collaborate but also allow such
hospital facilities to adopt substantively
identical CHNA reports to the extent ap-
propriate.

A few commenters recommended that
the final regulations make clear that, to the
extent that the communities served by col-
laborating hospital facilities differ, a
CHNA report must reflect the unique
needs of the community of the particular
hospital facility adopting the report. By
stating that collaborating hospital facili-
ties with different but overlapping com-
munities may include substantively iden-
tical portions in their separate CHNA
reports only "if appropriate under the facts
and circumstances," the 2013 proposed
regulations and these final regulations
convey that the CHNA reports of collab-
orating hospital facilities should differ to
reflect any material differences in the
communities served by those hospital fa-
cilities.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

B. Collaborating with public health de-
partments

Two commenters requested that hospi-
tal facilities be permitted to adopt the
CHNA of a local public health department
in the event that: (1) the hospital facility
has the same community as the local pub-
lic health department (as defined by the
hospital facility), and (2) the CHNA ad-
opted by the local public health depart-
ment meets the requirements set forth in
these regulations. The final regulations
clarify that if a governmental public
health department has conducted a CHNA
for all or part of a hospital facility's com-
munity, portions of the hospital facility's
CHNA report may be substantively
identical to those portions of the health
department's CHNA report that address
the hospital facility's community. The
final regulations also clarify that a hospi-
tal facility that collaborates with a govern-
mental public health department in con-
ducting its CHNA may adopt a joint
CHNA report produced by the hospital
facility and public health department, as
long as the other requirements applicable
to joint CHNA reports are met.

vi. Making the CHNA Report Widely
Available to the Public

The 2013 proposed regulations pro-
vided that a hospital facility must make its
CHNA report widely available to the pub-
lic both by making the CHNA report
widely available on a Web site and by
making a paper copy of the CHNA report
available for public inspection without
charge at the hospital facility. The 2013
proposed regulations further provided that
the CHNA report must be made widely
available to the public in this manner until
the date the hospital facility has made
widely available to the public its two sub-
sequent CHNA reports.

A few commenters recommended that
the final regulations require the CHNA
report to be translated into multiple lan-
guages. Commenters also recommended
that the hospital facility be required to
make paper copies of the CHNA report
available in locations other than the hos-
pital facility that may be more accessible
to the community at large and proactively
inform the community when the report is
available.

The Treasury Department and the IRS
note that section 501(r)(3) requires the

CHNA to be made "widely available" to
the public, in contrast to the requirement
in section 501(r)(4) regarding measures to
"widely publicize" the FAP. The Treasury
Department and the IRS have interpreted
the term "widely publicize" to require
proactive efforts to inform, and make a
document available in, the community at
large, but have not so interpreted the term
"widely available." The Treasury Depart-
ment and the IRS interpret "widely avail-
able" in a manner consistent with how that
term is defined for purposes of section
6104 (relating to disclosure of annual in-
formation returns). See § 301.6104(d)-
2(b) (interpreting the term "widely avail-
able" in section 6104(d)(4) to include the
posting of information returns and exemp-
tion applications on a Web page). Accord-
ingly, the final regulations retain the def-
inition of "widely available" set forth in
the proposed regulations and decline to
adopt a definition that would include the
suggested measures to translate and proac-
tively publicize the CHNA report within the
community served by the hospital facility.

Additional commenters requested that
hospital facilities be required to post their
CHNA reports (and implementation strat-
egies) on a national, searchable Web site.
Given that hospital facilities are already
required to conspicuously post their
CHNA reports on a Web site, any individ-
ual interested in a particular hospital fa-
cility's CHNA report should be able to
locate it. The Treasury Department and
the IRS do not have, and cannot require a
third party to host, a comprehensive Web
site containing all hospital facilities'
CHNA reports. Accordingly, the final reg-
ulations do not adopt this additional sug-
gested requirement.

One commenter asked that the final
regulations clarify how a hospital facility
is required to make a paper copy of its
CHNA report available for public inspec-
tion and, specifically, whether a paper
copy of the CHNA report must be pub-
licly displayed or, rather, may be made
available only upon request. The final reg-
ulations clarify that a hospital facility
need only make a paper copy of the
CHNA report available for public inspec-
tion upon request.

## vii. Frequency of the CHNA Cycle

The 2013 proposed regulations pro-
vided that, to satisfy the CHNA require-

ments for a particular taxable year, a hos-
pital facility must conduct a CHNA in that
taxable year or in either of the two taxable
years immediately preceding such taxable
year. A few commenters requested that
the final regulations provide flexibility in
the timeline to limit impediments to col-
laboration amongst hospital facilities with
different taxable years. Commenters also
requested that the CHNA cycle match the
five-year cycle that local public health
departments follow in conducting their
community health assessments for na-
tional accreditation by the Public Health
Accreditation Board. One such com-
menter stated that adopting this five-year
timeline would avoid duplication of effort
and incentivize hospital facilities to col-
laborate more fully with local public
health departments. Because section
501(r)(3)(A)(i) requires a hospital organi-
zation to conduct a CHNA in the current
or one of the two prior taxable years, the
final regulations do not adopt these sug-
gestions.

### b. Implementation strategies

The final regulations provide, consis-
tent with the 2013 proposed regulations,
that a hospital facility's implementation
strategy is a written plan that, with respect
to each significant health need identified
through the CHNA, either: (1) describes
how the hospital facility plans to address
the health need, or (2) identifies the health
need as one the hospital facility does not
intend to address and explains why the
hospital facility does not intend to address
the health need.

The preamble to the 2013 proposed
regulations further provided that although
an implementation strategy must consider
the significant health needs identified
through a hospital facility's CHNA, the
implementation strategy is not limited to
considering only those health needs and
may describe activities to address health
needs that the hospital facility identifies in
other ways. Several commenters sup-
ported this proposed flexibility to discuss
health needs identified in ways other than
through conducting a CHNA, with two
such commenters requesting that this lan-
guage appear in the regulatory text of the
final regulations. Another commenter,
however, stated that CHNA reports and im-
plementation strategies should be tightly in-
tegrated and expressed concern that allow-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ing or encouraging hospital facilities to
introduce in the implementation strategy
additional needs beyond those identified
in the CHNA may undermine the role of
community input.

In general, the final regulations under
section 501(r) provide detail only with
respect to the minimum elements that
must be included in the various docu-
ments and policies required under sections
501(r)(3) and 501(r)(4), preserving flexi-
bility for hospital facilities to otherwise
determine the contents of such documents
and policies. Consistent with this ap-
proach, the final regulations do not pro-
hibit implementation strategies from dis-
cussing health needs identified through
means other than a CHNA, provided that
all of the significant health needs identi-
fied in the CHNA are also discussed.

Many commenters recommended that
the statutory requirements that a CHNA
"take into account input from persons who
represent the broad interests of the com-
munity" and "be made widely available to
the public" should also apply to imple-
mentation strategies to allow communities
to monitor, assist, and provide input on
hospital facilities' efforts to address health
needs. With respect to making the imple-
mentation strategy more accessible to the
public, commenters also asked that the
final regulations clarify how the public
may access an implementation strategy
that is attached to the Form 990.

Section 501(r)(3)(B) applies the re-
quirements regarding community input
and wide availability to the public only
to CHNAs. In addition, only section
501(r)(3)(A)(i), which refers to CHNAs,
and not section 501(r)(3)(A)(ii), which re-
fers to implementation strategies, cross-
references the requirements regarding com-
munity input and wide availability to the
public contained in section 501(r)(3)(B).
Accordingly, the final regulations do not
adopt the suggested changes. However,
the 2013 proposed regulations and these
final regulations respond to commenters'
requests to require public input on the
implementation strategy by requiring a
hospital facility to take into account com-
ments received on the previously adopted
implementation strategy when the hospital
facility is conducting the subsequent
CHNA. Furthermore, as discussed in sec-
tion 8.a of this preamble, the 2013 pro-

posed regulations and these final regula-
tions respond to commenters' requests to
require the implementation strategy to be
made widely available to the public by
requiring a hospital organization to attach
to its Form 990 a copy of the most re-
cently adopted implementation strategy
for each hospital facility it operates (or
provide on the Form 990 the URL(s) of
the Web page(s) on which it has made
each implementation strategy widely
available on a Web site). As noted in
section 3.a.iii.C of this preamble, section
6104 requires Forms 990 to be made
available to the public by both the filing
organization and the IRS, and members of
the public may easily obtain a copy of a
hospital organization's Forms 990 from
one of the privately-funded organizations
that gathers and disseminates Forms 990
online or by completing IRS Form
4506-A.

i. Describing How a Hospital Facility
Plans to Address a Significant Health
Need

In describing how a hospital facility
plans to address a significant health need
identified through the CHNA, the 2013
proposed regulations provided that the im-
plementation strategy must: (1) describe
the actions the hospital facility intends to
take to address the health need, the antic-
ipated impact of these actions, and the
plan to evaluate such impact; (2) identify
the programs and resources the hospital
facility plans to commit to address the
health need; and (3) describe any planned
collaboration between the hospital facility
and other facilities or organizations in ad-
dressing the health need.

Many commenters supported the pro-
posed requirement that a hospital facility
include a plan to evaluate the impact of its
efforts in its implementation strategy and
further recommended that the final regu-
lations require hospital facilities to actu-
ally perform the planned evaluation and
publish the results of the evaluation. Some
of these commenters recommended publi-
cation of the results in the subsequent
CHNA report. Other commenters re-
quested permission for hospital facilities
to accomplish the "plan to evaluate the
impact" of the implementation strategy
through the process of conducting the next
CHNA. In response to these comments,
the final regulations replace the proposed

requirement that the implementation strat-
egy describe a plan to evaluate its impact
with a requirement that the CHNA report
include an evaluation of the impact of any
actions that were taken since the hospital
facility finished conducting its immedi-
ately preceding CHNA to address the sig-
nificant health needs identified in the hos-
pital facility's prior CHNA(s).

The preamble to the 2013 proposed
regulations provided the example that if a
hospital facility's CHNA identified high
rates of financial need or large numbers of
uninsured individuals and families in the
community as a significant health need in
its community, its implementation strat-
egy could describe a program to address
that need by expanding its financial assis-
tance program and helping to enroll unin-
sured individuals in sources of insurance
such as Medicare, Medicaid, Children's
Health Insurance Program (CHIP), and
the new Health Insurance Marketplaces
(also known as Exchanges), as appropri-
ate. A few commenters stated that, in ad-
dition to examples involving access to
health care, it would be helpful to have
examples of other interventions designed
to prevent illness or to address social,
behavioral, and environmental factors that
influence community health. An imple-
mentation strategy may describe the ac-
tions the hospital facility intends to take to
address any significant health needs iden-
tified through the CHNA process, and, as
noted in section 3.a.ii of this preamble, the
final regulations specify that the health
needs identified through a CHNA may, for
example, include the need to prevent ill-
ness, to ensure adequate nutrition, or to
address social, behavioral, and environ-
mental factors that influence health in the
community. Thus, the final regulations
make clear that an implementation strat-
egy may describe interventions designed
to prevent illness or to address social,
behavioral, and environmental factors that
influence community health.

ii. Describing Why a Hospital Facility
Is Not Addressing a Significant Health
Need

The 2013 proposed regulations pro-
vided that a hospital facility may provide
a brief explanation of its reason for not
addressing a significant health need, in-
cluding, but not limited to, resource con-
straints, relative lack of expertise or com-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

petencies to effectively address the need, a
relatively low priority assigned to the
need, a lack of identified effective inter-
ventions to address the need, and/or the
fact that the need is being addressed by
other facilities or organizations in the
community. Several commenters thought
hospital facilities should not be able to
cite "resource constraints" or "lack of ex-
pertise" as reasons for not addressing a
significant health need. These comment-
ers state that a hospital facility that is
unable, for reasons of lack of resources or
expertise or other factors, to address a
community health need should instead
collaborate with community partners to
address that need. Other commenters sup-
ported allowing hospital facilities to pro-
vide any explanation as to why some
health needs will not be addressed, con-
sistent with the proposed rule.

As discussed in section 3.a.v of this
preamble, the final regulations permit but
do not require collaboration. Thus, the
final regulations preserve the ability for a
hospital facility to explain its reasons for
not addressing a significant health need
(including resource constraints or a lack
of expertise), even if those reasons could
be mitigated through collaboration.

#### iii. Joint Implementation Strategies

The 2013 proposed regulations pro-
vided that a hospital facility adopting a
joint CHNA report along with other hos-
pital facilities and organizations (as de-
scribed in section 3.a.v of this preamble)
may also adopt a joint implementation
strategy as long as it meets certain speci-
fied requirements.

Numerous commenters generally sup-
ported joint implementation strategies,
with some of these commenters stating
that such collaboration is an important
way to conserve resources, promote cross-
system strategies, and yield better out-
comes. Commenters also noted that the
proposed approach avoids the need to cre-
ate duplicative separate documents while
still ensuring that information for each
hospital facility is clearly presented. Ac-
cordingly, the final regulations adopt the
proposed provision allowing for joint im-
plementation strategies.

iv. When the Implementation Strategy
Must Be Adopted

To satisfy the CHNA requirements
with respect to any taxable year, section

501(r)(3)(A)(ii) requires a hospital fa-
cility to adopt an implementation strat-
egy to meet the health needs identified
through the CHNA described in section
501(r)(3)(A)(i). The 2013 proposed reg-
ulations provided that, to satisfy this
requirement, an authorized body of the
hospital facility must adopt an imple-
mentation strategy to meet the health
needs identified through a hospital facil-
ity's CHNA by the end of the same
taxable year in which the hospital facil-
ity finishes conducting the CHNA. In
addition, the Treasury Department and
the IRS sought comments on whether
this rule would materially inhibit the
ability of hospital facilities with differ-
ent taxable years to collaborate with
each other or otherwise burden hospital
facilities unnecessarily.

Some commenters requested additional
time in which to adopt the implementation
strategy to accommodate collaboration
between hospital facilities, public health
departments, and community organiza-
tions with different fiscal years and on
different CHNA schedules. Suggestions
from these commenters ranged from an
additional four and a half months to 12
months after the end of the taxable year in
which the CHNA was conducted.

In response to these comments, the fi-
nal regulations provide hospital facilities
with an additional four and a half months
to adopt the implementation strategy, spe-
cifically requiring an authorized body of
the hospital facility to adopt an implemen-
tation strategy to meet the health needs
identified through a CHNA on or before
the 15th day of the fifth month after the
end of the taxable year in which the hos-
pital facility finishes conducting the
CHNA. By matching the date by which an
authorized body of the hospital facility
must adopt the implementation strategy to
the due date (without extensions) of the
Form 990 filed for the taxable year in
which the CHNA is conducted, this ap-
proach does not materially reduce trans-
parency, because an implementation strat-
egy (or the URL of the Web site on which
it is posted) is made available to the public
through the Form 990. The final regula-
tions do not go further and permit a hos-
pital facility to delay adoption of an im-
plementation strategy until the due date
for the Form 990 including extensions.

This is because hospital facilities need to
report on Form 4720 any excise tax they
owe under section 4959 as a result of
failing to meet the CHNA requirements in
a taxable year by the 15th day of the fifth
month following the end of that taxable
year and thus need to know whether they
have met the requirement to adopt an im-
plementation strategy by that date.

Because all hospital organizations now
have until the 15th day of the fifth month
following the close of the taxable year in
which they conduct a CHNA to adopt the
associated implementation strategy, the fi-
nal regulations remove the transition rule
that allowed for this result for CHNAs
conducted in a hospital facility's first tax-
able year beginning after March 23, 2012.

c. Exception for hospital facilities that
are new, newly acquired, or newly subject
to section 501(r)

The 2013 proposed regulations pro-
vided that a hospital facility that was
newly acquired or placed into service by a
hospital organization, or that became
newly subject to section 501(r) because
the hospital organization that operated it
was newly recognized as described in sec-
tion 501(c)(3), must meet the CHNA re-
quirements by the last day of the second
taxable year beginning after the date, re-
spectively, the hospital facility was ac-
quired, placed into service, or newly sub-
ject to section 501(r).

Several commenters interpreted the
2013 proposed regulations as providing
new and newly acquired hospital facilities
with only two taxable years to meet the
CHNA requirements. Two such com-
menters requested that these hospital fa-
cilities be given three taxable years, to
correspond to the length of the CHNA
cycle provided in the statute.

The 2013 proposed regulations gave
hospital facilities two complete taxable
years plus the portion of the taxable year
of acquisition, licensure, or section
501(c)(3) recognition (as applicable) to
meet the CHNA requirements. As noted
in the preamble to the 2013 proposed
regulations, a short taxable year of less
than twelve months is considered a tax-
able year for purposes of section 501(r).
Thus, the portion of the taxable year in
which a hospital facility is acquired or
placed into service, or becomes newly
subject to section 501(r), is a taxable year

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

for purposes of the CHNA requirements,
regardless of whether that taxable year is
less than twelve months. As a result, a
deadline of the last day of the second
taxable year beginning after the date of
acquisition, licensure, or section 501(c)(3)
recognition provides these new hospital
facilities with three taxable years (even if
less than three full calendar years) to meet
the section 501(r)(3) requirements. By
contrast, a deadline of the last day of the
third taxable year beginning after the date
of acquisition, licensure, or section
501(c)(3) recognition would provide these
new hospital facilities with more than
three taxable years, and possibly close to
four taxable years, to meet the CHNA
requirements. Accordingly, the final reg-
ulations continue to require hospital facil-
ities that are newly acquired or placed into
service (or become newly subject to sec-
tion 501(r)) to meet the CHNA require-
ments by the last day of the second tax-
able year beginning after the later of the
date of acquisition, licensure, or recogni-
tion of section 501(c)(3) status.

## i. Acquired Hospital Facilities

The 2013 proposed regulations pro-
vided that a hospital facility that was
newly acquired must meet the CHNA re-
quirements by the last day of the second
taxable year beginning after the date the
hospital facility was acquired. Several
commenters asked for guidance on
whether and how this rule for acquisitions
applies in the case of a merger of two
hospital organizations.

The final regulations provide that, in
the case of a merger that results in the
liquidation of one organization and sur-
vival of another, the hospital facilities for-
merly operated by the liquidated organi-
zation will be considered "acquired,"
meaning they will have until the last day
of the second taxable year beginning after
the date of the merger to meet the CHNA
requirements. Thus, the final regulations
treat mergers equivalently to acquisitions.

## ii. New Hospital Organizations

One commenter asked whether a new
hospital organization must meet the CHNA
requirements by the last day of the second
taxable year beginning after the date of
licensure or section 501(c)(3) recognition
if the organization seeks and obtains rec-
ognition of section 501(c)(3) status based
on its planned activities before the hospi-

tal facility it plans to operate is licensed
and placed into service. A facility is not
considered a "hospital facility" until it is
licensed, registered, or similarly recog-
nized as a hospital by a state, and an
organization operating a hospital facility
is not subject to section 501(r) until it is
recognized as described in section
501(c)(3). Thus, the Treasury Department
and the IRS intend that a new hospital
organization must meet the CHNA re-
quirements by the last day of the second
taxable year beginning after the later of
the effective date of the determination let-
ter or ruling recognizing the organization
as described in section 501(c)(3) or the
first date a facility operated by the orga-
nization was licensed, registered, or sim-
ilarly recognized by its state as a hospital.
The final regulations are amended to make
this clarification.

### iii. Transferred or Terminated Hospital Facilities

One commenter recommended that a
hospital organization should not be re-
quired to meet the CHNA requirements in
a particular taxable year with respect to a
hospital facility if, before the end of that
taxable year, the hospital organization
transfers the hospital facility to an unaf-
filiated organization or otherwise termi-
nates its operation of that hospital facility.
This commenter reasoned that requiring a
hospital organization to invest time and
energy in conducting a CHNA and devel-
oping an implementation strategy for a
hospital facility will create inefficiencies
if the organization is transferring or ter-
minating its operation of the hospital fa-
cility, as the new hospital organization
may have different perceptions of the co-
mmunity's needs and the optimal channels
for addressing those needs. In response to
this comment, the final regulations provide
that a hospital organization is not required
to meet the requirements of section
501(r)(3) with respect to a hospital facility
in a taxable year if the hospital organiza-
tion transfers all ownership of the hospital
facility to another organization or other-
wise ceases its operation of the hospital
facility before the end of the taxable year.
The same rule applies if the facility ceases
to be licensed, registered, or similarly rec-
ognized as a hospital by a state during the
taxable year.

Another commenter asked whether a
government hospital organization that vol-
untarily terminates its section 501(c)(3) sta-
tus must meet the CHNA requirements in
the taxable year of termination to avoid an
excise tax under section 4959. As noted in
section 1.d of this preamble, government
hospital organizations that have previ-
ously been recognized as described in sec-
tion 501(c)(3) but do not wish to comply
with the requirements of section 501(r)
may submit a request to voluntarily termi-
nate their section 501(c)(3) recognition as
described in section 7.04(14) of Rev. Proc.
2014-4 (or a successor revenue procedure).
A government hospital organization that ter-
minates its section 501(c)(3) recognition in
this manner is no longer considered a "hos-
pital organization" within the meaning of
these regulations and therefore will not be
subject to excise tax under section 4959 for
failing to meet the CHNA requirements dur-
ing the taxable year of its termination.

#### 4. Financial Assistance Policies and Emergency Medical Care Policies

In accordance with the statute and the
2012 proposed regulations, the final regu-
lations require hospital organizations to
establish written FAPs as well as written
emergency medical care policies.

##### a. Financial assistance policies

Consistent with the 2012 proposed reg-
ulations, the final regulations provide that
a hospital organization meets the require-
ments of section 501(r)(4)(A) with respect
to a hospital facility it operates only if the
hospital organization establishes for that
hospital facility a written FAP that ap-
plies to all emergency and other medi-
cally necessary care provided by the
hospital facility.

A number of commenters noted that
patients, including emergency room pa-
tients, are commonly seen (and separately
billed) by private physician groups or
other third-party providers while in the
hospital setting. Commenters asked for
clarification on the extent to which a hos-
pital facility's FAP must apply to other
providers a patient might encounter in the
course of treatment in a hospital facility,
including non-employee providers in pri-
vate physician groups or hospital-owned
practices. Some of these commenters
noted that patients are often unaware of

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the financial arrangements between vari-
ous providers in the hospital facility and
may unknowingly be transferred to a pro-
vider that separately bills the patients for
care. A few commenters noted that emer-
gency room physicians in some hospital
facilities separately bill for emergency
medical care provided to patients and rec-
ommended that the section 501(r) require-
ments apply to such emergency room phy-
sicians.

In response to comments and to pro-
vide transparency to patients, the final reg-
ulations require a hospital facility's FAP
to list the providers, other than the hospi-
tal facility itself, delivering emergency or
other medically necessary care in the hos-
pital facility and to specify which provid-
ers are covered by the hospital facility's
FAP (and which are not). As discussed in
section 1.g of this preamble, the final reg-
ulations also clarify that a hospital facili-
ty's FAP must apply to all emergency and
other medically necessary care provided
in a hospital facility by a partnership
owned in part by, or a disregarded entity
wholly owned by, the hospital organiza-
tion operating the hospital facility, to the
extent such care is not an unrelated trade
or business with respect to the hospital
organization. In addition, the Treasury
Department and the IRS note that if a
hospital facility outsources the operation
of its emergency room to a third party and
the care provided by that third party is not
covered under the hospital facility's FAP,
the hospital facility may not be considered
to operate an emergency room for pur-
poses of the factors considered in Rev.
Rul. 69-545 (1969-2 CB 117) (providing
examples illustrating whether a nonprofit
hospital claiming exemption under section
501(c)(3) is operated to serve a public
rather than a private interest, with one
activity of the section 501(c)(3) hospital
being the operation of a full time emer-
gency room).

i. Eligibility Criteria and Basis for Cal-
culating Amounts Charged to Patients

Section 501(r)(4)(A)(i) and (ii) require
a hospital facility's FAP to specify the
eligibility criteria for financial assistance,
whether such assistance includes free or

discounted care, and the basis for calcu-
lating amounts charged to patients. Ac-
cordingly, the 2012 proposed regulations
provided that a hospital facility's FAP
must specify all financial assistance avail-
able under the FAP, including all dis-
counts and free care and, if applicable, the
amount(s) (for example, gross charges) to
which any discount percentages will be
applied. The 2012 proposed regulations
also provided that a hospital facility's
FAP must specify all of the eligibility
criteria that an individual must satisfy to
receive each discount, free care, or other
level of assistance.

A number of commenters asked that
hospital facilities be allowed to offer pa-
tients certain discounts-including self-
pay discounts, certain discounts mandated
under state law, and discounts for out-of-
state patients-outside of their FAPs and
that this assistance not be subject to the
requirements of sections 501(r)(4)
through 501(r)(6), including the AGB lim-
itation of section 501(r)(5)(A). Several
commenters noted that subjecting all as-
sistance provided by hospital facilities to
the AGB limitation could result in hospi-
tals offering fewer discounts or less assis-
tance than they might otherwise provide
to certain categories of patients.

The Treasury Department and the IRS
recognize that not all discounts a hospital
facility might offer its patients are prop-
erly viewed as "financial assistance" and
intend that hospital facilities may offer
payment discounts or other discounts out-
side of their FAPs and may charge dis-
counted amounts in excess of AGB to
individuals that are not FAP-eligible. Ac-
cordingly, the final regulations only re-
quire the FAP to describe discounts
"available under the FAP" rather than all
discounts offered by the hospital facility.6
The Treasury Department and the IRS
note, however, that only the discounts
specified in a hospital facility's FAP (and,
therefore, subject to the AGB limitation)
may be reported as "financial assistance"
on Schedule H, "Hospitals," of the Form
990. Moreover, discounts provided by a
hospital facility that are not specified in a
hospital facility's FAP will not be consid-

ered community benefit activities for pur-
poses of section 9007(e)(1)(B) of the Af-
fordable Care Act (relating to reports on
costs incurred for community benefit ac-
tivities) nor for purposes of the totality of
circumstances that are considered in de-
termining whether a hospital organization
is described in section 501(c)(3).

Some commenters asked for the final
regulations to confirm that hospital facil-
ities will be given the flexibility to de-
velop FAP-eligibility criteria that respond
to local needs. Like the 2012 proposed
regulations, the final regulations do not
mandate any particular eligibility criteria
and require only that a FAP specify the
eligibility criteria for receiving financial
assistance under the FAP.

A number of commenters recom-
mended that the final regulations require
the FAP to contain a statement that ex-
plains the patient's obligation to cooperate
with the hospital facility's requests for
information needed to make an eligibility
determination. The Treasury Department
and the IRS decline to impose this specific
requirement but note that hospital facili-
ties have the flexibility to include any
additional information in the FAP that the
hospital facility chooses to convey or that
may be helpful to the community, includ-
ing such a statement.

ii. Method for Applying for Financial
Assistance

Section 501(r)(4)(A)(iii) requires a
hospital facility's FAP to include the
method for applying for financial assis-
tance under the FAP. Accordingly, the
2012 proposed regulations provided that a
hospital facility's FAP must describe how
an individual applies for financial assis-
tance under the FAP and that either the
hospital facility's FAP or FAP application
form (including accompanying instruc-
tions) must describe the information or
documentation the hospital facility may
require an individual to submit as part of
his or her FAP application. The 2012 pro-
posed regulations also made clear that fi-
nancial assistance may not be denied
based on the omission of information or
documentation if such information or doc-

6The 2012 proposed regulations stated that a hospital facility's FAP must specify "all financial assistance available under the FAP, including all discount(s)." Although the term "all
discount(s)" was not qualified with the phrase "available under the FAP," this interpretation was intended. The final regulations add "available under the FAP" after "all discounts" to clarify
that discounts may be offered outside of the FAP.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

umentation was not specifically required
by the FAP or FAP application form.

Numerous commenters asked that the
final regulations add language to ensure
that hospital facilities are not prohibited
from granting financial assistance despite
an applicant's failure to provide any or all
information or documentation described
in the FAP or FAP application form and
requested that hospital facilities have the
flexibility to grant financial assistance
based on other evidence or an attestation
by the applicant. While the Treasury De-
partment and the IRS intend to require
hospital facilities to establish a transparent
application process under which individ-
uals may not be denied financial assis-
tance based on a failure to provide infor-
mation or documentation unless that
information or documentation is described
in the FAP or FAP application form, they
do not intend to restrict hospital facilities'
ability to grant financial assistance to an
applicant who has failed to provide such
information or documentation. Accord-
ingly, the final regulations expressly state
that a hospital facility may grant financial
assistance under its FAP notwithstanding
an applicant's failure to provide such in-
formation. Thus, a hospital facility may
grant financial assistance based on evi-
dence other than that described in a FAP
or FAP application form or based on an
attestation by the applicant, even if the
FAP or FAP application form does not
describe such evidence or attestations.

One commenter stated that the exam-
ple in the 2012 proposed regulations of a
hospital facility with a FAP that requires
certain specified documentation demon-
strating household income (including fed-
eral tax returns or paystubs) or "other re-
liable evidence of the applicant's earned
and unearned household income" was
contrary to the idea that a FAP must "de-
scribe the information and documenta-
tion" required. The Treasury Department
and the IRS intended for the reference to
"other reliable evidence" in the example
to signal that a hospital facility may be
flexible in allowing applicants to provide
alternative documentation to demonstrate
eligibility. The example was not intended
to suggest that a reference in a FAP or
FAP application form to "reliable evi-
dence" alone (without also identifying
specific documentation applicants could

provide) would be sufficient. To clarify
this intent, the example of the FAP appli-
cation form in the final regulations is
modified so that the instructions identify
specific documentation (including federal
tax returns, paystubs, or documentation
establishing qualification for certain spec-
ified state means-tested programs) but
also state that if an applicant does not
have any of the listed documents to prove
household income, he or she may call the
hospital facility's financial assistance of-
fice and discuss other evidence that may
be provided to demonstrate eligibility.

A number of commenters noted that
total reliance on paper applications does
not reflect current practices in which
much information is gathered from pa-
tients orally, with a few commenters rec-
ommending that the final regulations ex-
pressly permit eligibility determinations
on the basis of information obtained
through face-to-face meetings or over the
phone rather than through a paper appli-
cation process. The Treasury Department
and the IRS did not intend to mandate
paper applications or to imply that infor-
mation needed to determine FAP-
eligibility could not be obtained from an
individual in other ways. Accordingly,
and in response to comments, the final
regulations amend the definition of "FAP
application" to clarify that the term is not
intended to refer only to written submis-
sions and that a hospital facility may ob-
tain information from an individual in
writing or orally (or a combination of
both).

Numerous commenters stated that hos-
pitals can, and commonly do, rely on
trustworthy methods and sources of infor-
mation other than FAP applications to de-
termine FAP-eligibility and recommended
that hospital facilities be allowed to rely
on these information sources and methods
to determine FAP-eligibility, provided
that the sources and methods are disclosed
in the FAP or on the hospital facility's
Form 990. Commenters also recom-
mended that a hospital should be able to
rely on prior FAP-eligibility determina-
tions, provided that such reliance is dis-
closed in its FAP.

As discussed in section 6.b.vi of this
preamble, the final regulations permit a
hospital facility to determine that an indi-
vidual is eligible for assistance under its

FAP based on information other than that
provided by the individual or based on a
prior FAP-eligibility determination, pro-
vided that certain conditions are met.
Given this change, and consistent with
commenters' recommendations, the final
regulations require a hospital facility to
describe in its FAP any information ob-
tained from sources other than individuals
seeking assistance that the hospital facility
uses, and whether and under what circum-
stances it uses prior FAP-eligibility deter-
minations, to presumptively determine
that individuals are FAP-eligible.

Some commenters requested that the
final regulations specifically prohibit hos-
pital facilities from using social security
numbers or credit card information or
from running credit checks that damage
consumer credit, while another com-
menter would impose a requirement that
all requested information or documenta-
tion be reasonable and adequate to estab-
lish eligibility for the hospital facility's
FAP. The final regulations do not pre-
scribe or restrict the information or docu-
mentation a hospital facility may request
but do require that a hospital facility de-
scribe such information or documentation
in its FAP or FAP application form. The
Treasury Department and the IRS expect
that the transparency achieved by requir-
ing the information or documentation to
be described in the FAP or FAP applica-
tion form will discourage hospital facili-
ties from requesting information or docu-
mentation that is unreasonable or
unnecessary to establish eligibility.

A number of commenters noted that a
patient's financial status may change over
time and requested clarification on the
point in time used to determine financial
eligibility. A few of these commenters
requested clarification that a hospital fa-
cility has the discretion to determine that
point in time in its FAP, a few recom-
mended that a specific point in time be
used (for example, the date of service or
the date of application), and a few sug-
gested that the final regulations should
require the point in time to be specified in
a FAP.

The Treasury Department and the IRS
intend for hospital facilities to have the
flexibility to choose the time period used
to determine FAP eligibility and expect
that that the relevant point(s) in time will

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

be made clear based on the information
and/or documentation requested from ap-
plicants in the FAP or FAP application
form. For example, if a hospital facility's
FAP application form asks for "last
month's" income, the hospital facility pre-
sumably will look at the applicant's in-
come from the month preceding the sub-
mission of the FAP application to
determine whether the applicant satisfies
the income-based eligibility criteria. Sim-
ilarly, the example regarding application
methods in these final regulations de-
scribes a hospital facility that requests
proof of household income in the form of
payroll check stubs "from the last month"
(which would reflect wages in the time
period shortly before the application) or, if
last month's wages are not representative
of the applicant's annual income, a copy
of the applicant's "most recent federal tax
return" (which would reflect annual in-
come in a year preceding the application).
Because the Treasury Department and the
IRS expect that the time period(s) used to
assess eligibility should be evident from
the information and/or documentation re-
quested to demonstrate eligibility, the fi-
nal regulations do not provide further
elaboration on this point.

iii. Actions That May Be Taken in the
Event of Nonpayment

In the case of a hospital facility that
does not have a separate billing and col-
lections policy, section 501(r)(4)(A)(iv)
requires a hospital facility's FAP to in-
clude actions that may be taken in the
event of nonpayment. Accordingly, the
2012 proposed regulations provided that
either a hospital facility's FAP or a sepa-
rate written billing and collections policy
established for the hospital facility must
describe the actions that the hospital facil-
ity (or other authorized party) may take
related to obtaining payment of a bill for
medical care, including, but not limited to,
any extraordinary collection actions de-
scribed in section 501(r)(6).

A few commenters recommended that
the final regulations require governing
board approval of the billing and collec-
tions policy of a hospital facility. The
Treasury Department and the IRS note
that these final regulations, like the 2012
proposed regulations, provide that a FAP
"established" by a hospital facility must
describe the hospital facility's actions in

the event of nonpayment unless the hos-
pital facility has "established" a billing
and collections policy that describes these
actions. As described in section 4.c of this
preamble, a billing and collections policy
or a FAP is "established" only if it is
adopted by an authorized body of the hos-
pital facility, which includes the govern-
ing body of the hospital facility or a com-
mittee of, or other party authorized by,
such governing body. Thus, the final reg-
ulations provide that an authorized body
of the hospital facility must adopt the hos-
pital facility's FAP and, if applicable, bill-
ing and collections policy.

Two commenters asked that hospital
facilities with separate billing and collec-
tions policies be required both to include
some basic information about those poli-
cies in their FAPs and to translate the
separate billing and collections policies
into foreign languages. The 2012 pro-
posed regulations provided that a hospital
facility that described its actions in the
event of nonpayment in a separate billing
and collections policy must state in its
FAP that the actions in the event of non-
payment are described in a separate bill-
ing and collections policy and explain
how members of the public may readily
obtain a free copy of this separate policy.
In addition, the definition of "readily ob-
tainable information" in the 2012 pro-
posed regulations provided that a separate
billing and collections policy would be
readily obtainable if it were made avail-
able free of charge both on a Web site and
in writing upon request in the same man-
ner that a FAP is made available on a Web
site and upon request, which included
making translated copies available on a
Web site and upon request. To clarify
that translations were intended to be part
of making a billing and collections pol-
icy readily obtainable, § 1.501(r)-
4(b)(6) of the final regulations relating
to "readily obtainable information" has
been amended to expressly refer to the
provision of translations.

##### iv. Widely Publicizing the FAP

Section 501(r)(4)(A)(v) requires a hos-
pital facility's FAP to include measures to
widely publicize the FAP within the com-
munity served by a hospital facility. To
satisfy this requirement, the 2012 pro-
posed regulations provided that a FAP
must include, or explain how members of

the public may readily obtain a free writ-
ten description of, the measures taken by
the hospital facility to-

☐
Make the FAP, FAP application
form, and a plain language summary of
the FAP (together, "FAP documents")
widely available on a Web site;
☐
Make paper copies of the FAP doc-
uments available upon request and with-
out charge, both in public locations in the
hospital facility and by mail;

☐
Notify and inform visitors to the
hospital facility about the FAP through
conspicuous public displays or other mea-
sures reasonably calculated to attract vis-
itors' attention; and

☐
Notify and inform residents of the
community served by the hospital facility
about the FAP in a manner reasonably
calculated to reach those members of the
community who are most likely to require
financial assistance.

Several commenters asked that hospi-
tals be given the flexibility to "widely
publicize" the FAP in any manner they
see fit. The Treasury Department and the
IRS view the provisions in the 2012 pro-
posed regulations as already giving hospi-
tal facilities broad flexibility to determine
the methods they think are best to notify
and inform their patients and broader
communities about their FAPs. In addi-
tion, the Treasury Department and the IRS
see the requirements to make the FAP
widely available on a Web site and to
make paper copies available upon request
as minimal steps that are necessary to
ensure patients have the information they
need to seek financial assistance. Accord-
ingly, the final regulations continue to re-
quire a hospital facility to make the FAP
documents available upon request and
widely available on a Web site and to
notify and inform both visitors to the hos-
pital and members of the community
served by the hospital about its FAP.

One commenter suggested that a hos-
pital facility's FAP should only be re-
quired to "summarize" the measures to
widely publicize the FAP, suggesting that
requiring detailed information about such
measures would unnecessarily increase
mailing, copying, and compliance costs.
In response to this comment and to reduce
the documentation burden associated with
the FAP, these final regulations eliminate
the requirement that the FAP list the mea-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

sures taken to widely publicize the FAP
and instead require only that a hospital
facility implement the measures to widely
publicize the FAP in the community it
serves. This approach is consistent with
the definition of "establishing" a FAP dis-
cussed in section 4.c of this preamble,
which includes not only adopting the FAP
but also implementing it, and with the
Joint Committee on Taxation's (JCT)
Technical Explanation of the Affordable
Care Act. See Staff of the Joint Committee
on Taxation, Technical Explanation of the
Revenue Provisions of the "Reconcilia-
tion Act of 2010," as Amended, in Com-
bination with the "Patient Protection and
Affordable Care Act" (March 21, 2010),
at 82 (Technical Explanation) (stating that
section 501(r)(4) requires each hospital
facility to "adopt, implement, and widely
publicize" a written FAP).

A. Widely available on a Web site

A number of commenters stated that
FAPs will be updated more frequently
than summaries, so that making the full
FAP widely available on a Web site
would be burdensome. One of these com-
menters stated that the full FAP is not
especially useful for most patients, as it is
written for internal compliance and diffi-
cult for the general public to understand.
On the other hand, numerous other com-
menters strongly supported the require-
ment to make these documents widely
available on a Web site, with some noting
that doing so would allow patients to more
easily identify the assistance they might
be eligible for and to speak knowledge-
ably with financial assistance personnel at
the hospital facility. The Treasury Depart-
ment and the IRS believe that making the
complete FAP widely available to the
public on a Web site is important in
achieving transparency and that the bene-
fits of this transparency outweigh the bur-
dens incurred in posting an updated doc-
ument on a Web site. Thus, the final
regulations retain this requirement.

B. Making paper copies available upon
request

With respect to the requirement to
make paper copies of the FAP documents
available upon request and without charge
in public locations in the hospital facility,
one commenter stated that "public loca-
tions" could be interpreted to mean all
public locations in the hospital and that

essentially every area of the hospital could
be classified as a public location. Another
commenter asked that "public locations"
specifically include the admissions areas
and the emergency room, noting that pa-
tients and their family members generally
pass through one of those two areas dur-
ing their stay and that having at least one
uniform location where these documents
are available would help ensure that pa-
tients know where to go for paper copies.
In response to these comments, the final
regulations specify that "public locations"
in a hospital facility where paper copies
must be provided upon request include, at
a minimum, the emergency room (if any)
and the admissions areas.

Other commenters asked that making
paper copies "available upon request"
should be required only with respect to
patients who indicate that they lack access
to the Internet. The final regulations clar-
ify that hospital facilities may inform in-
dividuals requesting copies that the vari-
ous FAP documents are available on a
Web site or otherwise offer to provide the
documents electronically (for example, by
email or on an electronic screen). How-
ever, the Treasury Department and the
IRS continue to believe that making paper
copies of the FAP documents available to
those persons who request them is impor-
tant to achieve adequate transparency. Ac-
cordingly, the final regulations also make
clear that a hospital facility must provide a
paper copy unless the individual indicates
he or she would prefer to receive or access
the document electronically.

C. Notifying and informing hospital fa-
cility patients

With respect to the requirement in the
2012 proposed regulations to notify and
inform visitors to a hospital facility about
the FAP through a conspicuous public dis-
play (or other measures reasonably calcu-
lated to attract visitors' attention), a num-
ber of commenters asked for clarification
on what makes a public display "conspic-
uous," with one such commenter noting
that placement of a small placard in a
corner of a financial assistance office that
is rarely seen by patients should not be
sufficient.

The Treasury Department and the IRS
believe that what makes a public display
"conspicuous" is both for the display to be
of a noticeable size and for the display to

be placed in a location in the hospital
facility where visitors are likely to see it.
Thus, similar to the requirement regarding
making paper copies of the FAP docu-
ments available upon request in "public
locations" in the hospital facility, the final
regulations clarify that hospital facilities
must notify and inform visitors about the
FAP in "public locations" in the hospital
facility, including, at a minimum, the
emergency room (if any) and admissions
areas.

In addition to notifying patients about
the FAP through a conspicuous public dis-
play (or through other measures reason-
ably calculated to attract visitors' atten-
tion), the final regulations also require
hospital facilities to widely publicize their
FAPs by providing FAP information to
patients before discharge and with billing
statements. The 2012 proposed regula-
tions included the notification of patients
about the FAP before discharge and with
billing statements as part of the notifica-
tion component of reasonable efforts to
determine FAP-eligibility under section
501(r)(6). However, these efforts to notify
and inform patients about the FAP before
discharge and with billing statements may
also be appropriately categorized as mea-
sures to widely publicize the FAP under
section 501(r)(4). Thus, the final regula-
tions consolidate all of the requirements
that involve notifying patients generally
about the FAP under the section 501(r)(4)
widely publicizing requirements. As a re-
sult, the notification component of reason-
able efforts to determine FAP-eligibility
under the section 501(r)(6) final regula-
tions is simplified and is focused primarily
on those patients against whom a hospital
facility actually intends to engage in ex-
traordinary collection actions. The Trea-
sury Department and the IRS expect that
moving the requirement that hospital fa-
cilities notify and inform patients about
the FAP with billing statements and as
part of their intake or discharge process
from the section 501(r)(6) regulations to
the section 501(r)(4) regulations will in-
crease understanding of the requirements
and compliance, without a loss of notifi-
cation to patients.

In addition to requiring hospital facili-
ties to notify individuals about their FAPs
before discharge and on billing statements
as part of widely publicizing their FAPs,

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the final regulations also amend these re-
quirements in several important respects
in response to comments to the 2012 pro-
posed regulations. First, rather than re-
quire a full plain language summary with
billing statements, the final regulations re-
quire only that a hospital facility's billing
statement include a conspicuous written
notice that notifies and informs the recip-
ient about the availability of financial as-
sistance under the hospital facility's FAP
and includes the telephone number of the
hospital facility office or department that
can provide information about the FAP
and FAP application process and the di-
rect Web site address (or URL) where the
copies of the FAP documents may be ob-
tained. This change responds to those
comments (discussed in greater length in
section 6.b.iii of this preamble) that noted
that a reference on the billing statement to
the availability of the FAP and a brief
description of how to obtain more infor-
mation should provide sufficient notifica-
tion to patients while minimizing costs for
hospital facilities.

Second, some commenters appeared to
interpret the phrase "before discharge" in
the 2012 proposed regulations as requir-
ing distribution "at discharge" and sug-
gested that the latter requirement would
not work because outpatients do not al-
ways revisit with a hospital registration
staff member after care is provided or may
never be physically present at the hospital
facility. In response to these comments,
the final regulations refer to offering the
plain language summary as part of either
the "intake or discharge process," and the
Treasury Department and the IRS intend
that those terms be interpreted broadly to
include whatever processes are used to
initiate or conclude the provision of hos-
pital care to individuals who are patients
of the hospital facility. In addition, in re-
sponse to commenters who noted that
many patients will have no interest in re-
ceiving a plain language summary of the
FAP because they know they are not FAP-
eligible, the final regulations require only
that a hospital facility "offer" (rather than
"provide") a plain language summary as
part of the intake or discharge process.
Thus, a hospital facility will not have

failed to widely publicize its FAP because
an individual declines to take a plain lan-
guage summary that the hospital facility
offered on intake or before discharge or
indicates that he or she would prefer to
receive or access a plain language sum-
mary electronically rather than receive a
paper copy.

#### D. Notifying and informing the broader community

Several commenters recommended
eliminating altogether the requirement to
notify and inform members of the hospital
facility's community about the FAP, stat-
ing that the other three measures to widely
publicize the FAP are sufficient and that
this additional specification is vague, open
to subjective interpretation, and overly
burdensome for hospitals. Other com-
menters, however, strongly supported the
requirement, particularly the special em-
phasis placed on members of the commu-
nity most likely to need financial help.

The Treasury Department and the IRS
interpret the phrase "widely publicize
within the community to be served by the
organization" in section 501(r)(4)(v) as
going beyond merely making a FAP
"widely available" on a Web site or upon
request and requiring hospital facilities to
affirmatively reach out to the members of
the communities they serve to notify and
inform them about the financial assistance
they offer. Accordingly, the final regula-
tions retain the requirement to notify and
inform members7 of the hospital facility's
community in a manner reasonably calcu-
lated to reach those members who are
most likely to require financial assistance
from the hospital facility.

E. Plain language summary of the FAP

The 2012 proposed regulations defined
the plain language summary of the FAP as
a written statement that notifies an indi-
vidual that the hospital facility offers fi-
nancial assistance under a FAP and pro-
vides certain specified information,
including but not limited to: (1) the direct
Web site address and physical location(s)
(including a room number, if applicable)
where the individual can obtain copies of
the FAP and FAP application form; and
(2) the contact information, including tele-
phone numbers and physical location (in-

cluding a room number, if applicable), of
hospital facility staff who can provide the
individual with information about the
FAP and the FAP application process, as
well as of the nonprofit organizations or
government agencies, if any, that the hos-
pital facility has identified as available
sources of assistance with FAP applica-
tions.

A number of commenters noted that
many hospitals currently assist patients
with the FAP application process and that
such assistance can be very important for
low-income patients with literacy barriers.
A few commenters requested that the final
regulations require hospitals to assist
and/or provide contact information for
hospital staff who can assist with the FAP
application process. One commenter sug-
gested that the plain language summary
should not have to include the contact
information of nonprofit organizations or
government agencies that assist with FAP
applications, recommending instead that
hospital facilities be able to include the
contact information for the hospital facil-
ity's own community health clinics as
sources of FAP application assistance.

Although assisting patients with the
FAP application process can be an impor-
tant step in ensuring that patients obtain
the financial assistance for which they are
eligible, nonprofit organizations or gov-
ernment agencies can be as effective
sources of this assistance as hospital facil-
ities themselves. To ensure both that pa-
tients have notice of how to obtain assis-
tance with the FAP application process
and that hospital facilities have the flexi-
bility to refer patients to other organiza-
tions rather than provide assistance them-
selves, the final regulations require the
plain language summary to include the
contact information of a source of assis-
tance with FAP applications but allow for
this source to be either the hospital facility
itself or a different organization. More
specifically, the final regulations provide
that the plain language summary must in-
clude the contact information of either the
hospital facility office or department that
can provide assistance with (rather than
just "information about") the FAP appli-
cation process or, if the hospital facility

7In recognition of the fact that not all hospital facilities will define the communities they serve along strictly geographic lines, the final regulations are amended to refer to "members" of
the hospital facility's community rather than "residents."

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

does not provide assistance with the FAP
application process, at least one nonprofit
organization or government agency that
the hospital facility has identified as an
available source of such assistance.

One commenter recommended that the
plain language summary of the FAP only
be required to list a department rather than
a physical location because hospital facil-
ity remodeling and redesign could mean
that the precise physical location could be
subject to change, therefore requiring re-
drafting of the plain language summary.
Another commenter asked that the final
regulations clarify that the plain language
summary may identify the location and
phone number of the appropriate office or
department to contact for more informa-
tion about the FAP, without naming a
specific staff person.

The Treasury Department and the IRS
continue to think that the physical location
in the hospital facility where patients can
obtain copies of the FAP and FAP appli-
cation form and information about and/or
assistance with the FAP application pro-
cess is important, basic information to
provide to individuals in the plain language
summary. Therefore, the final regulations
continue to require this information regard-
ing physical location. However, the final
regulations remove a specific reference to
a room number to give hospital facilities
more flexibility to describe the physical
location in the manner that makes the
most sense for the hospital facility. The
final regulations also clarify that the plain
language summary may identify the loca-
tion and phone number of the appropriate
office or department to contact for more
information about the FAP and, if appli-
cable, assistance with the FAP application
process and does not need to name a spe-
cific staff person.

One commenter recommended that, in
addition to the required items of informa-
tion described in the 2012 proposed reg-
ulations, the plain language summary
should provide a basic outline of the FAP
application process and the appropriate
times to apply. This commenter stated that
many patients will rely on the plain lan-
guage summary for information about the

FAP, in lieu of reading the FAP itself, and
that information about when and how to
apply for financial assistance is basic in-
formation a patient needs to have. The
Treasury Department and the IRS agree
that information about how to apply for
financial assistance is important informa-
tion for individuals to have, and the final
regulations therefore require this informa-
tion to be included in the plain language
summary. Any additional burden created
by requiring this information should be
mitigated by the fact that the final regula-
tions do not require the plain language
summary to be included with all billing
statements and other written communica-
tions provided during the notification pe-
riod. As for "when" to apply, while pa-
tients generally have at least 240 days
from the date of the first bill to apply for
financial assistance, the deadline for any
particular patient's FAP application will
depend on whether and when the hospital
facility sends that patient the notice about
potential extraordinary collection actions
described in section 6.b.iii.C of this pre-
amble that states a deadline. Given the
resulting variability in deadlines, the final
regulations do not require the plain lan-
guage summary to include a description of
the appropriate times to apply.

A few commenters asked that the plain
language summary be required to include
a statement regarding patient responsibil-
ities. The Treasury Department and the
IRS do not intend for the list of elements
required to be included in a plain language
summary of the FAP to limit a hospital
facility's ability to provide additional in-
formation. Accordingly, a hospital facility
is permitted, but not required, to include
in its plain language summary any ad-
ditional items of information it deems
relevant to the FAP and FAP application
process.

F. Translating the FAP documents

The 2012 proposed regulations pro-
vided that hospital facilities must translate
FAP documents into the primary language
of any LEP populations that constitute
more than 10 percent of the members of
the community served by the hospital fa-
cility. One commenter asked that this re-

quirement be eliminated altogether, at
least with regard to small or rural hospital
facilities, while two other commenters
supported the 10-percent threshold for
translation. Many additional commenters
requested that the translation threshold be
lowered from 10 percent to the lesser of 5
percent or 500 LEP individuals. They
noted that some federal translation thresh-
olds are set as low as 500 LEP individuals
and that a 5-percent threshold would re-
sult in greater consistency with translation
guidance provided by the Department of
Health and Human Services (HHS). See
HHS, "Guidance to Federal Financial As-
sistance Recipients Regarding Title VI
Prohibition Against National Origin Dis-
crimination Affecting Limited English
Proficient Persons," 68 FR 47,311 (Au-
gust 8, 2003) ("HHS Guidance"). The
HHS Guidance includes a "safe harbor"
that considers it strong evidence that a
hospital receiving federal financial assis-
tance is in compliance with written trans-
lation obligations under Title VI of the
Civil Rights Act of 1964 (42 U.S.C.
2000d, et. seq.) if it provides written trans-
lations of vital documents for each eligi-
ble LEP language group that constitutes 5
percent or 1,000, whichever is less, of the
population of persons eligible to be served
or likely to be affected or encountered.8

Both Medicaid and Medicare Part A
constitute "federal financial assistance"
for purposes of Title VI of the Civil
Rights Act, and the Treasury Department
and the IRS expect that virtually every
hospital facility operated by an organiza-
tion described in section 501(c)(3) accepts
Medicaid and/or Medicare Part A. The
Treasury Department and the IRS also
expect that documents that describe the
financial assistance offered by a hospital
facility and that are necessary to apply for
such financial assistance would be consid-
ered "vital" for purposes of the Title VI
obligations. Therefore, the Treasury De-
partment and the IRS expect that many
hospital facilities are already translating
these documents to meet their Title VI
obligations, often in accordance with the
safe harbor in the HHS Guidance. As a
result, the Treasury Department and the

8If there are fewer than 50 persons in a language group that reaches the 5-percent trigger, the recipient of federal financial assistance does not have to translate vital written materials to
satisfy the safe harbor but rather may provide written notice in the primary language of the LEP language group of the right to receive competent oral interpretation of those written materials,
free of cost.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

IRS agree with commenters that it is rea-
sonable and appropriate to make the trans-
lation threshold applicable to the FAP
documents generally consistent with the
5-percent/1000 person threshold under the
HHS Guidance safe harbor, and the final
regulations adopt this change.

The 2012 proposed regulations pro-
vided that a hospital facility could deter-
mine whether a LEP group exceeded the
relevant threshold based on the latest data
available from the U.S. Census Bureau or
other similarly reliable data. One com-
menter requested clarification on whether
to use the U.S. Census Bureau's decennial
survey or more updated information pro-
vided through the American Community
Survey. The Treasury Department and the
IRS believe that a hospital facility basing
its determination of LEP populations in
whole or in part on data from the U.S.
Census Bureau should be allowed to use
either the latest decennial census data or
the latest American Community Survey
data. In addition, other data sources may
also be reasonable to use to determine
LEP populations for purposes of these
regulations. For example, the HHS Guid-
ance notes that, in determining the LEP
persons eligible to be served or likely to
be affected or encountered, it may be ap-
propriate for hospitals to examine not only
census data but also their prior experi-
ences with LEP patients, data from school
systems and community organizations,
and data from state and local govern-
ments. See HHS Guidance, 68 FR at
47314. The Treasury Department and the
IRS intend that a hospital facility be able
to use these same data sources in deter-
mining the LEP persons in the community
it serves or likely to be affected or en-
countered for purposes of these final reg-
ulations. Therefore, rather than list the
various data sources a hospital facility
may use to determine its LEP populations,
the final regulations provide that a hospi-
tal facility may use any reasonable
method to determine such populations.

Several commenters recommended
that hospital facilities only be required to
translate the plain language summary of
the FAP and the FAP application form,
not the full FAP, stating that the summary
and application form are the documents
most useful to patients and that few, if
any, patients request the full FAP. The

Treasury Department and the IRS believe
that the benefits of ensuring that LEP pop-
ulations have access to the details pro-
vided in the FAP that are not captured in
a summary or application form outweigh
the additional costs that hospital facilities
may incur in translating the full FAP doc-
ument. Accordingly, the final regulations
do not adopt this comment.

Several commenters recommended
that the final regulations require hospitals
to provide access to oral interpreters or
bilingual staff on request, regardless of
whether the thresholds for written transla-
tions are met. The Treasury Department
and the IRS believe it would be overly
burdensome to require hospital facilities
to provide access to oral interpreters or
bilingual staff for every language possibly
spoken in a community. Accordingly, the
final regulations do not adopt this com-
ment.

#### b. Emergency medical care policy

To satisfy the requirements of section
501(r)(4)(B), the 2012 proposed regula-
tions provided that a hospital facility must
establish a written policy that requires the
hospital facility to provide, without dis-
crimination, care for emergency medical
conditions (within the meaning of the
Emergency Medical Treatment and Labor
Act (EMTALA), section 1867 of the So-
cial Security Act (42 U.S.C. 1395dd)) to
individuals, regardless of whether they are
FAP-eligible. The 2012 proposed regula-
tions further provided that an emergency
medical care policy will generally satisfy
this standard if it requires the hospital
facility to provide the care for any emer-
gency medical condition that the hospital
facility is required to provide under Sub-
chapter G of Chapter IV of Title 42 of the
Code of Federal Regulations, which is the
subchapter regarding the Centers for
Medicare and Medicaid Services' (CMS)
standards and certification that includes
the regulations under EMTALA. In addi-
tion, § 1.501(r)-4(c)(2) of the 2012 pro-
posed regulations provided that a hospital
facility's emergency medical care policy
would not meet the requirements of sec-
tion 501(r)(4)(B) unless it prohibited the
hospital facility from engaging in actions
that discouraged individuals from seeking
emergency medical care, such as by de-
manding that emergency department pa-
tients pay before receiving treatment or by

permitting debt collection activities in the
emergency department or in other areas of
the hospital facility where such activities
could interfere with the provision, without
discrimination, of emergency medical
care.

Some commenters stated that the reg-
ulations under EMTALA already estab-
lish rules for registration processes and
discussions regarding a patient's ability to
pay in the emergency department and that
the final regulations should not go beyond
those requirements. A number of com-
menters noted that the broad language re-
garding "debt collection in the emergency
department" could be read to proscribe
ordinary and unobjectionable activities in
the emergency room, such as collecting
co-payments on discharge, checking for
qualification for financial or public assis-
tance, and asking for insurance informa-
tion or co-pays after patients are stabilized
and waiting (sometimes for long periods
of time) for test results or follow-up visits
from their physician.

Section 1.501(r)-4(c)(2) of the 2012
proposed regulations was intended to ap-
ply only to debt collection activities in the
emergency department (or other areas of
the hospital facility) that could interfere
with the provision of emergency care, not
to all payment activities in the emergency
department regardless of their potential to
interfere with care. To make this intent
clear, the final regulations are revised to
prohibit “debt collection activities that in-
terfere with the provision, without dis-
crimination, of emergency medical care,"
regardless of where such activities occur.

In addition, the Treasury Department
and the IRS note that, since the publica-
tion of the 2012 proposed regulations,
CMS has made clear that the regulations
under EMTALA prohibit applicable hos-
pital facilities from engaging in actions
that delay the provision of screening and
treatment for an emergency medical con-
dition to inquire about method of payment
or insurance status, or from using regis-
tration processes that unduly discourage
individuals from remaining for further
evaluation, such as by requesting imme-
diate payment before or while providing
screening or stabilizing treatment for
emergency medical conditions. See CMS
Memorandum S&C-14-06 - Hospitals/
CAHs re: EMTALA Requirements &

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Conflicting Payor Requirements or Col-
lection Practices, at 6-7 (Dec. 13, 2013).
As a result, a hospital facility that pro-
vides the screening care and stabilizing
treatment for emergency medical condi-
tions, as applicable, that the hospital facil-
ity is required to provide under the regu-
lations under EMTALA, should generally
not be engaging in the activities that
§ 1.501(r)-4(c)(2) of the final regulations
requires emergency medical care policies
to prohibit.

Two commenters asked whether the
emergency medical care policy may be in
the same document as the FAP. The final
regulations do not prevent an emergency
medical care policy from being included
within the same document as the FAP or
from being added to an already existing
document related to emergency medical
care (such as a document setting forth
EMTALA compliance).

c. Establishing the FAP and other pol-
icies

Consistent with the 2012 proposed reg-
ulations, the final regulations provide that
a hospital organization will have estab-
lished a FAP, a separate billing and col-
lections policy, or an emergency medical
care policy for a hospital facility only if an
authorized body of the hospital facility
has adopted the policy and the hospital
facility has implemented the policy.

The 2012 proposed regulations pro-
vided that a hospital facility has "imple-
mented" a policy if it has "consistently
carried out" the policy. A number of com-
menters asked for more clarity on when a
policy will be deemed to be "consistently
carried out." Two of these commenters
would deem a hospital facility to have
consistently carried out a policy only if
the hospital facility attests that a policy
that meets the requirements of section
501(r)(4) has been followed in all cases.

As discussed in section 2.a of this pre-
amble, the final regulations provide that
omissions or errors that are minor and
either inadvertent or due to reasonable
cause will not result in a failure to meet
the requirements of section 501(r)(4) (or
any other requirements under section
501(r)) as long as they are corrected in
accordance with § 1.501(r)-2(b)(1)(ii) of
the final regulations. Therefore, the final
regulations make clear that the Treasury
Department and the IRS do not intend that

every error in implementing a policy de-
scribed in section 501(r)(4) will result in a
failure to meet the requirements of section
501(r)(4). On the other hand, a policy that
is simply adopted by an authorized body
of a hospital facility but not followed in
any regular fashion has not been "estab-
lished" for purposes of section 501(r)(4).
Whether a policy is "consistently carried
out" is to be determined based on all of
the facts and circumstances. However, if
the authorized body of a hospital facility
adopts a policy and provides reasonable
resources for and exercises due diligence
regarding its implementation, then the
standard should be met.

The 2012 proposed regulations pro-
vided that, while a hospital organization
must separately establish a FAP for each
hospital facility it operates, such policies
"may contain the same operative terms."
Several commenters asked that hospital
organizations operating multiple facilities
be permitted to adopt one FAP for all of
their facilities. These commenters argued
that many hospital systems have central-
ized patient financial services operations,
including FAPs, and that adopting a single
FAP would avoid both significant admin-
istrative costs as well as patient confusion
about differences in financial responsibil-
ities based on location.

The final regulations clarify that mul-
tiple hospital facilities may have identical
FAPs, billing and collections policies,
and/or emergency medical care policies
established for them (or even share one
joint policy document), provided that the
information in the policy or policies is
accurate for all such facilities and any
joint policy clearly states that it is appli-
cable to each facility. The final regulations
also note, however, that different hospital
facilities may have different AGB per-
centages or use different methods to de-
termine AGB that would need to be re-
flected in each hospital facility's FAP (or,
in the case of AGB percentages, in a sep-
arate document that can be readily ob-
tained).

### 5. Limitation on Charges

The final regulations provide that a
hospital organization meets the require-
ments of section 501(r)(5) with respect to
a hospital facility it operates only if the

hospital facility limits the amounts
charged for any emergency or other med-
ically necessary care it provides to a FAP-
eligible individual to not more than AGB.
The final regulations also require a hospi-
tal facility to limit the amounts charged to
FAP-eligible individuals for all other
medical care covered under the FAP to
less than the gross charges for that care.

a. Amounts generally billed

The 2012 proposed regulations pro-
vided two methods for hospital facilities
to use to determine AGB. The first was a
"look-back" method based on actual past
claims paid to the hospital facility by ei-
ther Medicare fee-for-service alone or
Medicare fee-for-service together with all
private health insurers paying claims to
the hospital facility (including, in each
case, any associated portions of these
claims paid by Medicare beneficiaries or
insured individuals). The second method
was "prospective," in that it required the
hospital facility to estimate the amount it
would be paid by Medicare and a Medi-
care beneficiary for the emergency or
other medically necessary care at issue if
the FAP-eligible individual were a Medi-
care fee-for-service beneficiary. For pur-
poses of the 2012 proposed regulations,
the term "Medicare fee-for-service" in-
cluded only health insurance available un-
der Medicare Parts A and B and not health
insurance plans administered under Medi-
care Advantage.

Many commenters stated that allowing
hospital facilities only two methods for
calculating AGB was insufficiently flexi-
ble. Some commenters asked that the final
regulations only require hospital facilities
to fully disclose and describe the method
they used to determine AGB on their
Forms 990, without requiring hospital fa-
cilities to determine AGB in any particu-
lar manner. A few commenters noted that
Medicare and insurer reimbursement
models may shift over time and that flex-
ibility will be needed to ensure that the
methods for determining AGB set forth in
the final regulations do not become anti-
quated or hamper evolution in reimburse-
ment models. However, no additional
methods to determine AGB were identi-
fied.

Providing hospital facilities complete
discretion to select methods in determin-
ing AGB would make it very difficult for

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the IRS to enforce the statutory require-
ment that hospital facilities not charge
FAP-eligible individuals more than AGB
and difficult for the public to understand
and recognize whether hospital facilities
are complying with this requirement.
However, the Treasury Department and
the IRS recognize that Medicare and in-
surer reimbursement methodologies may
evolve over time and that additional ways
to determine AGB may be identified in the
future. Therefore, the final regulations al-
low the Treasury Department and the IRS
to provide for additional methods to de-
termine AGB in future published guid-
ance as circumstances warrant.

Many commenters suggested that the
options for determining AGB should be
expanded or amended to permit hospital
facilities to base AGB on the payments of
private, commercial insurers only, without
also taking into account Medicare pay-
ments. Some commenters specifically
asked for the ability to determine AGB
based on "either the best, or an average of
the three best, negotiated commercial
rates," as suggested in the JCT's Techni-
cal Explanation. See Technical Explana-
tion at 82. These commenters reasoned
that individuals with commercial insur-
ance are more representative of FAP-
eligible populations than Medicare bene-
ficiaries (as the latter generally include the
elderly). A few commenters also sug-
gested that Medicare rates are an inappro-
priate proxy for AGB because they are not
the result of negotiations between parties
and, according to these commenters, do
not always cover the costs of providing
care to Medicare beneficiaries. On the
other hand, other commenters recom-
mended that AGB be based on Medicare
alone, arguing that this would increase
transparency because amounts reimbursed
by Medicare are publicly verifiable.

Because Medicare reimbursements
constitute a large proportion of most hos-
pital facilities' total insurance reimburse-
ments, the Treasury Department and the
IRS continue to believe a method of de-
termining AGB that excludes Medicare
and is based only on the claims or rates of
private health insurers would be inconsis-
tent with the statutory phrase "amounts
generally billed to individuals who have
insurance." On the other hand, the Trea-
sury Department and the IRS find no sup-

port in either the statutory language of
section 501(r)(5) or the Technical Expla-
nation for requiring (rather than just al-
lowing) AGB to be based on Medicare
alone. Thus, the final regulations continue
to allow hospital facilities using the look-
back method to base AGB on the claims
of Medicare fee-for-service plus all pri-
vate health insurers, as well as on Medi-
care alone.

A few commenters noted that Medic-
aid is the largest governmental payer for
children's hospitals and recommended
that hospital facilities be able to use Med-
icaid rates in calculating AGB. The final
regulations adopt this recommendation
and allow hospital facilities to base AGB
on Medicaid rates, either alone or in com-
bination with Medicare (or, under the
look-back method, together with Medi-
care and all private health insurers), at the
hospital facility's option.

With respect to Medicaid, one com-
menter noted that, in many states, private
managed care organizations operate Med-
icaid managed care plans and that the final
regulations should expressly state whether
Medicaid managed care claims and rates
are to be included when determining
AGB. In response to this comment, the
final regulations provide that the term
"Medicaid," as used in the final regula-
tions, includes medical assistance pro-
vided through a contract between the state
and a Medicaid managed care organiza-
tion or a prepaid inpatient health plan and
that such assistance is not considered re-
imbursements from or claims allowed by
a private health insurer. By contrast, the
final regulations, like the 2012 proposed
regulations, provide that a hospital facility
must treat health insurance plans admin-
istered by private health insurers under
Medicare Advantage as the plans of pri-
vate health insurers.

Many commenters asked how the limi-
tation on charges to AGB applies to insured
individuals who are eligible for financial
assistance. Most of these commenters rec-
ommended that the AGB limitation apply
only to uninsured individuals, asserting
that section 501(r)(5) was enacted to pro-
vide uninsured individuals in need of as-
sistance with the benefit of rates negoti-
ated by insurance companies and that
requiring the use of AGB for insured pa-
tients could inadvertently reduce the

availability of financial assistance for in-
sured patients. One commenter suggested
that, for insured patients who receive a
partial financial assistance discount, AGB
should be equal to the amounts generally
billed for the care minus payments made
by the third-party insurer. Another com-
menter suggested that the AGB limitation
should only apply to the patient liability
and not include payments made by third
parties, such as health insurers.

The Treasury Department and the IRS
note that section 501(r)(5) does not distin-
guish between insured and uninsured
FAP-eligible individuals. Accordingly,
the final regulations continue to apply the
AGB limitation of section 501(r)(5) to all
individuals eligible for assistance under
the hospital facility's FAP, without spe-
cific reference to the individual's insur-
ance status. In response to the comments,
however, the final regulations clarify that,
for purposes of the section 501(r)(5) lim-
itation on charges, a FAP-eligible individ-
ual is considered to be "charged" only the
amount he or she is personally responsible
for paying, after all deductions and dis-
counts (including discounts available un-
der the FAP) have been applied and less
any amounts reimbursed by insurers.
Thus, in the case of a FAP-eligible indi-
vidual who has health insurance coverage,
a hospital facility will not fail to meet the
section 501(r)(5) requirements because
the total amount required to be paid by the
FAP-eligible individual and his or her
health insurer together exceeds AGB, as
long as the FAP-eligible individual is not
personally responsible for paying (for ex-
ample, in the form of co-payments, co-
insurance, and deductibles) more than
AGB for the care after all reimbursements
by the insurer have been made. The final
regulations also add several examples
demonstrating how the limitation on
charges works when applied to insured
FAP-eligible individuals.

A few commenters asked that the final
regulations clarify that AGB represents
the maximum amount hospital facilities
can charge to FAP-eligible individuals
and that hospital facilities may charge
FAP-eligible individuals less than AGB
(that is, provide a more generous discount
under a FAP). The Treasury Department
and the IRS have added an example to the
final regulations to confirm this point.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

The 2012 proposed regulations pro-
vided that, after choosing a particular
method to determine AGB, a hospital fa-
cility must continue using that method
indefinitely. The preamble to the 2012
proposed regulations requested comments
on whether a hospital facility should be
allowed to change its method of determin-
ing AGB under certain circumstances or
following a certain period of time and, if
so, under what circumstances or how fre-
quently. Commenters uniformly noted
that there could be many practical reasons
that a hospital facility might want to
change its method for determining AGB,
such as changes in technologies or pro-
cesses that make a previously-selected
method less administrable.

In response to these comments, the fi-
nal regulations provide that a hospital fa-
cility may change the method it uses to
determine AGB at any time. However,
because the final regulations under section
501(r)(4) require a hospital facility's FAP
to describe the method used to determine
AGB, a hospital facility must update its
FAP to describe a new method before
implementing it.

A number of commenters noted that
the 2012 proposed regulations do not de-
fine the term "medically necessary care."
Some commenters asked that the final reg-
ulations provide that hospital facilities
have the discretion to determine how non-
emergency and elective services are con-
sidered under their FAPs. Other comment-
ers recommended that the final regulations
define the term "medically necessary
care." Suggested definitions included the
Medicaid definition used in the hospital
facility's state or other definitions pro-
vided by state law, a definition that refers
to the generally accepted medical practice
in the community, or a definition based on
the determination made by the examining
physician or medical team.

The final regulations allow hospital fa-
cilities to define the term "medically nec-
essary care" for purposes of their FAPs
and the AGB limitation in recognition of
the fact that health care providers and
health insurers may have reasonable dif-
ferences in opinion on whether some
health care services are medically neces-
sary in particular circumstances. In defin-
ing medically necessary care for purposes
of their FAPs and the AGB limitation, the

final regulations clarify that hospital facil-
ities may (but are not required to) use the
Medicaid definition used in the hospital
facility's state, other definitions provided
by state law, or a definition that refers to
the generally accepted standards of med-
icine in the community or an examining
physician's determination.

#### i. Look-Back Method

Under the look-back method for deter-
mining AGB, a hospital facility deter-
mines AGB for any emergency or other
medically necessary care provided to a
FAP-eligible individual by multiplying
the hospital facility's gross charges for
that care by one or more percentages of
gross charges, called "AGB percentages."
Hospital facilities must calculate their
AGB percentages no less frequently than
annually by dividing the sum of certain
claims for emergency and other medically
necessary care by the sum of the associ-
ated gross charges for those claims. A
hospital facility may use the look-back
method to calculate one average AGB
percentage for all emergency and other
medically necessary care provided by the
hospital facility, or multiple AGB percent-
ages for separate categories of care (such
as inpatient and outpatient care or care
provided by different departments) or for
separate items or services. However, a
hospital facility calculating multiple AGB
percentages must calculate AGB percent-
ages for all emergency and other medi-
cally necessary care it provides.

The 2012 proposed regulations pro-
vided that the AGB percentages must be
based on all claims that have been "paid in
full" to the hospital facility for emergency
and other medically necessary care by
Medicare fee-for-service alone, or by
Medicare fee-for-service together with all
private health insurers, during a prior 12-
month period. A few commenters asked
whether the phrase "claims . .. paid in
full" as used in the 2012 proposed regu-
lations was intended to include claims that
a hospital facility had partially written off
as bad debt and/or treated as paid in full
after taking into account a discount it had
granted. If so, commenters asked whether
the hospital facility should only include
the reduced amount actually paid when
calculating the AGB percentage(s). One
commenter also asked whether the
amount a hospital facility has accepted

for the claim in a sale to a third-party
debt collector should be treated as "paid
in full." Two commenters suggested
that, instead of being based on claims
"paid in full," the AGB percentages
should be based on "contracted rates" or
the amounts that are allowed by health
insurers.

To eliminate the uncertainty created by
the phrase "paid in full," the final regula-
tions provide that, when calculating its
AGB percentage(s) under the look-back
method, a hospital facility should include
in the numerator the full amount of all of
the hospital facility's claims for emer-
gency and other medically necessary care
that have been "allowed" (rather than
"paid") by health insurers during the prior
12-month period. For these purposes, the
full amount allowed by a health insurer
should include both the amount to be re-
imbursed by the insurer and the amount (if
any) the individual is personally responsi-
ble for paying (in the form of co-
payments, co-insurance, and deductibles),
regardless of whether and when the indi-
vidual actually pays all or any of his or her
portion and disregarding any discounts
applied to the individual's portion (under
the FAP or otherwise).

Several commenters interpreted the
2012 proposed regulations to mean that
hospital facilities had to include the
claims for all emergency and other medi-
cally necessary care provided during the
prior 12-month period when calculating
AGB percentages. These commenters
pointed out that many of the claims for
care provided toward the end of a 12-
month period will not be adjudicated by
an insurer until some amount of time after
the end of that 12-month period. Under
both the 2012 proposed regulations and
these final regulations, the inclusion of a
claim in a hospital facility's calculation of
its AGB percentage(s) is not based on
whether the care associated with the claim
was provided during the prior 12-month
period. Rather, it is based on whether the
claim is "allowed" (formerly, “paid in
full") during the prior 12-month period.
The final regulations clarify this point.
The final regulations also state that, if the
amount a health insurer will allow for a
claim has not been finally determined as
of the last day of the 12-month period
used to calculate the AGB percentage(s), a

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

hospital facility should exclude the
amount of the claim from that calculation
and include it in the subsequent 12-month
period during which the amount allowed
is finally determined.

A few commenters asked that hospital
facilities be permitted to calculate AGB
percentages under the look-back method
based on claims for all medical care al-
lowed in the prior 12-month period, rather
than just the claims for emergency and
medically necessary care. These com-
menters stated that it would be adminis-
tratively burdensome to have to sift out
only the claims for emergency and medi-
cally necessary care. Accordingly, the fi-
nal regulations provide that a hospital fa-
cility may include in the calculation of its
AGB percentage(s) claims for all medical
care allowed during the prior 12-month
period rather than just the claims allowed
for emergency and other medically neces-
sary care. The Treasury Department and
the IRS note that the calculation of a hos-
pital facility's AGB percentage(s) in-
cludes only claims allowed by insurers
and that insurers generally allow claims
only for care that is medically necessary.
Thus, the Treasury Department and the
IRS do not expect that there will be a
significant difference between AGB per-
centages based on all claims allowed by
insurers and AGB percentages based on
all claims allowed by insurers for emer-
gency and other medically necessary care.

A few commenters noted that the
health care delivery system is migrating
from a fee-for-service model to other
methods of payment, used by both public
and private payers, that include "value-
based," accountable care, and shared sav-
ings payments. These commenters stated
that the 2012 proposed regulations failed
to account for these other methods of pay-
ment because the method of calculating
AGB percentages appeared to be based on
claims for individual episodes of care,
while value-based, accountable care,
shared savings, and similar payments are
not necessarily tied to individual episodes
of care.

As a general matter, the Treasury De-
partment and the IRS interpret the statu-
tory phrase "amounts generally billed to
individuals who have insurance covering
such care" as referring to amounts billed
or reimbursed for care received by those

insured individuals. It is not clear, and
commenters did not address, how lump
sum payments from an insurer with no
direct connection to any specific individ-
ual's care would appropriately be in-
cluded in a determination of AGB. As a
result, the final regulations do not amend
the look-back method or the prospective
method to specifically account for any
such separate payment streams. However,
if a hospital facility can reasonably allo-
cate a capitated (or other lump sum) pay-
ment made by an insurer to care received
by particular patients during a twelve-
month period and has also tracked the
gross charges for that care, it may be able
to reasonably incorporate such payments
into its calculation of one or more AGB
percentages under the look-back method
described in the final regulations. In addi-
tion, the Treasury Department and the IRS
will continue to consider whether hospital
facilities need alternative methods of de-
termining AGB that directly accommo-
date capitated payments or value-based,
accountable care, shared savings, and sim-
ilar payments, and, if so, such alternative
methods may be provided in future regu-
lations, revenue rulings, or other pub-
lished guidance.

The look-back method described in the
2012 proposed regulations only included
claims paid by Medicare fee-for-service
and/or private health insurers as primary
payers. One commenter indicated that
payments made by secondary payers
should also be included in a hospital fa-
cility's calculation of its AGB percent-
age(s) because considering only primary
payers and patient co-insurance, co-
payments, and deductibles artificially de-
presses the AGB percentages. The Trea-
sury Department and the IRS intend for
hospital facilities to be able to include in
the calculation of their AGB percentages
the total amount of claims for care al-
lowed by primary insurers (including both
the amounts paid by primary insurers and
the amounts insured individuals are per-
sonally responsible for paying in the form
of co-payments, co-insurance, and deduct-
ibles), regardless of whether secondary in-
surers end up paying some or all of the
insured individual's portion. In addition,
if an individual's primary insurer does not
cover a certain procedure but his or her
secondary insurer does, including the

amount allowed by the secondary insurer
in the calculation of the hospital facility's
AGB percentage(s) will not result in any
duplication because only one amount was
allowed by an insurer. Moreover, if the
secondary insurer is of the type that is
otherwise being included in the hospital
facility's calculation of the AGB percent-
age (that is, Medicare, Medicaid, and/or a
private health insurer), the amounts al-
lowed by the secondary insurer should be
included in the calculation to ensure that
the resulting AGB percentage(s) is fully
representative of the amounts allowed by
the applicable type of insurer(s). Thus, to
eliminate any confusion, the final regula-
tions remove the references to "primary
payers" contained in the 2012 proposed
regulations.

Numerous commenters asked that hos-
pital organizations be permitted to calcu-
late AGB percentages on a system-wide
basis, stating that many hospital systems
have centralized patient financial services
operations and that permitting a system-
wide calculation would avoid both signif-
icant administrative costs and patient con-
fusion about differences in financial
responsibilities based on location. Be-
cause different hospital facilities within a
system can serve distinct geographic ar-
eas, offer significantly different services,
and have different negotiated rates with
insurers, allowing hospital systems to cal-
culate AGB percentages across the entire
system could result in AGB percentages
that would not accurately reflect the
amounts generally billed to individuals
with insurance by the separate hospital
facilities within the system. Specifically, a
system-wide AGB percentage would be
an average across hospital facilities, some
of which may have lower negotiated re-
imbursement rates with insurers or more
Medicare patients than others. Use of a
system-wide AGB percentage could result
in higher charges for the FAP-eligible pa-
tients of those hospital facilities in the
system with lower negotiated reimburse-
ment rates or more Medicare patients than
would be the case if the AGB were calcu-
lated on a facility-by-facility basis. Accord-
ingly, the final regulations do not permit
such system-wide calculations. However,
because hospital facilities that have satisfied
CMS criteria to bill and be covered under
one Medicare provider number may find it

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

administratively difficult to separate
claims by hospital facility, the final regu-
lations allow hospital facilities that are
covered under the same Medicare pro-
vider agreement (as identified by the same
CMS Certification Number) to calculate
one AGB percentage (or multiple AGB
percentages for separate categories of care
or separate items or services) based on the
claims and gross charges for all such
hospital facilities and implement the
AGB percentage(s) across all such hos-
pital facilities.

One commenter asked that the final
regulations clarify that a hospital organi-
zation operating more than one hospital
facility may select the look-back method
for some of its facilities and the prospec-
tive method for others. The 2012 proposed
regulations were not intended to prevent
different hospital facilities operated by the
same hospital organization from using dif-
ferent methods to determine AGB at dif-
ferent hospital facilities, and these final
regulations expressly state that this is per-
missible.

The 2012 proposed regulations pro-
vided that a hospital facility must begin
applying its AGB percentage(s) by the
45th day after the end of the 12-month
period the hospital facility used in calcu-
lating the AGB percentage(s) and re-
quested comments regarding whether a
hospital facility needs more than 45 days.
Numerous commenters stated that hospi-
tal facilities need a period longer than 45
days both to complete the calculation and
to make the updates to their policies, pro-
cesses, systems, and communications nec-
essary to implement the changes and rec-
ommended periods ranging from 60 to
120 days. In response to these comments,
the final regulations allow a hospital facil-
ity to take up to 120 days after the end of
the 12-month period used in calculating
the AGB percentage(s) to begin applying
its new AGB percentage(s). The Treasury
Department and the IRS note that, because
the final regulations under section
501(r)(4) require a hospital facility's FAP
to state the hospital facility's AGB per-
centage(s) or explain how members of the
public may readily obtain such percent-
age(s), a hospital facility must update its
FAP (or other readily obtainable material)
to reflect new AGB percentage(s).

The 2012 proposed regulations re-
quested comments regarding whether a
hospital facility using the look-back
method should have the option to base its
AGB-percentage calculation on a repre-
sentative sample of claims (rather than all
claims) that were paid in full over a prior
12-month period and, if so, how hospital
facilities would ensure that such samples
are representative and reliable. A few
commenters suggested that the final regu-
lations should permit the use of samples,
but they did not provide much additional
explanation of why samples were neces-
sary or how samples could be determined
in a representative and reliable way. Other
commenters argued that samples would be
inaccurate and that permitting the use of
sampling would give hospital facilities an
excessive ability to manipulate their com-
putations and exacerbate problems with
transparency or protections for consum-
ers. Because legitimate concerns were
raised by commenters with respect to
sampling and no comments explained
why the use of samples was necessary or
how hospital facilities could ensure that
such samples would be representative and
reliable, the final regulations do not allow
hospital facilities using the look-back
method to base their calculation of AGB
percentage(s) on a sample of claims. The
Treasury Department and the IRS note,
however, that, to the degree using all
claims in calculating AGB percentages
takes longer than using a representative
sample, hospital facilities have 120, not
45, days after the end of the applicable
12-month period to calculate and imple-
ment AGB percentages under the final
regulations.

The 2012 proposed regulations also re-
quested comments regarding whether hos-
pital facilities might significantly increase
their gross charges after calculating one or
more AGB percentages and whether such
an increase could mean that determining
AGB by multiplying current gross charges
by an AGB percentage would result in
charges that exceed the amounts that are
in fact generally billed to those with in-
surance at the time of the charges. A num-
ber of commenters stated that such safe-
guards are unnecessary, since most
hospitals do not update their gross charges
more than once a year, increases are gen-
erally based on an annual market analysis,

and AGB calculations would not drive
hospitals to change their gross charges.
After considering the comments received
on this issue, the final regulations do not
modify the proposed rule in this regard.

#### ii. Prospective Method

Under the prospective method de-
scribed in the 2012 proposed regulations,
a hospital facility could determine AGB
for any emergency or other medically nec-
essary care that the hospital facility pro-
vided to a FAP-eligible individual by us-
ing the same billing and coding process
the hospital facility would use if the indi-
vidual were a Medicare fee-for-service
beneficiary and setting AGB for that care
at the amount that Medicare and the Medi-
care beneficiary together would be ex-
pected to pay for the care. The Treasury
Department and the IRS requested com-
ments regarding whether a hospital facil-
ity should also have the option of deter-
mining AGB based on the private health
insurer with the lowest rate or the three
private health insurers with the three low-
est rates. Some commenters who re-
sponded to this request for comments said
hospital facilities should have this option
under both the prospective and the look-
back methods, while other commenters
recommended that AGB be based on
Medicare alone. For reasons discussed
previously in this section 5.a of the pre-
amble (including the fact that Medicare
reimbursements constitute a large propor-
tion of most hospital facilities' total insur-
ance reimbursements), the Treasury De-
partment and the IRS believe that
excluding Medicare and basing AGB only
on the private health insurer with the low-
est rate or the three private health insurers
with the three lowest rates would not ac-
curately capture the amounts generally
billed by hospital facilities to individuals
with insurance in many cases. Thus, the
final regulations do not permit hospital
facilities to determine AGB using the pro-
spective method based on the private
health insurers with the lowest rate or the
three private health insurers with three
lowest rates.

Consistent with changes made to the
look-back method, the final regulations
allow hospital facilities to determine AGB
under the prospective method based on
Medicaid, either alone or in combination
with Medicare fee-for service. More spe-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

cifically, the final regulations provide that
a hospital facility using the prospective
method may base AGB on either Medi-
care fee-for-service or Medicaid or both,
provided that, if it uses both, its FAP
describes the circumstances under which
it will use Medicare fee-for-service or
Medicaid in determining AGB.

#### b. Gross charges

The 2012 proposed regulations pro-
vided that a hospital facility must charge a
FAP-eligible individual less than the gross
charges for any medical care provided to
that individual. Several commenters ar-
gued that, unlike the AGB requirement in
section 501(r)(5)(A), the language regard-
ing the prohibition on the use of gross
charges in section 501(r)(5)(B) does not
refer to FAP-eligible individuals, in par-
ticular. As a result, these commenters rec-
ommended that the final regulations pro-
hibit the use of gross charges for all
individuals, not just FAP-eligible individ-
uals.

The Treasury Department and the
IRS believe it is reasonable to interpret
section 501(r)(5)(B)'s prohibition on
gross charges in the context of section
501(r)(5) as a whole, which is intended
to limit the amounts charged to FAP-
eligible individuals. The JCT clarified this
intent in the Technical Explanation, re-
marking that "[a] hospital facility may not
use gross charges ... when billing indi-
viduals who qualify for financial assis-
tance." See Technical Explanation, at 82.
Thus, the final regulations continue to ap-
ply the prohibition on gross charges only
to FAP-eligible individuals.

The 2012 proposed regulations applied
the AGB limitation only to charges to
FAP-eligible individuals for emergency or
other medically necessary care, while the
prohibition on charging FAP-eligible in-
dividuals gross charges would also apply
to "all other medical care." A few com-
menters interpreted this language to mean
that the prohibition on gross charges ap-
plies even to elective procedures not cov-
ered under the FAP. In response, the final
regulations clarify that this limitation ap-
plies only to charges for care covered un-
der a hospital facility's FAP, which may,
but need not, cover care that is neither
emergency nor medically necessary care.

c. Safe harbor for certain charges in
excess of AGB

The 2012 proposed regulations in-
cluded a safe harbor under which a hos-
pital facility would not violate section
501(r)(5) if it charged more than AGB for
emergency or other medically necessary
care, or charged gross charges for any
medical care, to a FAP-eligible individual
who had not submitted a complete FAP
application as of the time of the charge,
provided that the hospital facility made
and continued to make reasonable efforts
to determine whether the individual was
FAP-eligible (within the meaning of and
during the periods required by the regula-
tions under section 501(r)(6)).

Because the steps to notify individuals
about the FAP that remain in the regula-
tions under section 501(r)(6) (as opposed
to those that have been moved to the reg-
ulations under section 501(r)(4)) are fo-
cused on the individuals against whom a
hospital facility actually intends to initiate
extraordinary collection actions, the
§ 1.501(r)-5(d) safe harbor in the final
regulations does not retain the require-
ment in the 2012 proposed regulations
that the hospital facility make reasonable
efforts to determine whether the individ-
ual is FAP-eligible within the meaning of
the section 501(r)(6) regulations. Instead,
the safe harbor focuses on remedying the
overcharging by requiring that, if an indi-
vidual submits a complete FAP applica-
tion and is determined to be FAP-eligible
for care, the hospital facility must refund
any amount the individual has paid for the
care that exceeds the amount he or she is
determined to be personally responsible
for paying as a FAP-eligible individual.
For reasons discussed in section 6.b.v.B of
this preamble, the § 1.501(r)-5(d) safe
harbor in the final regulations also con-
tains an exception to this general require-
ment to refund under which a hospital
facility is not required to refund excess
payments of less than $5.

One commenter suggested that the
§ 1.501(r)-5(d) safe harbor should only
require a hospital facility to refund
amounts paid by a FAP-eligible individual
in excess of AGB. As part of properly
implementing their FAPs, hospital facili-
ties should charge FAP-eligible individu-
als only the amounts they are determined
to owe as FAP-eligible individuals. Thus,
a hospital facility should not be permitted
to charge FAP-eligible individuals more

than AGB and be able to avail itself of the
§ 1.501(r)-5(d) safe harbor unless it is
willing to refund any amounts paid by a
FAP-eligible individual that exceed the
amount he or she is determined to owe as
a FAP-eligible individual.

Two commenters recommended that
the safe harbor under the section 501(r)(5)
regulations require a hospital facility to
charge all individuals AGB or less during
the application period unless it has affir-
matively determined that the individual is
not FAP-eligible. The Treasury Depart-
ment and the IRS expect that a hospital
facility will not be able to affirmatively
determine whether most of its patients are
FAP-eligible because most of its patients
who are not FAP-eligible will not apply
for financial assistance. Accordingly, such
a rule would undercut the purpose of the
safe harbor and is not adopted by these
final regulations.

As discussed further in section 6.a.iv of
this preamble, two commenters noted that
charging individuals an upfront payment
as a condition of receiving care may be
tantamount to denying that care in the
case of medically indigent people, and the
final regulations consider demanding pay-
ment of a past bill as a condition of re-
ceiving future medically necessary care to
be an extraordinary collection action. In
addition, the Treasury Department and the
IRS believe that the § 1.501(r)-5(d) safe
harbor should not protect hospital organi-
zations that charge an upfront payment in
excess of AGB to FAP-eligible individu-
als. Accordingly, the final regulations pro-
vide that the § 1.501(r)-5(d) safe harbor
does not apply to charges made or re-
quested as a pre-condition of providing
medically necessary care to a FAP-
eligible individual. Thus, if a hospital fa-
cility requires an individual to make an
upfront payment for medically necessary
care that exceeds the AGB for the care
and the individual turns out to be FAP-
eligible, the hospital facility will have
failed to meet the requirements of section
501(r)(5).

### 6. Billing and Collection

Consistent with the statute, the final
regulations provide that a hospital organi-
zation meets the requirements of section
501(r)(6) with respect to a hospital facility

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

it operates only if the hospital facility does
not engage in extraordinary collection ac-
tions (ECAs) against an individual to ob-
tain payment for care before making rea-
sonable efforts to determine whether the
individual is FAP-eligible for the care. For
these purposes, and consistent with the
2012 proposed regulations, a hospital fa-
cility will be considered to have engaged
in ECAs against an individual to obtain
payment for care if the hospital facility
engages in such ECAs against any other
individual who has accepted or is required
to accept responsibility for the first indi-
vidual's hospital bill for the care.

One commenter interpreted the provi-
sion in the 2012 proposed regulations re-
garding ECAs against individuals with re-
sponsibility for a patient's hospital bill as
applying to private and public insurers
covering all or a portion of the patient's
hospital bill. Under the Code, the term
"individual" does not include any trust,
estate, partnership, association, company,
corporation, or governmental entity and,
thus, would not include any private or
public insurer. Accordingly, the final reg-
ulations retain the provision in the 2012
proposed regulations regarding ECAs
against individuals with responsibility for
a patient's hospital bill. This provision
does not require a hospital facility to make
reasonable efforts to determine FAP-
eligibility before engaging in ECAs
against private or public insurers or any
other liable third parties that are not indi-
viduals.

The 2012 proposed regulations also
provided that a hospital facility will be
considered to have engaged in an ECA
against an individual to obtain payment
for care if any purchaser of the individu-
al's debt or any debt collection agency or
other party to which the hospital facility
has referred the individual's debt has en-
gaged in an ECA against the individual to
obtain payment for the care. Many com-
menters asked that the regulations relieve
hospital facilities from strict liability un-
der section 501(r)(6) for the actions of
third parties, provided that the hospital
facility acts in good faith to supervise and
enforce the section 501(r)(6) obligations
of its contractual agreements with collec-
tion agents and takes remedial steps with
respect to any contractual violations it dis-
covers. These commenters argued that a

hospital's tax-exempt status should not be
placed in jeopardy by a debt collection
agency's actions of which it is unaware.
Other commenters, however, recom-
mended that the final regulations retain
the provision holding hospital facilities
accountable for the billing and collection
actions of third-party contractors and debt
buyers.

The Treasury Department and the IRS
continue to believe that hospital facilities
must be held accountable for the ECAs of
the debt collection agencies and debt buy-
ers to which they refer or sell debt. Oth-
erwise, hospital facilities could easily
avoid their responsibilities under section
501(r)(6) by referring or selling their debt
to third parties. Nonetheless, the Treasury
Department and the IRS expect that the
concerns of these commenters are largely
addressed by the provision, outlined in
section 2.b of this preamble, under which
a hospital facility's failure to meet the
requirements of section 501(r)(6) will be
excused if the failure is not willful or
egregious and the hospital facility both
corrects and discloses the failure in accor-
dance with published guidance. Under this
provision, if a hospital facility acts reason-
ably and in good faith to supervise and
enforce the section 501(r)(6) obligations
of its contractual agreements with debt
collectors or purchasers and corrects any
contractual violations it discovers, then an
error on the part of the debt collectors or
purchasers should not be willful and, pro-
vided that it is not egregious, could be
excused if the hospital facility corrects
and discloses the failure in accordance
with the procedures outlined in the reve-
nue procedure described in § 1.501(r)-
2(c). Accordingly, the final regulations re-
tain the provision holding a hospital
facility accountable for the ECAs of the
third parties collecting debt on its behalf
or to which it sells debt.

One commenter interpreted the 2012
proposed regulations as suggesting that a
hospital facility must meet the section
501(r)(6) requirements with respect to all
care provided by the hospital facility, even
if that care is elective and not medically
necessary. Section § 1.501(r)-6(b) of
these final regulations and the 2012 pro-
posed regulations define ECAs as actions
related to obtaining payment of bills "for
care covered under the hospital facility's

FAP." Both the proposed and final regu-
lations under section 501(r)(4) only re-
quire a FAP to cover emergency and other
medically necessary care. Because a hos-
pital facility has discretion over whether
its FAP covers elective procedures that
are not medically necessary, it has discre-
tion over whether or not it must meet the
section 501(r)(6) requirements with re-
spect to such elective care.

a. Extraordinary collection actions

The 2012 proposed regulations defined
ECAs as actions taken by a hospital facil-
ity against an individual related to obtain-
ing payment of a bill for care covered
under the hospital facility's FAP that re-
quire a legal or judicial process, involve
selling an individual's debt to another
party, or involve reporting adverse infor-
mation about an individual to consumer
credit reporting agencies or credit bureaus
(collectively, "credit agencies").

Some commenters asked that the final
regulations clarify that certain additional
actions, such as writing off an account to
bad debt, sending a patient a bill, or call-
ing a patient by telephone to make reason-
able inquiries, are not ECAs. These ac-
tions do not require a legal or judicial
process or involve reporting adverse in-
formation to a credit agency or the selling
of an individual's debt and would not
come within the definition of ECAs under
either the 2012 proposed regulations or
the final regulations. However, because
there are many possible actions that would
not be ECAs and such actions cannot be
exhaustively listed in the regulations, the
final regulations do not respond to these
comments by enumerating actions that are
not ECAs (although they do provide for
some exceptions with respect to the ECAs
that are enumerated, as described in sec-
tions 6.a.ii and 6.a.iii of the preamble).

#### i. Reports to Credit Agencies

Many commenters argued that report-
ing adverse information to a credit agency
should not be considered an ECA because
such reporting is not a collection action
and is a common practice of hospital fa-
cilities. One commenter argued that Con-
gress could not have intended credit
agency reporting to be an ECA because
section 501(r)(4)(A)(iv) provides that a
tax-exempt hospital facility's FAP or sep-
arate billing and collection policy must
include, among other items, "the actions

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the organization may take in the event of
non-payment, including collections ac-
tion[s] and reporting to credit agencies."
Other commenters supported defining
ECAs to include reporting an individual's
non-payment of a debt to a credit agency,
noting that such an action is a tool in
collecting debt and can have extraordi-
narily detrimental consequences for indi-
viduals by resulting in bad credit records
for many years.

The Treasury Department and the IRS
view reporting to credit agencies as a col-
lection action because it is a tool to collect
delinquent debts, and bad credit reports
can have extraordinarily detrimental con-
sequences for the affected individuals.
Moreover, the requirement under section
501(r)(4)(A)(iv) that a hospital facility de-
scribe reporting to credit agencies in its
FAP or billing and collections policy ev-
idences Congress's concern regarding
such reporting. In addition, the JCT's
Technical Explanation states that "'rea-
sonable efforts' includes notification .
before collection action or reporting to
credit agencies is initiated." Technical Ex-
planation, at 82. Because section 501(r)(6)
only requires a hospital facility to make
reasonable efforts before initiating an
ECA, this statement supports the conclu-
sion that reporting to credit agencies is an
ECA. Accordingly, the final regulations
continue to include the reporting of ad-
verse information to credit agencies as an
ECA.

#### ii. Certain Liens

The 2012 proposed regulations pro-
vided a non-exclusive list of examples of
actions that require a legal or judicial pro-
cess, which included the placement of a
lien on an individual's property. Numer-
ous commenters noted that, when a patient
has sued a third party due to an auto
accident or other type of accident and, as
a part of the settlement, is entitled to re-
ceive reimbursement for medical bills,
state laws commonly allow hospitals to
place a lien on that portion of potential
settlement proceeds. Commenters stated
that they often need to move quickly if
they will ever be able to take possession
of such funds and asked that the final rule
confirm that this common practice will not
be treated as an ECA against the patient.

The proceeds of settlements, judg-
ments, or compromises arising from a pa-
tient's suit against a third party who
caused the patient's injuries come from
the third party, not from the injured pa-
tient, and thus hospital liens to obtain such
proceeds should not be treated as collection
actions against the patient. In addition, the
portion of the proceeds of a judgment, set-
tlement, or compromise attributable under
state law to care that a hospital facility has
provided may appropriately be viewed as
compensation for that care. Accordingly,
in response to comments, the final regula-
tions expressly provide that these liens are
not ECAs.

#### iii. Sale of an Individual's Debt to An- other Party

A number of commenters argued that
debt sales should not be considered ECAs
because they are an important way for
hospitals to avoid having to collect debt
themselves. Some commenters noted that
holding hospital facilities accountable for
the actions of debt buyers should be suf-
ficient to ensure that debt buyers do not
themselves engage in ECAs before rea-
sonable efforts are made. In addition, sev-
eral commenters argued that certain debt
sales are beneficial to the patient as well
as to the hospital facility because, for ex-
ample, the buyer may service the debt
more efficiently or be able to offer ex-
tended payment plans at no or low interest
that the hospital facility cannot. These
commenters recommended that debt sales
should not be considered ECAs if the pur-
chaser of the debt is contractually obli-
gated not to take any actions that are
ECAs and/or the debt is returnable to or
recallable by the hospital facility.

Other commenters stated that hospital
facilities lose control of the debt once they
sell it and that debt buyers typically pur-
chase medical debts for pennies on the
dollar, without full information about the
individual patients, and are thus more
likely to pursue flawed claims and engage
in abusive practices. These commenters
recommended that debt sales be prohib-
ited altogether, even after reasonable ef-
forts are made to determine an individu-
al's FAP-eligibility.

The Treasury Department and the IRS
note that section 501(r)(6) does not pro-

hibit any collection actions outright;
therefore, the final regulations do not pro-
hibit debt sales altogether. The final reg-
ulations do, however, retain the general
rule that debt sales are ECAs because the
Treasury Department and the IRS agree
with those commenters who noted that
hospitals have less control over a debt
once it has been sold and that debt buyers
will generally have less information re-
garding the individual and the debt and
more incentive to engage in ECAs before
making reasonable efforts to determine
whether an individual is FAP-eligible.

Nonetheless, the Treasury Department
and the IRS believe these concerns about
debt sales are mitigated in certain cases in
which contractual arrangements with debt
buyers both allow hospital facilities to re-
tain control over the debt and benefit pa-
tients. Accordingly, the final regulations
provide that the sale of an individual's
debt is not an ECA if, prior to the sale, the
hospital facility enters into a legally bind-
ing written agreement with the purchaser
of the debt containing four conditions.
First, the purchaser must agree not to en-
gage in any ECAs to obtain payment of
the debt. Second, the purchaser must
agree not to charge interest on the debt in
excess of the rate in effect under section
6621(a)(2) at the time the debt is sold (or
such other interest rate set by notice or
other guidance published in the Internal
Revenue Bulletin).9 Third, the debt must
be returnable to or recallable by the hos-
pital facility upon a determination by the
hospital facility or the purchaser that the
individual is FAP-eligible. And, fourth, if
the individual is determined to be FAP-
eligible and the debt is not returned to or
recalled by the hospital facility, the pur-
chaser must adhere to procedures speci-
fied in the agreement that ensure that the
individual does not pay, and has no obli-
gation to pay, the purchaser and the hos-
pital facility together more than he or she
is personally responsible for paying as a
FAP-eligible individual. Because debt
sales subject to these four conditions are
not considered to be ECAs under the final
regulations, a hospital facility may make
these debt sales without first having made
reasonable efforts to determine FAP-
eligibility. Debt sales that do not satisfy

9The interest rate in effect under section 6621(a)(2) was 3 percent at the time these final regulations were published. See Rev. Rul. 2014-29, 2014-52 IRB 960 (Dec. 22, 2014).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

these four conditions are ECAs and there-
fore may not be made until after a hospital
facility has made reasonable efforts to de-
termine FAP-eligibility, as described in
section 6.b of this preamble.

iv. Including Additional Actions as
ECAs

The preamble to the 2012 proposed
regulations asked whether deferring or de-
nying care based on a pattern of nonpay-
ment, requiring deposits before providing
care, or charging interest on medical debts
should constitute ECAs. Some comment-
ers opined that these actions should be
categorized as ECAs to protect patients,
with two commenters adding that requir-
ing deposits is tantamount to denying care
for medically indigent people. Other com-
menters recommended that these activities
should not be ECAs, noting that requiring
some deposit from patients prior to sched-
uling non-emergency care is a common
practice among health care providers and
that interest is charged by many credit
providers. One of these commenters also
stated that it is not inappropriate or ex-
traordinary for a hospital to defer provi-
sion of care to a patient who has a docu-
mented pattern of non-payment unless
that patient is seeking emergency care
covered under EMTALA through the
emergency department.

The Treasury Department and the IRS
view the charging of interest on medical
debt as a charge for the extension of credit
rather than a collection action. In addition,
the Treasury Department and the IRS in-
terpret the term "collection action" as ap-
plying to actions to collect debts owed for
services already rendered, not conditions
imposed before any services have been
provided or any debts have been incurred.
Thus, the Treasury Department and the
IRS do not believe that requiring a pay-
ment (whether partial or full) before pro-
viding care is a collection action unless it
is related to an attempt to collect a prior
medical bill. Accordingly, the final regu-
lations do not include these activities as
ECAs.

However, if a hospital facility defers or
denies, or requires a payment before pro-
viding, medically necessary care because
of an individual's nonpayment of one or
more bills for previously provided care,
such actions constitute actions to collect
the unpaid bills. Moreover, these collec-

tion actions can properly be viewed as
extraordinary, given that such actions can
potentially jeopardize the health of the
debtor. While one commenter asserted
that "it is not inappropriate" for a hos-
pital to defer the provision of care on the
basis of a documented pattern of non-
payment unless it is care sought through
the emergency department covered under
EMTALA, the relevant question for pur-
poses of section 501(r)(6) is not whether
deferring or denying care based on past
nonpayment is permitted under EMTALA
but rather whether it is a collection action
that is extraordinary. In addition, as two
commenters pointed out, requiring depos-
its can be tantamount to denying care for
medically indigent people, and thus re-
quiring payment before providing medi-
cally necessary care because of nonpay-
ment of past bills is also an ECA with
respect to those past bills. Therefore, the
final regulations include such collection
actions within the definition of ECAs. The
final regulations also elaborate on when a
requirement for payment will be consid-
ered to be "because of" an individual's
nonpayment of one or more bills for pre-
viously provided care. In particular, the
final regulations provide that, if a hospital
facility requires payment before providing
care to an individual with one or more
outstanding bills, such a payment require-
ment will be presumed to be because of
the individual's nonpayment of the out-
standing bill(s) unless the hospital facility
can demonstrate that it required the pay-
ment from the individual based on factors
other than, and without regard to, his or
her nonpayment of past bills.

Several commenters also recommended
that patients who are eligible for hospital
financial assistance, means-tested public
programs, or subsidies should not be subject
to any ECAs or other collection actions.
Section 501(r)(6) requires hospital facilities
to determine whether an individual is FAP-
eligible before engaging in ECAs but does
not bar ECAs altogether against individuals
that have been determined to be FAP-
eligible or eligible for assistance under pub-
lic programs. Therefore, the final regula-
tions do not adopt this comment.

#### b. Reasonable efforts

The 2012 proposed regulations pro-
vided that, with respect to any care pro-
vided by a hospital facility to an individ-

ual, the hospital facility would have made
reasonable efforts to determine whether
the individual is FAP-eligible only if the
hospital facility notified the individual
about the FAP, provided a reasonably suf-
ficient amount of time for the individual to
apply for financial assistance, and pro-
cessed FAP applications received from
the individual during a specified period.
For purposes of meeting these require-
ments, the 2012 proposed regulations de-
scribed both an initial 120-day "notifica-
tion period" during which the hospital
facility was required to notify an individ-
ual about the FAP and a 240-day "appli-
cation period" during which a hospital
facility was required to process any appli-
cation submitted by the individual, with
both periods starting on the date of the
first bill. A hospital facility providing the
necessary notification during the 120-day
notification period could begin to engage
in ECAs against an individual after the
end of the 120-day notification period but
was required to suspend any such ECAs if
the individual submitted a FAP application
during the remainder of the application pe-
riod (and to reverse such ECAs if the indi-
vidual was determined to be FAP-eligible).

Many commenters stated that the rea-
sonable efforts regime set forth in the
2012 proposed regulations was too de-
tailed and prescriptive and asked that the
final regulations adopt this regime as a
safe harbor rather than as a requirement.
These commenters asked that hospital facil-
ities be allowed to maintain current prac-
tices regarding the manner and timeframe of
notification about the FAP and processing
of FAP applications, provided that these
practices are made transparent, such as by
requiring that these practices be disclosed in
FAPs, billing and collection policies, or the
hospital facility's Form 990.

The Treasury Department and the IRS
do not believe that disclosure alone of a
hospital facility's notification and FAP-
eligibility determination processes con-
stitutes reasonable efforts to determine
whether individuals are FAP-eligible.
While the regulations under section
501(r)(4) require such disclosure to be
made in the FAP or a separate billing and
collections policy, such disclosure will not
meaningfully or adequately accomplish
the requirement that Congress intended
when it enacted section 501(r)(6) and ex-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

pressly called for the Secretary to issue
guidance defining reasonable efforts to
determine FAP-eligibility.1º Accordingly,
the final regulations do not provide hospi-
tal facilities with complete discretion over
how to make reasonable efforts to deter-
mine FAP-eligibility. However, the final
regulations do make a number of modifi-
cations, as described further in this section
of the preamble, that are designed to re-
duce the compliance burden on hospital
facilities while at the same time ensuring
that the reasonable efforts taken to deter-
mine whether individuals are FAP-
eligible adequately protect patients.

The final regulations also contain a
number of changes to § 1.501(r)-6(c) of
the 2012 proposed regulations that are in-
tended to streamline and simplify the pre-
sentation of the applicable rules and not to
have a substantive effect.

i. Notification and Application Periods

The 2012 proposed regulations re-
quested comments on whether the notifi-
cation and application periods should start
later than the date of the first billing state-
ment, such as the date of discharge, in the
case of patients staying at a hospital facil-
ity for a prolonged period of time and
receiving billing statements in the mail
before being discharged. The majority of
commenters responding to this request for
comments stated that the notification and
application periods should start no earlier
than the time of discharge so that the
"clock" on the periods would not start
until the patient was aware of the billing
statements and able to focus on the noti-
fications about the FAP. On the other
hand, one commenter noted that inpatients
present the best opportunity for in-person
financial counseling activity and that there
was therefore no need for the periods to
begin after discharge rather than the first
billing statement. Another commenter
opined that the requirements relating to
FAP notification and applications would
be confusing to both providers and con-
sumers if the FAP notification and appli-
cation periods did not always start on the
date of the first billing statement.

In response to the majority of com-
ments on the issue and to ensure that
patients who receive care over a pro-

longed period of time receive adequate
notification about the FAP and impending
ECAs and have an adequate opportunity
to apply for financial assistance, the final
regulations provide that the applicable
120- and 240-day periods start on the date
that the first "post-discharge" billing state-
ment is provided, rather than just the first
billing statement. For these purposes, the
final regulations clarify that a billing state-
ment for care is considered "post-
discharge" if it is provided to an individ-
ual after the care (whether inpatient or
outpatient) is provided and the individual
has left the hospital facility.

Many commenters asked that the
lengths of the proposed 120-day notifica-
tion period and/or 240-day application pe-
riod be modified. Some commenters sug-
gested a shorter application period of 90,
120, or 180 days, with the notification
period either being concurrent with, or a
shorter period within, the application pe-
riod. Several of the commenters who re-
quested one concurrent notification and
application period noted the complexity
associated with tracking two different,
overlapping periods. In arguing for a
shorter application period, many com-
menters stated that a 240-day application
period would unduly interfere with hospi-
tal facilities' ability to recover from pa-
tients with resources available to pay the
amounts due.

Other commenters, however, sug-
gested longer notification or application
periods. One commenter suggested one
concurrent notification and application pe-
riod of 240 days, stating that it would be
more effective and less burdensome for all
involved to simply prohibit all ECAs dur-
ing the entire 240-day application period.
Other commenters requested an applica-
tion period of one or two years, noting that
many times ECAs are not commenced
until long after 240 days and that many
patients may not realize that money is
owed until after 240 days, particularly if
they believe that outstanding charges
might be covered by an insurer. Com-
menters also noted that FAP-eligible indi-
viduals may not promptly respond to no-
tifications regarding a hospital facility's
FAP if they are sick or have literacy is-

sues. Several commenters recommended
that patients be allowed to raise FAP-
eligibility as an affirmative defense
against ECAs at any time, not just during
the application period. One commenter re-
quested clarification that hospitals may
extend the application period beyond 240
days.

The Treasury Department and the IRS
continue to believe that 120 days from the
first post-discharge billing statement is an
appropriate amount of time for hospital
facilities to wait before initiating ECAs
against patients whose FAP-eligibility is
undetermined so that patients have suffi-
cient time to learn about the FAP and
apply for financial assistance. As noted in
the preamble to the 2012 proposed regu-
lations, such a 120-day period is consis-
tent with some state requirements or rec-
ommendations to wait 120 days before
taking certain ECAs and, based on typical
billing cycles reported by commenters,
should ensure patients receive at least
three bills before facing an ECA. More-
over, since the release of the 2012 pro-
posed regulations, a taskforce of health-
care finance professionals, healthcare
providers, consumer advocates, collec-
tions agencies, and credit agencies has
recommended that hospitals wait 120 days
from the date of the first billing statement
before commencing ECAs "to protect pa-
tients from undue haste in use of ECAs."
See Best Practices for Resolution of Med-
ical Accounts: A Report from the Medical
Debt Collection Task Force, at 9 (Jan.
2014), available at http://www.hfma.org/
medicaldebt/. Therefore, the final regula-
tions generally provide that a hospital fa-
cility may not initiate ECAs against an
individual whose FAP-eligibility has not
been determined before 120 days after the
first post-discharge billing statement.
However, due to changes made in the final
regulations regarding the notification re-
quirements described in section 6.b.iii of
this preamble, the 120-day period during
which a hospital facility may not initiate
ECAs is no longer called a "notification
period."

With respect to the application period,
the Treasury Department and the IRS
agree with some commenters that it is

10See section 501(r)(7) (providing that the Secretary "shall issue such regulations and guidance as may be necessary to carry out the provisions of [section 501(r)], including guidance relating
to what constitutes reasonable efforts to determine the eligibility of a patient under a" FAP for purposes of section 501(r)(6)).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

generally a good practice for hospital fa-
cilities to allow individuals to raise FAP-
eligibility as a defense against ECAs at
any time and not just during a limited
application period. In fact, the Treasury
Department and the IRS understand that
many hospital facilities currently will ac-
cept and process FAP applications from
patients at any time, and the definition of
"application period" in the final regula-
tions expressly states that hospital facili-
ties may continue to do this. Moreover,
many hospital facilities may prefer simply
to allow FAP applications to be submitted
at any time rather than track application
periods for each patient on an episode-of-
care basis. However, in the interest of
sound tax administration and achieving
certainty for hospital facilities, the ques-
tion of whether a hospital facility has met
the requirements of section 501(r)(6)
should not be left open indefinitely. Ac-
cordingly, although hospital facilities may
continue to accept and process FAP appli-
cations at any time, the final regulations
provide an application period after which
a hospital facility is not required to accept
and process FAP applications for pur-
poses of meeting section 501(r)(6).

The Treasury Department and the IRS
continue to believe that about eight
months (240 days) after the first post-
discharge bill is a reasonable period of
time for a hospital facility to give a patient
to apply for financial assistance to be con-
sidered to have made reasonable efforts to
determine whether the patient is FAP-
eligible. As one commenter pointed out,
individuals may commonly have to wait
several months before they know how
much of a charge for health care services
an insurer will cover and how much they
are personally responsible for paying. In
addition, the amount of time allowed for
FAP applications to be submitted should
take into account the fact that a large
proportion of applicants may face obsta-
cles such as continuing illness, literacy
issues, or language barriers.

While some commenters asserted that
an application period of 240 days from the
first bill would unduly interfere with hos-
pitals' ability to collect debts from non-

FAP-eligible individuals, they provided
little support or further explanation for
this general claim, and other commenters
suggested that many ECAs are not com-
menced until long after 240 days from the
first bill. Moreover, under both the 2012
proposed regulations and these final reg-
ulations, hospital facilities may initiate
ECAs against an individual as early as
120 days after the first post-discharge bill
without failing to meet the requirements
of section 501(r)(6), provided the required
notifications have been given prior to the
initiation of the ECAs. Some of these
ECAs may have to be suspended or re-
versed if the patients against whom the
ECAs are taken subsequently submit FAP
applications, but the Treasury Department
and the IRS have no reason to believe that
the costs associated with such possible
suspensions or reversals only for the sub-
set of patients who submit FAP applica-
tions during the application period will be
so significant as to render it impractical to
initiate any ECAs during the application
period.

In addition, as discussed in section
6.b.vi of this preamble, many commenters
indicated that hospital facilities use a va-
riety of methods and sources of informa-
tion other than FAP applications submit-
ted by individuals to predict potential
FAP-eligibility with a high degree of ac-
curacy. Presumably, hospital facilities
will be able to use such methods and
information sources to focus ECAs on
those patients unlikely to be FAP-eligible,
thereby minimizing the risk that they will
have to reverse a significant number of
ECAs. If a hospital facility receives a
complete FAP application during the ap-
plication period from an individual after
initiating an ECA against the individual, it
must process the application, but, if the
individual is determined to be ineligible
for financial assistance, no reversal of
ECAs will be necessary (and suspension
will be necessary only for the period of
time the application is being processed).

For all of these reasons, the Treasury
Department and the IRS believe that an
application period that ends no earlier
than 240 days from the first post-

discharge bill appropriately balances the
need to protect FAP-eligible patients from
ECAs before FAP-eligibility is deter-
mined with the need to avoid undue inter-
ference with hospital facilities' ability to
collect debts from non-FAP-eligible indi-
viduals.

The final regulations further provide
that the application period for the care of
an individual who has not been presump-
tively determined to be FAP-eligible (as
discussed in section 6.b.vi of the pream-
ble) will be longer than 240 days if the
hospital facility provides the individual
with a written notice about available fi-
nancial assistance and potential ECAs
(described in section 6.b.iii.C of this pre-
amble) that states a deadline that is after
the 240th day from the first post-discharge
bill. For example, if a hospital facility
provides an individual with a written no-
tice about potential ECAs to obtain pay-
ment for care on the 250th day after the
first post-discharge bill for the care and
informs the individual that he or she has
30 days to apply for financial assistance
before the identified ECAs may be initi-
ated (the minimum number of days the
deadline may be from the date the written
notice is provided), the hospital facility
would be required to process any FAP
application that the individual submits by
the 280th day after the first post-discharge
bill. Thus, with the exception of individ-
uals who are presumptively determined to
be FAP-eligible (as described further in
section 6.b.vi of this preamble), an indi-
vidual's application period will remain
open until at least 30 days after the hos-
pital facility provides the individual with a
written notice that sets a deadline after
which ECAs may be initiated.11

ii. Meeting the Section 501(r)(6)
Requirements on an "Episode-of-Care"
Basis

A number of commenters recom-
mended that the reasonable efforts re-
quirements be applied on an "individual
patient" basis rather than on an "episode-
of-care" basis to avoid unnecessary dupli-
cation of notifications to one individual
and complexity in tracking multiple noti-
fication and application periods. In addi-

11If the hospital facility never intends to initiate an ECA against an individual, and therefore never sends a written notice about potential ECAs (and/or a notice with a deadline for applying)
to the individual, the application period is irrelevant because section 501(r)(6) only requires a hospital facility to make reasonable efforts to determine FAP-eligibility before engaging in
an ECA.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

tion, one commenter noted that, at such
time as a hospital would engage in an
ECA, it would seek to identify and aggre-
gate all outstanding and delinquent bills
for a patient and then initiate an ECA to
obtain payment of all the bills together
rather than each bill separately.

In response to these comments, the
final regulations clarify that a hospital
facility may satisfy the notification re-
quirements simultaneously for multiple
episodes of care for purposes of notify-
ing the individual about its FAP and
potential ECAs. Notwithstanding this
allowance for multiple episodes of care,
the Treasury Department and the IRS
continue to believe that patients should
not have less opportunity or time to ap-
ply for financial assistance simply be-
cause they received care from a hospital
facility in the past, especially since ill-
ness and accumulating hospital bills
themselves could result in a deteriora-
tion of an individual's financial circum-
stances. Thus, the final regulations also
provide that, if a hospital facility aggre-
gates an individual's outstanding bills
for multiple episodes of care before ini-
tiating one or more ECAs to obtain pay-
ment for those bills, it may not initiate
the ECA(s) until 120 days after it pro-
vided the first post-discharge bill for the
most recent episode of care included in
the aggregation. Similarly, although, as
a formal matter, a separate application
period starts with each episode of care,
as a practical matter, hospital facilities
have the option of measuring the 240-
day period from the first post-discharge
bill for the most recent episode of care.

#### iii. Notification Requirements

To satisfy the notification component
of "reasonable efforts" with respect to any
care provided to an individual, the 2012
proposed regulations required a hospital
facility to take the following actions: (1)
distribute a plain language summary of
the FAP, and offer a FAP application
form, to the individual before discharge
from the hospital facility; (2) include a
plain language summary of the FAP with
all (and at least three) billing statements
for the care and with all other written
communications regarding the bill pro-
vided during a 120-day notification pe-
riod; (3) during the notification period,
inform the individual about the FAP in all

oral communications regarding the
amount due for the care; and (4) provide
the individual with at least one written
notice informing the individual about the
ECAs the hospital facility (or other autho-
rized party) may take if the individual did
not submit a FAP application or pay the
amount due.

As discussed in section 4.a.iv.C of this
preamble, the requirement to provide a
plain language summary of the FAP as
part of the discharge or intake process is
included under § 1.501(r)-4 of the final
regulations as part of widely publicizing
the FAP, rather than under § 1.501(r)-
6(c) of the final regulations. Rather than
require that a plain language summary of
the FAP be included with all (and at least
three) billing statements and with all other
written communications regarding the bill
provided during a 120-day period after the
first bill, § 1.501(r)-4 of the final regula-
tions requires that all billing statements
include a notice informing patients about
the availability of financial assistance and
how to get information about and a copy
of the FAP, and § 1.501(r)-6(c) of the
final regulations requires that a plain lan-
guage summary of the FAP be included
with one post-discharge written commu-
nication. The final regulations continue to
require oral notification about the FAP as
part of reasonable efforts to determine
FAP-eligibility in § 1.501(r)-6(c), but
amend this requirement to focus the oral
notification on those patients against
whom the hospital facility intends to en-
gage in ECAs rather than require it for all
patients who communicate with the hos-
pital facility about the amount due for the
care. Finally, § 1.501(r)-6(c) of the final
regulations continues to require a notice
about potential ECAs but requires notice
only of the ECAs the hospital facility in-
tends to initiate rather than all ECAs that
may be initiated. The comments received
on, and the modifications to the compo-
nents of, the notification actions that re-
main in § 1.501(r)-6(c) of the final regu-
lations are discussed in greater detail in
this section 6.b.iii of the preamble. In gen-
eral, the Treasury Department and the IRS
expect that these modifications will signif-
icantly reduce the burden on hospital fa-
cilities without significantly reducing the
notice given to patients about the avail-
ability of financial assistance.

A. Providing plain language summa-
ries with written communications

Many commenters stated that requiring
hospital facilities to include plain lan-
guage summaries with all billing state-
ments (as well as with all other written
communications) during the notification
period would result in significant pro-
gramming, printing, and mailing costs. A
number of commenters suggested that a
reference to the availability of the FAP
and a brief description of how to obtain
more information should be sufficient in-
formation for patients, with some com-
menters adding that if plain language
summaries had to be included with bills at
all, the requirement should be limited to
only one or two bills. Other commenters
noted that multiple notices over time are
important, as patients may be in varying
states of readiness for information on fi-
nancial assistance, and these commenters
singled out notices with billing statements
as especially effective.

In response to these comments, the no-
tification component of reasonable efforts
under the final regulations requires a hos-
pital facility to provide a plain language
summary of the FAP to an individual only
if and when it sends that individual the
written notice about potential ECAs de-
scribed in section 6.b.iii.C of this pream-
ble. Thus, hospital facilities need only in-
cur the additional costs that may be
associated with the provision of a plain
language summary one time and only with
respect to the smaller pool of patients
against whom the hospital facility actually
intends to engage in ECAs, not with re-
spect to all patients against whom it might
one day want to engage in ECAs. As a
result, the final regulations significantly
reduce the burden on hospital facilities in
notifying individuals about their FAPs.

At the same time, many of the com-
menters who argued that including a plain
language summary with every bill would
be unnecessarily costly also noted that a
brief description of how to obtain more
information about the FAP should provide
sufficient notification to patients. Other
commenters stressed the importance of re-
peated notices about the FAP with bills. In
response to these comments, and for rea-
sons discussed in section 4.a.iv.C of this
preamble, the final regulations require a
conspicuous written notice about the FAP

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

to be included on a hospital facility's bill-
ing statement as part of "widely publiciz-
ing" the FAP for purposes of meeting the
requirements under section 501(r)(4). Be-
cause the final regulations require this
conspicuous notice about the FAP to be
included on billing statements, the Trea-
sury Department and the IRS do not ex-
pect that the final regulations significantly
reduce the information available to indi-
viduals who may be FAP-eligible or their
opportunity to learn about or apply for
financial assistance.

##### B. Oral notification

Some commenters stated that the re-
quirement that the hospital facility inform
the individual about the FAP in all oral
communications regarding the amount
due for care was overly burdensome, pro-
hibitively difficult to document, prone to
human error, and too dependent on the
cooperation of the individual (who may,
for example, hang up before receiving in-
formation about the FAP). A few com-
menters asked that the oral communica-
tion requirement be limited to those
patients who indicate they may have dif-
ficulty paying their bill rather than apply-
ing to any patient with a question "regard-
ing the amount due for care," as the latter
could include many routine billing inqui-
ries. Other commenters stated that orally-
conveyed information can be the most ef-
fective way to ensure that patients know
financial assistance is available, especially
in the case of LEP populations or individ-
uals with literacy issues.

In response to commenters, the final
regulations replace the oral notification
requirement in the 2012 proposed regula-
tions with a requirement that a hospital
facility make a reasonable effort to orally
notify an individual about the hospital fa-
cility's FAP and about how the individual
may obtain assistance with the FAP appli-
cation process at least 30 days before the
initiation of ECAs against the individual.
By allowing hospital facilities to target
their oral notifications to those individuals
against whom they actually intend to en-
gage in ECAs, the final regulations re-
spond to the concern that the oral notifi-
cation rule in the 2012 proposed
regulations was too burdensome by
greatly reducing the oral notifications that
hospital facilities must make. At the same
time, the final regulations ensure that in-

dividuals who may need financial assis-
tance receive oral notification about a hos-
pital facility's FAP prior to the hospital
facility's initiation of ECAs, which ad-
dresses concerns raised by commenters
who stressed the importance of orally-
conveyed information for potentially
FAP-eligible individuals.

C. Notification about impending ECAs

A few commenters would eliminate the
requirement in the 2012 proposed regula-
tions of a written notice informing indi-
viduals about the ECAs the hospital facil-
ity may take if the individual does not
submit a FAP application or pay the
amount due by the specified deadline, stat-
ing that such a written notice could be
considered a "threatening" communica-
tion that is prohibited by the federal Fair
Debt Collection Practices Act (FDCPA)
(15 U.S.C. 1601 et seq).

The FDCPA does not prevent a debt
collector from informing an individual
about an ECA if the ECA is lawful and the
debt collector "intends" or has a "present
intention" to take the action. See 15
U.S.C. 1692e(4)-(5),1692f(6). In accor-
dance with this language in the FDCPA
and in response to comments, the final
regulations amend the requirement re-
garding the written notice about ECAs to
require that the notice state the ECA(s)
that the hospital facility (or other autho-
rized party) actually "intends to take,"
rather than requiring a description of ev-
ery ECA a hospital "may" take in the
future. Furthermore, like the 2012 pro-
posed regulations, the final regulations do
not require a hospital facility (or third
party collecting a hospital facility's debt)
to provide this notice unless and until it
actually intends to initiate one or more
ECA(s) against an individual. This ability
to wait to send the notice not only should
eliminate any conflict with the FDCPA
but also limits the burden associated with
providing the notice because a hospital
facility need only send it to the subset of
patients against whom it actually intends
to initiate ECAs.

Similar to the 2012 proposed regula-
tions, the final regulations also require the
written notice to state a deadline after
which the identified ECA(s) may be initi-
ated that is no earlier than 30 days after
the date that the written notice is provided.
In addition, the final regulations require

the written notice to generally indicate
that financial assistance is available for
eligible individuals.

## D. Documenting notification

The 2012 proposed regulations pro-
vided that, if an individual had not sub-
mitted a FAP application and the hospital
facility had notified the individual as de-
scribed in the 2012 proposed regulations
and documented that it had so notified the
individual, the hospital facility would be
deemed to have met the reasonable efforts
requirements of section 501(r)(6) and
could engage in ECAs against that indi-
vidual. With respect to documenting com-
pliance with the notification requirements,
one commenter asked whether a hard
copy or electronic image of every relevant
piece of paper given to every individual
would be required.

The final regulations eliminate any
separate requirement under the section
501(r)(6) regulations to document notifi-
cation. The Treasury Department and the
IRS note, however, that hospital organiza-
tions will have to report whether and how
they made reasonable efforts to determine
FAP-eligibility before engaging in ECAs
on their Forms 990 and, as a general mat-
ter, are responsible for maintaining re-
cords to substantiate any information re-
quired by the Form 990. See section
6033(a)(1); § 1.6001-1(c).

E. Miscellaneous issues involving writ-
ten communications

Numerous commenters noted that hos-
pital facilities' billing systems are transi-
tioning from paper to electronic delivery
and stated that the 2012 proposed regula-
tions seemed to envision that most written
communications would be provided in pa-
per form. In response to these comments,
the final regulations clarify that a hospital
facility may provide any of the written
notices or communications described in
§ 1.501(r)-6 of the final regulations elec-
tronically (for example by email) to any
individual who indicates he or she prefers
to receive the written notice or communi-
cation electronically.

A number of provisions in the 2012
proposed regulations referred to the date a
written notice or communication was
"provided," and one commenter asked
whether "provides" means the date the
statement is placed into the U.S. mail or
the date the statement is received by the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

patient. The final regulations clarify that,
in the case of any written notice or com-
munication that is mailed, the communi-
cation will be considered "provided" on
the date of mailing. A communication
may also be considered provided on the
date it is sent electronically or delivered
by hand.

## iv. Incomplete FAP Applications

In the case of an individual who sub-
mits an incomplete FAP application dur-
ing the application period, the 2012 pro-
posed regulations provided that a hospital
facility must suspend ECAs (defined as
not initiating any ECAs or taking further
action on any previously initiated ECAs)
taken against the individual until either
the individual's FAP application was
completed and processed or the "comple-
tion deadline" had passed without the in-
dividual's having completed the FAP ap-
plication. The 2012 proposed regulations
further provided that the completion dead-
line could be no earlier than the later of 30
days from the date of a written notice
about impending ECAs or the last day of
the application period. Some commenters
expressed concern that these provisions in
the 2012 proposed regulations effectively
allowed an individual to submit a FAP
application form with minimal informa-
tion on it and thereby automatically defer
ECAs for up to 240 days.

In response to this concern, and to pro-
vide hospital facilities with additional
flexibility to work with individuals sub-
mitting incomplete FAP applications in a
manner appropriate to the particular cir-
cumstances, the final regulations provide
that a hospital facility must suspend ECAs
against the individual until either the in-
dividual completes the FAP application
and the hospital facility determines
whether the individual is FAP-eligible or
until the individual has failed to respond
to requests for additional information
and/or documentation within a reasonable
period of time. The Treasury Department
and the IRS expect the reasonableness of
the period of time individuals are given to
complete a FAP application before ECAs
may resume will depend on the particular
facts and circumstances, including the
amount of additional information and/or
documentation that is being requested. Al-
though the final regulations potentially
permit a hospital facility to initiate or re-

sume ECAs before the end of the applica-
tion period against an individual who has
failed to respond to requests for additional
information and/or documentation, if the
individual subsequently completes the
FAP application during the application
period, the final regulations would require
the hospital facility to again suspend any
ECAs taken against the individual until
the hospital determines whether the indi-
vidual is FAP-eligible (and, if the individ-
ual is determined to be FAP-eligible, to
reverse such ECAs).

A few commenters requested clarifica-
tion that hospital facilities are required to
suspend only those ECAs relating to the
care at issue upon the submission of a
FAP application, not ECAs relating to
past care for which the hospital facility
has already satisfied the reasonable efforts
requirements. The final regulations in-
clude this clarification (in the context of
processing both incomplete as well as
complete FAP applications) by providing
that a hospital facility must only suspend
any ECAs taken against the individual "to
obtain payment for the care" at issue.

Two commenters suggested that the re-
quirement to suspend ECAs ignores spe-
cific time frames that must be followed to
prevent a hospital facility's legal rights
from being jeopardized, such as filing a
claim in a bankruptcy proceeding and fil-
ing a responsive pleading or responding to
a motion by prescribed deadlines in pend-
ing legal actions. One of these comment-
ers recommended that the final regulations
allow for ECAs to continue even when an
incomplete FAP application is submitted
if suspending the ECA would result in the
hospital facility's legal rights being jeop-
ardized.

In response to these comments, the fi-
nal regulations add a provision stating that
filing a claim in a bankruptcy proceeding
is not an ECA, so the requirement to sus-
pend ECAs will not jeopardize the ability
to file such claims. The final regulations
do not adopt the suggestion that ECAs be
permitted to continue "if suspending the
ECA would result in the hospital facility's
legal rights being jeopardized," as this is a
vague standard that would be difficult to
enforce and could substantially diminish
the protection afforded by the suspension
requirement. The Treasury Department
and the IRS also note that, under the final

regulations, ECAs taken against an indi-
vidual who has submitted an incomplete
FAP application only have to be sus-
pended for a "reasonable period of time,"
not a period of at least 240 days from the
first post-discharge bill.

The final regulations require hospital
facilities to provide a notice about poten-
tial ECAs (and an accompanying plain
language summary of the FAP) to an in-
dividual who has submitted an incomplete
FAP application under the provisions re-
lating to notification about the FAP rather
than separately requiring this notice under
the provisions relating to incomplete FAP
applications (as had been done in the 2012
proposed regulations). This change is
made to simplify the regulations and is not
intended to have any substantive effect for
individuals who submit an incomplete
FAP application before ECAs have been
initiated.

Finally, to ensure that individuals who
submit an incomplete FAP application
during the application period know who
they can contact for assistance in complet-
ing the application, and in response to
commenters who stressed the importance
of oral communication generally, the final
regulations require a hospital facility to
provide such individuals with the contact
information of a hospital facility office or
department (or, alternatively, a nonprofit
organization or government agency) that
can provide assistance with the FAP ap-
plication process.

## v. Complete FAP Applications

A. General requirements following re-
ceipt of complete FAP applications

Like the 2012 proposed regulations,
the final regulations provide that, if a hos-
pital facility receives a complete FAP ap-
plication from an individual during the
application period, the hospital facility
will have made reasonable efforts to de-
termine whether the individual is FAP-
eligible only if it suspends any ECAs
taken against the individual to obtain pay-
ment for the care, makes and documents
an eligibility determination in a timely
manner, and notifies the individual in
writing of the determination and the basis
for the determination.

A few commenters recommended that
the final regulations require FAP-
eligibility determinations to be made
within a specified period of time, with the

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

suggested time ranges being five business
days, 30 days, and 45 days. However,
another commenter agreed with the pro-
posed rule that hospital facilities evaluate
whether an applicant is eligible in "a
timely manner" (while also adding that
"30 days seems reasonable"). Yet another
commenter noted that many FAPs will
require individuals to apply for Medicaid
before the individual is eligible for finan-
cial assistance from the hospital facility
and requested that the regulations suspend
the time period in which the hospital fa-
cility must make the FAP-eligibility de-
termination to allow time for a Medicaid
application to be filed and a Medicaid
eligibility determination to be made.

The Treasury Department and the IRS
believe that the reasonableness of the time
period required to make an eligibility de-
termination will vary depending upon par-
ticular facts and circumstances. For exam-
ple, a hospital facility's receipt of an
unusually large number of FAP applica-
tions in a particular week might reason-
ably result in that hospital facility taking
longer to process the applications than
would ordinarily be the case. In addition,
the Treasury Department and the IRS note
that the final regulations require hospital
facilities to suspend ECAs between the
time a complete FAP application is sub-
mitted and the time an eligibility determi-
nation is made, providing some protection
for patients during this time period. Thus,
the final regulations do not adopt a spe-
cific period of time in which a hospital
facility must make a FAP-eligibility de-
termination, opting instead to continue to
require the determination to be made "in a
timely manner" to provide hospital facil-
ities with the appropriate flexibility to ad-
dress varied situations. In addition, in
cases in which a hospital facility believes
an individual who has submitted a com-
plete FAP application may qualify for
Medicaid, the final regulations clarify that
a hospital facility may postpone making a
FAP-eligibility determination until after
the individual's Medicaid application has
been completed and submitted and a de-
termination as to Medicaid eligibility has
been made. However, as is generally the
case when an individual has submitted a
complete FAP application, a hospital fa-
cility may not initiate or resume any
ECAs to obtain payment for the care at

issue until a FAP-eligibility determination
has been made.

Like the 2012 proposed regulations,
the final regulations make clear that if a
hospital facility determines whether an in-
dividual is FAP-eligible for care based on
a complete FAP application before initi-
ating any ECAs against the individual to
obtain payment for the care, it has made
reasonable efforts to determine whether
the individual is FAP-eligible for the care,
regardless of what notification about the
FAP (or, if applicable, about what the
individual needs to provide to complete an
incomplete FAP application) had been or
continues to be provided to the individual.

B. Requirements when an individual is
determined to be FAP-eligible

The 2012 proposed regulations pro-
vided that if a hospital facility determines
an individual to be FAP-eligible, the hos-
pital facility must provide the individual
with a billing statement that indicates the
amount the individual owes as a FAP-
eligible individual and shows (or de-
scribes how the individual can get infor-
mation regarding) the AGB for the care
and how the hospital facility determined
the amount the individual owes as a FAP-
eligible individual. The hospital facility
would also be required to refund any ex-
cess payments made by the FAP-eligible
individual and take all reasonably avail-
able measures to reverse any ECA (with
the exception of a sale of debt) taken
against the individual to obtain payment
for the care at issue.

One commenter recommended that no-
tification about FAP-eligibility be op-
tional in cases in which 100 percent of a
patient's account has been written off un-
der a hospital facility's FAP. The Trea-
sury Department and the IRS believe that
providing a patient who has been deter-
mined to be eligible for free care with
some written documentation of that eligi-
bility determination is necessary both to
notify the patient and to protect him or her
in the event of any future erroneous
charges for the care. However, the Trea-
sury Department and the IRS do agree that
a billing statement indicating a $0 balance
is not necessary in addition to a written
notification about eligibility for free care.
Accordingly, the final regulations require
written notification that an individual is
determined to be eligible for free care but

do not require a billing statement indicat-
ing that nothing is owed for the care (or
stating or describing how the individual
can get information regarding AGB for
the care).

A few commenters asked about the
time period to which the requirement to
refund FAP-eligible patients applies and
requested clarification that hospital facili-
ties are not required to refund amounts
previously paid to the hospital for care
unless the individual is determined to be
FAP-eligible for that care. The 2012 pro-
posed regulations and the final regulations
refer only to refunds of payments "for the
care" at issue and are intended to require
refunds only of payments for the epi-
sode(s) of care to which an individual's
FAP application (and therefore his or her
FAP-eligibility determination) relates.
Thus, if an individual receives and pays
for a hospital facility's care in both year 1
and year 3 but only applies for financial
assistance in year 3 for the care received
in year 3 and is determined to be FAP-
eligible for the care provided in year 3, the
hospital facility would only have to refund
any excess amounts the individual paid
for the year 3 care, not any amount the
individual paid for the year 1 care. Be-
cause the 2012 proposed regulation re-
quired only refunds for "the care" at issue,
the Treasury Department and the IRS do
not believe that the final regulations need
to be amended to further clarify this point.

Two commenters asked that the final
regulations set a reasonable threshold,
such as $5, for required refunds, noting
that some states apply such thresholds.
The Treasury Department and the IRS
agree that the administrative costs associ-
ated with requiring hospital facilities to
process refunds in amounts of less than $5
would outweigh the benefits to FAP-
eligible patients. Accordingly, the final
regulations do not require a hospital facil-
ity to refund any amount a FAP-eligible
individual has paid for care that exceeds
the discounted amount he or she owes for
the care as a FAP-eligible individual if
such excess amount is less than $5. In
addition, recognizing that inflation and
other factors may create the need to in-
crease the $5 threshold in the future, the
final regulations allow the Treasury De-
partment or the IRS to increase the thresh-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

old in a notice or other guidance published
in the Internal Revenue Bulletin.

One commenter sought clarification
about whether hospital facilities are re-
quired to make refunds only to individuals
determined to be FAP-eligible or also to
their insurers. The 2012 proposed regula-
tions required refunds only of the amounts
the FAP-eligible individual had paid “in
excess of the amount he or she is deter-
mined to owe as a FAP-eligible individ-
ual." Thus, only refunds to the individual
were intended to be required. However, to
clarify this intent, the final regulations re-
quire the hospital facility to provide re-
funds "to the individual" and refer to the
amount the individual is "personally re-
sponsible for paying" rather than the
amount the individual "owes."

One commenter recommended that re-
versal of ECAs only be required upon a
determination that an individual is FAP-
eligible to the extent of the adjustment to
the bill made as a result of FAP-eligibility,
so that, for example, if a patient were still
liable for 50 percent of a bill after an
adjustment for a FAP discount, ECAs
could continue to be used to collect the
discounted amount owed. Other com-
menters, however, supported the require-
ment to reverse ECAs, stating that it,
along with the requirement to provide re-
funds, were reasonable and sufficient
measures to protect patients.

As noted previously in this preamble,
the Treasury Department and the IRS be-
lieve that reasonable efforts to determine
FAP-eligibility necessitate giving patients
a reasonable period of time of at least
eight months (240 days) after the first
post-discharge bill to learn about a hospi-
tal facility's FAP and apply for assistance.
Nonetheless, the final regulations, like the
2012 proposed regulations, allow hospital
facilities to initiate ECAs against individ-
uals whose FAP-eligibility has not been
determined as early as 120 days after the
first post-discharge bill to avoid undue
interference with hospital facilities' abil-
ity to collect debts from non-FAP-eligible
individuals. However, if a hospital facility
does initiate an ECA against an individual
before the end of the 240-day application
period and the individual is subsequently
determined to be FAP-eligible, the Trea-
sury Department and the IRS believe the
hospital facility should reverse the ECA

altogether and begin the collection pro-
cess anew based on the adjusted amount.
The Treasury Department and the IRS ex-
pect that such a rule will encourage hos-
pital facilities not to begin ECAs during
the application period against individuals
they believe are likely to be FAP-eligible.

vi. Presumptive FAP-eligibility de-
terminations based on third-party infor-
mation or prior FAP-eligibility determi-
nations

The 2012 proposed regulations pro-
vided that a hospital facility has made
reasonable efforts to determine whether
an individual is FAP-eligible if it deter-
mines that the individual is eligible for the
most generous assistance available under
the FAP based on information other than
that provided by the individual, such as
the individual's eligibility under one or
more means-tested public programs. The
2012 proposed regulations also provided
that a hospital facility will not have made
reasonable efforts to determine whether
an individual is FAP-eligible as a result of
obtaining a signed waiver from the indi-
vidual and defined a FAP-eligible individ-
ual as an individual eligible for FAP as-
sistance without regard to whether the
individual has applied for such assistance.

The Treasury Department and the IRS
recognized that these provisions, together,
effectively left a hospital facility with two
options if it wanted to engage in an ECA
against an individual who had not submit-
ted a FAP application: either notify the
individual about the FAP during the noti-
fication period or provide the individual
with the most generous assistance avail-
able under the FAP. Accordingly, the pre-
amble to the 2012 proposed regulations
requested comments on how to provide
additional flexibility under the regulations
to hospital facilities seeking to determine
whether an individual is FAP-eligible,
and, in particular, on how a hospital facil-
ity might reasonably determine whether
an individual is FAP-eligible in ways
other than soliciting and processing FAP
applications. The preamble to the 2012
proposed regulations also requested com-
ments regarding whether a hospital facil-
ity might be able to rely on prior FAP-
eligibility determinations for a period of
time to avoid having to re-determine
whether an individual is FAP-eligible ev-
ery time he or she receives care.

Numerous commenters stated that hos-
pitals can, and commonly do, rely on
trustworthy methods and sources of infor-
mation other than FAP applications to de-
termine FAP-eligibility. Some noted the
use of public and private records and data
sources that, often in combination with
predictive models and algorithms, could
presumptively determine FAP-eligibility,
including for discounts on a sliding scale
that are less than the most generous avail-
able under the FAP. A number of these
commenters suggested that allowing hos-
pital facilities to use these information
sources and methods to presumptively de-
termine eligibility only for the most gen-
erous discounts under a FAP could inad-
vertently result in fewer individuals
receiving financial assistance. Other com-
menters noted that hospital facilities could
readily and accurately determine the in-
surance status or residency of particular
individuals and, therefore, determine that
such individuals are not FAP-eligible
when such eligibility depends on being
uninsured or on being a resident of the
state in which the hospital facility is li-
censed. Most of these commenters gener-
ally recommended that hospital facilities
be allowed to rely on information sources
and methods other than FAP applications
to determine FAP-eligibility as long as the
sources and methods are disclosed (for
example, in the FAP or on the hospital
facility's Form 990) and/or the individual
is given a reasonable opportunity to pro-
vide information indicating FAP-
eligibility or eligibility for a greater dis-
count than the one provided. A few
commenters, however, recommended
against the use of predictive models that
rely on credit scores, noting that such
methods assess creditworthiness rather
than financial need. A few commenters
also suggested that predictive models
should only be used to approve someone
for financial assistance, not to deem them
ineligible for it.

In addition, commenters recommended
that hospital facilities should be able to
rely on prior FAP eligibility determina-
tions, arguing that it would be burden-
some and costly to require a hospital fa-
cility to re-determine whether an
individual is FAP-eligible every time the
individual receives care. Suggestions
ranged from allowing reliance on prior

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

FAP applications for a certain time period
(90 days, four months, six months, or
twelve months) to allowing hospital facil-
ities the flexibility to determine how long
FAP-eligibility status may last. Most of
these commenters recommended that a
hospital facility's reliance on prior FAP-
eligibility determinations should be dis-
closed in its FAP and/or that patients
should be given a reasonable opportunity
to resubmit an application if and when
their financial situation changes.

In response to these comments and to
encourage hospital facilities to provide
discounts to potentially FAP-eligible indi-
viduals who have not submitted FAP ap-
plications, the final regulations provide
that, in addition to presumptively deter-
mining that an individual is eligible for
the most generous assistance available un-
der its FAP, a hospital facility may also
presumptively determine that an individ-
ual is eligible for less than the most gen-
erous assistance available under the FAP
based on information other than that pro-
vided by the individual or based on a prior
FAP-eligibility determination (hereinafter
referred to as presumptive determina-
tions). Most commenters recognized,
though, that presumptive determinations
that an individual is eligible for less than
the most generous assistance available un-
der a FAP should not relieve a hospital
facility of the obligation to give patients a
reasonable opportunity to seek more gen-
erous assistance by providing additional
information related to FAP-eligibility.
Accordingly, the final regulations provide
that a presumptive determination that an
individual is eligible for less than most
generous assistance available under a FAP
only constitutes reasonable efforts to de-
termine FAP-eligibility if three conditions
are met. First, the hospital facility must
notify the individual regarding the basis
for the presumptive FAP-eligibility deter-
mination and the way he or she may apply
for more generous assistance available un-
der the FAP. Second, the hospital facility
must give the individual a reasonable pe-
riod of time to apply for more generous
assistance before initiating ECAs to ob-
tain the discounted amounted owed for the
care. And, third, the hospital facility must
process any complete FAP application
that the individual submits by the end of
the application period or, if later, by the

end of the reasonable time period given to
apply for more generous assistance.

The final regulations do not treat as
reasonable efforts a presumptive determi-
nation that an individual is not FAP-
eligible. The Treasury Department and the
IRS believe that before being subjected to
ECAs, individuals who have received no
financial assistance under a FAP and who
have not submitted a complete FAP appli-
cation should, at a minimum, receive a
notice about the FAP (through a plain
language summary) and about the dead-
line for submitting a FAP application be-
fore ECAs may be initiated, as described
in section 6.b.iii of this preamble. The
Treasury Department and the IRS note,
however, that even though presumptive
determinations of FAP-ineligibility do not
constitute reasonable efforts to determine
FAP-eligibility for purposes of section
501(r)(6), a hospital facility is not prohib-
ited from using third-party information
sources and prior FAP-eligibility determi-
nations to try to predict which of its pa-
tients are unlikely to be FAP-eligible.

A number of commenters asked that
the definition of "FAP-eligible individual"
be revised such that it applies only to
individuals "known to be eligible for fi-
nancial assistance." Allowing hospital fa-
cilities to assume individuals are not FAP-
eligible unless and until they obtain
knowledge to the contrary would relieve
hospital facilities of any obligation to
make reasonable efforts to determine
whether individuals are FAP-eligible and
thereby undercut the purpose of section
501(r)(6). Accordingly, the definition of
FAP-eligible individual is not amended to
apply only to individuals known to be
FAP-eligible.

Many commenters also asked that hos-
pital facilities be allowed to use targeted
and limited waivers in determining FAP-
eligibility, such as waivers for individuals
who the hospital facility has no reason to
believe may be FAP-eligible or individu-
als with adequate insurance and the ability
to meet any co-pays and deductibles. In
addition, one commenter asked that the
final regulations provide that making rea-
sonable efforts to determine an individual
is FAP-eligible includes obtaining an at-
testation from the individual that his or
her income and/or assets exceed certain

thresholds in the FAP and that the attes-
tation was not made under coercion.

The Treasury Department and the IRS
continue to believe that obtaining signa-
tures from individuals on a waiver form is
not a meaningful way to determine that
they are not FAP-eligible. The Treasury
Department and the IRS note, however,
that the final regulations define a complete
FAP application as information and doc-
umentation provided by an individual that
is sufficient to determine the individual's
FAP-eligibility, and an individual's attes-
tation regarding his or her income or other
criteria relevant to FAP-eligibility could
be sufficient to determine FAP-eligibility
and therefore could be considered a com-
plete FAP application. Thus, if a hospital
facility makes a determination as to
whether an individual is FAP-eligible
based an individual's attestation regarding
his or her income or other relevant eligi-
bility criteria-and the hospital facility
has no reason to believe that the informa-
tion on the statement is incorrect and did
not obtain the information from the indi-
vidual under duress or through the use of
coercive practices-the hospital facility
will have made a determination based on a
complete FAP application and, thus, have
made reasonable efforts to determine
whether the individual is FAP-eligible for
purposes of section 501(r)(6).

vii. Reasonable Efforts in the Case of
Denying or Deferring Care Based on Past
Nonpayment

As discussed in section 6.a.iv of this
preamble and in response to comments,
the final regulations include as an ECA
the deferral or denial of (or the require-
ment of a payment before providing) med-
ically necessary care because of the indi-
vidual's nonpayment of one or more bills
for previously provided care. Unlike other
ECAs, the timing of this ECA involving
the deferral or denial of care will depend
on when an individual seeks medically
necessary care from the hospital facility, a
contingency over which the hospital facil-
ity has no control. In addition, if the pro-
vision of medically necessary care is at
stake, the individual's application for fi-
nancial assistance should be completed
and his or her FAP-eligibility should be
determined as quickly as possible to avoid
jeopardizing the individual's health.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Based on these considerations, the final
regulations provide that, in the case of an
ECA involving deferral and denial of (or
requiring payment before providing) care
only, a hospital facility is not required to
provide the oral and written notification
about the FAP and potential ECAs dis-
cussed in section 6.b.iii of this preamble at
least 30 days in advance of initiating this
ECA to have made reasonable efforts to
determine whether the individual is FAP-
eligible. However, to avail itself of this
exception, a hospital facility (or other au-
thorized party) must satisfy several condi-
tions. First, the hospital facility must pro-
vide the individual with a FAP application
form (to ensure the individual may apply
immediately, if necessary) and notify the
individual in writing about the availability
of financial assistance for eligible individ-
uals and the deadline, if any, after which
the hospital facility will no longer accept
and process a FAP application submitted
by the individual for the previously pro-
vided care at issue. This deadline must be
no earlier than the later of 30 days after
the date that the written notice is provided
or 240 days after the date that the first
post-discharge billing statement for the
previously provided care was provided.
Thus, although the ECA involving defer-
ral or denial of care may occur immedi-
ately after the requisite written (and oral)
notice is provided, the individual must be
afforded at least 30 days after the notice to
submit a FAP application for the previ-
ously provided care. In addition, the hos-
pital facility must notify the individual
about the FAP in the two other ways dis-
cussed in section 6.b.iii of the preamble
(though without regard to the requirement
to do so at least 30 days before the initi-
ation of an ECA): namely, by providing a
plain language summary of the FAP and
by orally notifying the individual about
the hospital facility's FAP and about how
the individual may obtain assistance with
the FAP application process. Finally, if an
individual submits a FAP application for
previously provided care during the appli-
cation period, the hospital facility must
process the application on an expedited

basis, to ensure that medically necessary
care is not unnecessarily delayed.

In the case of the ECA involving the
deferral or denial of care, the final regu-
lations also provide an exception to the
general rule that reasonable efforts to de-
termine FAP-eligibility ordinarily will re-
quire a hospital to wait at least 120 days
after the first post-discharge bill before
initiating ECAs. Under the exception, a
hospital facility may defer or deny (or
require payment before providing) medi-
cally necessary care12 because of an indi-
vidual's nonpayment of one or more bills
for previously provided care even though
such deferral or denial (or payment re-
quirement) is within 120 days of the first
post-discharge bill for the previously pro-
vided care. Without such an exception in
the final regulations, hospital facilities
would effectively be required to provide
medically necessary care to individuals
with past due bills when these individuals
are seeking care within 120 days of the
first post-discharge bill.

The Treasury Department and the IRS
note that the modified reasonable efforts
to determine FAP-eligibility discussed in
this section 6.b.vii of the preamble would
not be necessary if a hospital facility had
already determined whether the individual
was FAP-eligible for the previously pro-
vided care at issue based on a complete
FAP application or had presumptively de-
termined the individual was FAP-eligible
for the previously provided care as de-
scribed in section 6.b.vi of this preamble.
The modified reasonable efforts would
also not be needed in cases in which 120
days had passed since the first post-
discharge bill for the previously provided
care, and the hospital facility had already
notified the individual about intended
ECAs as described in section 6.b.iii of this
preamble.

viii. Agreements with Other Parties

The 2012 proposed regulations pro-
vided that if a hospital facility refers or
sells an individual's debt to another party
during the application period, the hospital
facility will have made reasonable efforts
to determine whether the individual is
FAP-eligible only if it first obtains a le-

gally binding written agreement from the
other party to abide by certain specified
requirements. The 2012 proposed regula-
tions requested comments regarding the
feasibility of this rule. Commenters who
responded to this request for comments
generally indicated that imposing such
contractual obligations on debt collection
agencies or debt buyers was not especially
unusual or unworkable, and, thus, the
Treasury Department and the IRS adopt
the provisions of the 2012 proposed reg-
ulations with only minor clarifying revi-
sions that are not intended to be substan-
tive changes. In the event a hospital
facility does sell or refer an individual's
debt and the debt buyer or collection agent
takes one or more of the steps required to
have made reasonable efforts to determine
whether the individual is FAP-eligible, the
final regulations also clarify the hospital
facility will be treated as having taken
those steps for purposes of making rea-
sonable efforts under section 501(r)(6).

### 7. Section 501(r) and State Law Requirements

Numerous commenters noted that their
states already had laws in effect covering
some or most of the same subject matter
as the requirements described in
§§ 1.501(r)-3 through 1.501(r)-6 of the
proposed regulations and argued that re-
quiring compliance with the section
501(r) regulations in addition to what hos-
pitals are already required to do under
state law would create unnecessary dupli-
cation of effort and administrative burden.
Others went further and argued that the
requirements described in §§ 1.501(r)-3
through 1.501(r)-6 of the proposed regu-
lations conflicted or were inconsistent
with certain state law requirements. Areas
of inconsistency noted by commenters in-
cluded the timing and content of notices
that must be provided to patients, rules
regarding the limitations on charges, and
the periods of time during which the hos-
pital facilities must wait to commence cer-
tain collection actions. Most of these com-
menters recommended that a hospital
facility should be deemed to have com-
plied with the section 501(r) requirements

12With respect to deferring or denying (or requiring payment before providing) emergency medical care, in particular, hospital organizations are separately subject to the requirements under
Subchapter G of Chapter IV of Title 42 of the Code of Federal Regulations, which includes the regulations under EMTALA, and the emergency medical care policy they adopt to meet the
requirements of section 501(r)(4)(B) (as discussed in section 4.b of this preamble).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

if it complies with the relevant state law(s)
applicable to it. On the other hand, some
commenters asked the Treasury Depart-
ment and the IRS to clarify that nothing in
the proposed regulations will preempt
state laws that contain additional or more
stringent requirements.

Given the wide variation among state
laws covering some of the same subject
matter as section 501(r), providing that
compliance with section 501(r) requires
only compliance with the applicable state
law would result in widely divergent rules
for charitable hospitals in different states.
A rule equating compliance with state law
to compliance with section 501(r) would
also mean that IRS revenue agents assess-
ing section 501(r) compliance would need
to learn each state's laws or that the state
office responsible for enforcing the partic-
ular state law would have to confirm a
hospital facility's compliance with the rel-
evant state law in each taxable year under
audit.

More importantly, the language in
many of the state laws cited by comment-
ers as analogous does not match the stat-
utory language in section 501(r)-for ex-
ample, by not including concepts such as
AGB, ECAs, or "reasonable efforts" to
determine FAP-eligibility or by requiring
CHNAs every five years as opposed to
every three years. In these cases, simply
deeming compliance with state law to re-
sult in compliance with section 501(r)
would be inconsistent with the statutory
language under section 501(r).

While many of the requirements in the
state laws cited by commenters do not
match the provisions in the 2012 or 2013
proposed regulations and while some state
laws might require more or less of hospi-
tal facilities than the comparable provi-
sion in the proposed regulations, com-
menters failed to cite any state laws that
conflict with the proposed regulations in a
way that would make it impossible for a
hospital facility to comply with both the
state and the federal requirement. For ex-
ample, although some state laws set forth
a limitation on charges that is different
from the limit that would result from the
AGB methods described in the 2012 pro-
posed regulations, none of the state laws
identified by commenters prohibit hospital
facilities from charging FAP-eligible indi-
viduals less than the state law limit. Sim-

ilarly, AGB under section 501(r)(5) is
only a maximum amount that hospital fa-
cilities can charge FAP-eligible individu-
als, and hospital facilities are free to pro-
vide more generous discounts in their
FAPs (including free care). As a result,
hospital facilities are always free to
charge the lesser of AGB or a limitation
on charges imposed by state law or to
establish a uniform discount that will al-
ways fall below both the state and federal
maximum charges. Similarly, the periods
of time during which hospital facilities
must wait to commence certain collection
activities in both the 2012 proposed reg-
ulations and certain state laws cited by
commenters are minimum periods, and a
hospital facility is always free to wait for
the longer of the two applicable periods
without violating either section 501(r)(6)
or state law requirements.

Accordingly, the final regulations do
not contain any provisions equating com-
pliance with one or more requirements in
applicable state law to compliance with
one or more of the requirements in the
final regulations. In addition, the final reg-
ulations are not intended to preempt any
state laws or regulations, and the Treasury
Department and the IRS expect that any
additional or stricter requirements under a
state's laws or regulations will continue to
apply to hospital facilities licensed in that
state.

#### 8. Reporting Requirements Related to CHNAs

The final regulations state, consistent
with the statute and the 2013 proposed
regulations, that a hospital organization
must provide with its Form 990 a descrip-
tion of how it is addressing the commu-
nity health needs identified for each facil-
ity it operates, its audited financial
statements, and the amount of the excise
tax imposed on the organization under
section 4959 during the taxable year.

a. Description of how community
health needs are being addressed

In accordance with section
6033(b)(15)(A), the 2013 proposed reg-
ulations required a hospital organization
to furnish annually on its Form 990 a
description of the actions taken during the
taxable year to address the significant
health needs identified through its most

recently conducted CHNA, or, if no ac-
tions were taken with respect to one or
more of those health needs, the reasons no
actions were taken. Numerous comment-
ers expressed support for this requirement
to annually furnish a description of how a
hospital facility is addressing health needs
identified through a CHNA, with some
commenters stating that it increases trans-
parency and accountability and would
provide written documentation of prog-
ress over time. Other commenters stated
that the annual updates would be burden-
some and duplicative, given that the 2013
proposed regulations also required hospi-
tal facilities to attach to their Forms 990
their most recently adopted implementa-
tion strategies (or provide the URL where
the implementation strategies are made
widely available on a Web site).

As discussed in section 3.b of this pre-
amble, it is true that a hospital facility's
implementation strategy must describe,
with respect to each significant health
need identified through the CHNA, how
the hospital facility plans to address the
health need or why the hospital facility
does not intend to address the health
need. However, as noted in the preamble
to the 2013 proposed regulations, section
6033(b)(15)(A) contemplates an annual
furnishing of information regarding how a
hospital facility is actually addressing
needs identified through a CHNA each
year, while an implementation strategy is
a plan for addressing these needs that only
has to be updated every three years. Ac-
cordingly, the final regulations retain the
requirement that hospital facilities annu-
ally furnish information on their Form
990s about how they are addressing the
significant health needs identified through
their CHNAs.

##### b. Audited financial statements

The 2013 proposed regulations reiterated
the requirement of section 6033(b)(15)(B)
that a hospital organization attach to its
Form 990 a copy of its audited financial
statements for the taxable year-or, in the
case of an organization the financial state-
ments of which are included in consoli-
dated financial statements with other or-
ganizations, such consolidated financial
statements. In the preamble to the 2013
proposed regulations, the Treasury De-
partment and the IRS requested comments
regarding whether hospital organizations

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

whose financial statements are included in
consolidated financial statements should
be able to redact financial information
about any taxable organizations that are
members of the consolidated group.

Two commenters stated that informa-
tion about taxable organizations should be
redacted from publicly available financial
statements without further elaboration
while another commenter stated that the
information provided on the Form 990
should be as detailed as possible to keep
tax-exempt hospitals accountable. Con-
solidated financial statements are fully in-
tegrated, making redaction of one partic-
ular organization's financial information
difficult. The few comments received did
not provide any explanation as to how
such redactions could be accomplished
without compromising the clarity of the
statement. Accordingly, the final regula-
tions adopt the proposed requirement
without change.

c. Reporting requirements for govern-
ment hospital organizations

A number of commenters have asked
whether and how government hospital or-
ganizations can satisfy the reporting re-
quirements related to CHNAs, since they
are excused from filing a Form 990 under
Rev. Proc. 95-48. As noted in the pream-
ble to the 2013 proposed regulations, the
Affordable Care Act did not change the
requirements regarding which organiza-
tions are required to file a Form 990. Ac-
cordingly, a government hospital organi-
zation (other than one that is described in
section 509(a)(3)) that has been excused
from filing a Form 990 under Rev. Proc.
95-48 or a successor revenue procedure is
not required to file a Form 990. Because
government hospital organizations de-
scribed in Rev. Proc. 95-48 are relieved
from the annual filing requirements un-
der section 6033, they are also relieved
from any new reporting requirements
imposed on hospital organizations under
section 6033, including under section
6033(b)(10)(D) and (b)(15) and the re-
quirement to attach one or more imple-
mentation strategies to a Form 990.
However, to be treated as described in
section 501(c)(3), government hospital
organizations still must meet all section

501(r) requirements that do not involve
disclosure on or with the Form 990,
including making their CHNA reports
and FAPs widely available on a Web
site.

#### 9. Excise Tax on Failure to Meet CHNA Requirements

Section 4959 imposes a $50,000 excise
tax on a hospital organization that fails to
meet the CHNA requirements with re-
spect to any taxable year. The 2013 pro-
posed regulations provided that the excise
tax applies on a facility-by-facility basis
and may be imposed on a hospital orga-
nization for each taxable year that a hos-
pital facility fails to meet the section
501(r)(3) requirements.

One commenter suggested that the full
$50,000 excise tax should apply only in
instances where a hospital facility fails to
conduct a CHNA altogether, with a slid-
ing scale of tax applied to organizations
that conduct a CHNA but fail to substan-
tially comply with all of the CHNA re-
quirements. Another commenter sug-
gested applying the $50,000 excise tax
separately for each failure of a hospital
facility to meet each component of the
section 501(r)(3) requirements.

Section 4959 applies the $50,000 ex-
cise tax to a hospital organization that
fails to meet the requirements of section
501(r)(3) for any taxable year. Section
501(r)(3) requires that, in conducting a
CHNA, a hospital must take into account
input from persons who represent the
broad interests of the community, make
the CHNA widely available to the public,
and adopt an implementation strategy to
meet the needs identified through the
CHNA. Section 4959 appears to provide
for one $50,000 excise tax if a hospital
facility fails one or any combination of
those components of satisfying section
501(r)(3). It does not appear to provide for
either a separate $50,000 excise tax for
each component or a tax of less than
$50,000 if a hospital facility fails some,
but not all, of those components. Thus, the
final regulations do not adopt these com-
menters' suggestions.

However, as discussed in section 2.b of
this preamble, a hospital facility's omis-
sion or error with respect to the CHNA
requirements will not be considered a fail-
ure to meet the CHNA requirements if the
omission or error was minor and either
inadvertent or due to reasonable cause and
the hospital facility corrects the omission
or error in accordance with § 1.501(r)-
2(b)(1)(ii). If, as a result of this rule, an
omission or error with respect to the
CHNA requirements is not considered a
failure to meet the CHNA requirements,
the omission or error will not give rise to
a $50,000 excise tax under section 4959.13

#### 10. Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return

Final and temporary regulations and a
cross-reference notice of proposed rule-
making published on August 15, 2013,
amended the existing regulations under
sections 6011 and 6071 to require hospital
organizations liable for the excise tax im-
posed by section 4959 in any taxable year
to file Form 4720 by the 15th day of the
fifth month after the end of the taxable
year. No public comments were received
on these amendments to sections 6011 and
6071. Therefore, these final regulations
adopt the text of the temporary and pro-
posed regulations without substantive
change and remove the temporary regula-
tions. The final regulations make one non-
substantive change by moving the content
of § 53.6011-1T(c) into existing para-
graph § 53.6011-1(b).

##### Effective/Applicability Dates

Numerous commenters requested a
transition period for hospital facilities to
come into compliance with the final reg-
ulations to provide adequate time for hos-
pital facilities to make needed changes in
personnel, policies, procedures, and infor-
mation systems. Specific transition peri-
ods of six months and one year were rec-
ommended. Several commenters also
requested that the final regulations clarify
how hospital facilities' compliance with
section 501(r) will be assessed for the
period between the date section 501(r)

13On the other hand, a hospital facility's failure to meet the CHNA requirements will give rise to the excise tax under section 4959 notwithstanding its correction and disclosure pursuant
to the guidance described in section 2.c of this preamble.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

was enacted (March 23, 2010) and the
date the final regulations are applicable.

In response to these comments, the fi-
nal regulations under section 501(r) apply
to a hospital facility's taxable years begin-
ning after December 29, 2015, which will
give all hospital facilities at least a year to
come into compliance with the final reg-
ulations. For taxable years beginning on
or before December 29, 2015, the final
regulations provide that a hospital facility
may rely on a reasonable, good faith in-
terpretation of section 501(r). A hospital
facility will be deemed to have operated in
accordance with a reasonable, good faith
interpretation of section 501(r) if it has
complied with the provisions of the 2012
and/or 2013 proposed regulations or these
final regulations.

The final regulations under sections
4959 and 6033 either clarify or confirm
compliance with statutory requirements
that are already in effect and therefore do
not require a transition period. Thus, the
final regulations under section 4959 apply
on and after December 29, 2014, and the
final regulations under section 6033 apply
to returns filed on or after December 29,
2014.

The temporary regulations under sec-
tion 6071 have applied since August 15,
2013, and this Treasury decision adopts
the proposed regulations that cross-
referenced the text of those temporary
regulations without substantive change.
Thus, the final regulations under section
6071 apply on and after August 15, 2013.

##### Availability of IRS Documents

IRS notices, revenue rulings, and rev-
enue procedures cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing
Office, Washington, DC 20402.

###### Effect on Other Documents

The following publication is obsolete
as of December 29, 2014: Notice 2014-2
(2014-3 IRB 1).

###### Special Analyses

It has been determined that this rule is
not a significant regulatory action as de-
fined in Executive Order 12866, as sup-
plemented by Executive Order 13563.
Therefore, a regulatory assessment is not

required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to the final regulations. It is hereby
certified the collection of information in
these regulations will not have a signifi-
cant economic impact on a substantial
number of small entities. The collection of
information is in § 1.501(r)-3, § 1.501(r)-4,
§ 1.501(r)-6(c), § 1.6033-2(a)(2)(ii)(!),
§ 53.6011-1, and § 53.6071-1 of the regu-
lations. The certification is based on the
following:

Consistent with the requirements im-
posed by section 501(r)(3), § 1.501(r)-3
of the regulations requires hospital facili-
ties to conduct a CHNA and adopt an
implementation strategy. However, these
requirements need only be satisfied once
over a period of three taxable years. More-
over, some hospital facilities already con-
duct similar community needs assess-
ments under state law, and the Treasury
Department and the IRS expect that these
facilities will be able to draw upon pre-
existing processes and resources to some
extent. In addition, section 501(r)(3) itself
already requires a hospital facility to con-
duct and widely publicize a CHNA that
takes into account input of persons repre-
senting the broad interests of the commu-
nity and to adopt an implementation strat-
egy, so much of the collection of
information burden associated with
CHNAs is imposed by statute, not by
these regulations.

Consistent with the requirements im-
posed by section 501(r)(4), § 1.501(r)-4
of the regulations requires hospital facili-
ties to establish two written policies-a
financial assistance policy (FAP) and an
emergency medical care policy-but
much of the work involved in putting such
policies into writing will be performed
once, with updates made periodically
thereafter. Moreover, while hospital facil-
ities may need to periodically modify
these policies to reflect changed circum-
stances, the proposed regulations attempt
to minimize that ongoing burden by giv-
ing hospital facilities the option of provid-
ing certain information separately from
the policy, as long as the policy explains
how members of the public can readily
obtain this information free of charge. In
addition, section 501(r)(4) itself already
requires a hospital facility to establish a

FAP that includes eligibility criteria and
other specified elements and an emer-
gency medical care policy, so much of the
collection of information burden associ-
ated with these policies is imposed by
statute, not by regulations.

In addition, as a general matter,
§§ 1.501(r)-4(b)(5) and 1.501(r)-6(c) of
the regulations, which, respectively, de-
scribe how a hospital facility widely pub-
licizes its FAP and makes reasonable ef-
forts to determine eligibility for assistance
under its FAP, are designed to ensure that
a hospital facility can meet these require-
ments by providing basic information
about its FAP using pre-existing processes
(such as the issuance of billing state-
ments) and resources (such as its Web site
and physician networks) in providing this
information.

The applicability date under the final
regulations also gives all hospital facilities
at least one year to come into compliance
with all of the final regulations under sec-
tion 501(r).

Consistent with the requirements im-
posed by section 6033(b)(15), § 1.6033-
2(a)(2)(ii)(!) of the regulations requires
affected organizations to report annually
on a Form 990 actions taken during the
year to address community health needs
and to attach audited financial statements
to the Form 990. To assist the IRS and the
public, the regulations also require af-
fected organizations to attach to the Form
990 a copy of the most recently adopted
implementation strategy or provide the
URL of a Web page where it is available
to the public. For affected organizations,
the burden of providing either a copy of
the implementation strategy or the address
of a Web site where it can be found will
be minimal. Consequently, the regulations
under section 6033 do not add signifi-
cantly to the impact on small entities im-
posed by the statutory scheme.

Sections 53.6011-1 and 53.6071-1 of
the regulations merely provide guidance
as to the timing and filing of Form 4720
for charitable hospital organizations liable
for the section 4959 excise tax, and com-
pleting the applicable portion (Schedule
M) of the Form 4720 for this purpose
imposes little incremental burden in time
or expense. The liability for the section
4959 excise tax is imposed by statute, and
not these regulations. In addition, a char-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

itable hospital organization may already
be required to file the Form 4720 under
the existing final regulations in
§§ 53.6011-1 and 53.6071-1 if it is liable
for another Chapter 41 or 42 excise tax.

For these reasons, a Regulatory Flexi-
bility Analysis under the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Code, the 2012 and 2013 proposed
regulations (as well the cross-reference
notice of proposed rulemaking under sec-
tions 6011 and 6071) preceding these final
regulations were submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small entities and no comments
were received.

####### Drafting Information

The principal authors of these final reg-
ulations are Preston J. Quesenberry, Amy
F. Giuliano, Amber L. Mackenzie, and
Stephanie N. Robbins, Office of the Chief
Counsel (Tax-Exempt and Government
Entities). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.

* * * * *

* * * * *

* * * **

######## Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 53, and
602 are amended as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.501(r)-0 is added to
read as follows:

§ 1.501(r)-0 Outline of regulations.

This section lists the table of contents
for §§ 1.501(r)-1 through 1.501(r)-7.

§ 1.501(r)-1 Definitions.

(a) Application.

(b) Definitions.

(1) Amounts generally billed (AGB).

(2) AGB percentage.

(3) Application period.

(4) Authorized body of a hospital fa-
cility.

(5) Billing and collections policy.

(6) Date provided.

(7) Discharge.

(8) Disregarded entity.

(9) Emergency medical care.

(10) Emergency medical conditions.

(11) Extraordinary collection action
(ECA).

(12) Financial assistance policy (FAP).

(13) FAP application.

(14) FAP application form.

(15) FAP-eligible.

(16) Gross charges.

(17) Hospital facility.

(18) Hospital organization.

(19) Medicaid.

(20) Medicare fee-for-service.

(21) Noncompliant facility income.

(22) Operating a hospital facility.

(23) Partnership agreement.

(24) Plain language summary of the
FAP.

(25) Presumptive FAP-eligibility de-
termination.

(26) Private health insurer.

(27) Referring.

(28) Substantially-related entity.

(29) Widely available on a Web site.

§ 1.501(r)-2 Failures to satisfy section
501(r).

(a) Revocation of section 501(c)(3) sta-
tus.

(b) Minor omissions and errors.

(1) In general.

(2) Minor.

(3) Inadvertent.

(4) Reasonable cause.

(c) Excusing certain failures if hospital
facility corrects and discloses.

(d) Taxation of noncompliant hospital
facilities.

(1) In general.

(2) Noncompliant facility income.

(3) No aggregation.

(4) Interaction with other Code provi-
sions.

(e) Instances in which a hospital orga-
nization is not required to meet section
501(r).

§ 1.501(r)-3 Community health needs
assessments.

(a) In general.

(b) Conducting a CHNA.

(1) In general.

(2) Date a CHNA is conducted.

(3) Community served by a hospital
facility.

(4) Assessing community health needs.

(5) Persons representing the broad in-
terests of the community.

(6) Documentation of a CHNA.

(7) Making the CHNA report widely
available to the public.

(c) Implementation strategy.

(1) In general.

(2) Description of how the hospital fa-
cility plans to address a significant health
need.

(3) Description of why a hospital facil-
ity is not addressing a significant health
need.

(4) Joint implementation strategies.

(5) When the implementation strategy
must be adopted.

(d) Exception for acquired, new, and
terminated hospital facilities.

(1) Acquired hospital facilities.

(2) New hospital organizations.

(3) New hospital facilities.

(4) Transferred or terminated hospital
facilities.

(e) Transition rule for CHNAs con-
ducted in taxable years beginning before
March 23, 2012.

§ 1.501(r)-4 Financial assistance policy
and emergency medical care policy.

(a) In general.

(b) Financial assistance policy.

(1) In general.

(2) Eligibility criteria and basis for cal-
culating amounts charged to patients.

(3) Method for applying for financial
assistance.

(4) Actions that may be taken in the
event of nonpayment.

(5) Widely publicizing the FAP.

(6) Readily obtainable information.

(7) Providing documents electroni-
cally.

(8) Medically necessary care.

(c) Emergency medical care policy.

(1) In general.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(2) Interference with provision of
emergency medical care.

(3) Relation to federal law governing
emergency medical care.

(4) Examples.

(d) Establishing the FAP and other pol-
icies.

(1) In general.

(2) Implementing a policy.

(3) Establishing a policy for more than
one hospital facility.

§ 1.501(r)-5 Limitation on charges.

(a) In general.

(b) Amounts generally billed.

(1) In general.

(2) Meaning of charged.

(3) Look-back method.

(4) Prospective Medicare or Medicaid
method.

(5) Examples.

(c) Gross charges.

(d) Safe harbor for certain charges in
excess of AGB.

(e) Medically necessary care.

§ 1.501(r)-6 Billing and collection.

(a) In general.

(b) Extraordinary collection actions.

(1) In general.

(2) Certain debt sales that are not
ECAs.

(3) Liens on certain judgments, settle-
ments, or compromises.

(4) Bankruptcy claims.

(c) Reasonable efforts.

(1) In general.

(2) Presumptive FAP-eligibility deter-
minations based on third-party informa-
tion or prior FAP-eligibility determina-
tions.

(3) Reasonable efforts based on notifi-
cation and processing of applications.

(4) Notification.

(5) Incomplete FAP applications.

(6) Complete FAP applications.

(7) When no FAP application is sub-
mitted.

(8) Suspending ECAs while a FAP ap-
plication is pending.

(9) Waiver does not constitute reason-
able efforts.

(10) Agreements with other parties.

(11) Clear and conspicuous placement.

(12) Providing documents electroni-
cally.

§ 1.501(r)-7 Effective/applicability
date.

(a) Effective/applicability date.

(b) Reasonable interpretation for tax-
able years beginning on or before Decem-
ber 29, 2015.

Par. 3. Sections 1.501(r)-1 through
1.501(r)-7 are added to read as follows:

§ 1.501(r)-1 Definitions.

(a) Application. The definitions set
forth in this section apply to §§ 1.501(r)-2
through 1.501(r)-7.

(b) Definitions-(1) Amounts generally
billed (AGB) means the amounts generally
billed for emergency or other medically
necessary care to individuals who have
insurance covering such care, determined
in accordance with § 1.501(r)-5(b).

(2) AGB percentage means a percent-
age of gross charges that a hospital facility
uses under § 1.501(r)-5(b)(3) to deter-
mine the AGB for any emergency or other
medically necessary care it provides to an
individual who is eligible for assistance
under its financial assistance policy
(FAP).

(3) Application period means the pe-
riod during which a hospital facility must
accept and process an application for fi-
nancial assistance under its FAP submit-
ted by an individual in order to have made
reasonable efforts to determine whether
the individual is FAP-eligible under
§ 1.501(r)-6(c). A hospital facility may
accept and process an individual's FAP
application submitted outside of the appli-
cation period. With respect to any care
provided by a hospital facility to an indi-
vidual, the application period begins on
the date the care is provided and ends on
the later of the 240th day after the date
that the first post-discharge billing state-
ment for the care is provided or either-

(i) In the case of an individual who the
hospital facility is notifying as described
in § 1.501(r)-6(c)(4), the deadline speci-
fied by a written notice described in
§ 1.501(r)-6(c)(4); or

(ii) In the case of an individual who the
hospital facility has presumptively deter-
mined to be eligible for less than the most

generous assistance available under the
FAP as described in § 1.501(r)-6(c)(2),
the end of the reasonable period of time
described in § 1.501(r)-6(c)(2)(i)(B).

(4) Authorized body of a hospital facil-
ity means-

(i) The governing body (that is, the
board of directors, board of trustees, or
equivalent controlling body) of the hospi-
tal organization that operates the hospital
facility or a committee of, or other party
authorized by, that governing body to the
extent such committee or other party is
permitted under state law to act on behalf
of the governing body; or

(ii) The governing body of an entity
that is disregarded or treated as a partner-
ship for federal tax purposes that operates
the hospital facility or a committee of, or
other party authorized by, that governing
body to the extent such committee or
other party is permitted under state law to
act on behalf of the governing body.

(5) Billing and collections policy
means a written policy that includes all of
the elements described in § 1.501(r)-
4(b)(4)(i).

(6) Date provided means, in the case of
any billing statement, written notice, or
other written communication that is
mailed, the date of mailing. The date that
a billing statement, written notice, or other
written communication is provided can
also be the date such communication is
sent electronically or delivered by hand.

(7) Discharge means to release from a
hospital facility after the care at issue has
been provided, regardless of whether that
care has been provided on an inpatient or
outpatient basis. Thus, a billing statement
for care is considered "post-discharge" if
it is provided to an individual after the
care has been provided and the individual
has left the hospital facility.

(8) Disregarded entity means an entity
that is generally disregarded as separate
from its owner for federal tax purposes
under § 301.7701-3 of this chapter. One
example of a disregarded entity is a do-
mestic single member limited liability
company that does not elect to be classi-
fied as an association taxable as a corpo-
ration for federal tax purposes.

(9) Emergency medical care means
care provided by a hospital facility for
emergency medical conditions.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(10) Emergency medical conditions
means emergency medical conditions as
defined in section 1867 of the Social Se-
curity Act (42 U.S.C. 1395dd).

(11) Extraordinary collection action
(ECA) means an action described in
§ 1.501(r)-6(b)(1).

(12) Financial assistance policy (FAP)
means a written policy that meets the re-
quirements described in § 1.501(r)-4(b).

(13) FAP application means the infor-
mation and accompanying documentation
that an individual submits to apply for
financial assistance under a hospital facil-
ity's FAP. An individual is considered to
have submitted a complete FAP applica-
tion if he or she provides information and
documentation sufficient for the hospital
facility to determine whether the individ-
ual is FAP-eligible and an incomplete
FAP application if he or she provides some,
but not sufficient, information and docu-
mentation to determine FAP-eligibility. The
term "FAP application" does not refer only
to written submissions, and a hospital fa-
cility may obtain information from an in-
dividual in writing or orally (or a combi-
nation of both).

(14) FAP application form means the
application form (and any accompanying
instructions) that a hospital facility makes
available for individuals to submit as part
of a FAP application.

(15) FAP-eligible means eligible for
financial assistance under a hospital facil-
ity's FAP for care covered by the FAP,
without regard to whether an individual
has applied for assistance under the FAP.

(16) Gross charges, or the chargemas-
ter rate, means a hospital facility's full,
established price for medical care that the
hospital facility consistently and uni-
formly charges patients before applying
any contractual allowances, discounts, or
deductions.

(17) Hospital facility means a facility
that is required by a state to be licensed,
registered, or similarly recognized as a
hospital. Multiple buildings operated un-
der a single state license are considered to
be a single hospital facility. For purposes
of this paragraph (b)(17), the term "state"
includes only the 50 states and the District
of Columbia and not any U.S. territory or
foreign country. References to a hospital
facility taking actions include instances in
which the hospital organization operating

the hospital facility takes actions through
or on behalf of the hospital facility.

(18) Hospital organization means an
organization recognized (or seeking to be
recognized) as described in section
501(c)(3) that operates one or more hos-
pital facilities. If the section 501(c)(3) sta-
tus of such an organization is revoked, the
organization will, for purposes of section
4959, continue to be treated as a hospital
organization during the taxable year in
which such revocation becomes effective.

(19) Medicaid means any medical as-
sistance program administered by the state
in which a hospital facility is licensed in
accordance with Title XIX of the Social
Security Act (42 U.S.C. 1396 through
1396w-5), including programs in which
such medical assistance is provided
through a contract between the state and a
Medicaid managed care organization or a
prepaid inpatient health plan.

(20) Medicare fee-for-service means
health insurance available under Medicare
Part A and Part B of Title XVIII of the
Social Security Act (42 U.S.C. 1395c
through 1395w-5).

(21) Noncompliant facility income
means income that a hospital organization
operating more than one hospital facility
derives from a hospital facility that fails to
meet one or more of the requirements of
section 501(r) during a taxable year as
determined in accordance with § 1.501(r)-
2(d).

(22) Operating a hospital facility-(i)
In general. Operating a hospital facility
includes operating the facility through the
organization's own employees or con-
tracting out to another organization to op-
erate the facility. For example, if an orga-
nization hires a management company to
operate the facility, the hiring organiza-
tion is considered to operate the facility.
An organization also operates a hospital
facility if it is the sole member or owner
of a disregarded entity that operates the
hospital facility. In addition, an organiza-
tion operates a hospital facility if it owns
a capital or profits interest in an entity
treated as a partnership for federal tax
purposes that operates the hospital facil-
ity, unless paragraph (b)(22)(ii) of this
section applies. For purposes of this para-
graph (b)(22), an organization is consid-
ered to own a capital or profits interest in
an entity treated as a partnership for fed-

eral tax purposes if it owns such an inter-
est directly or indirectly through one or
more lower-tier entities treated as partner-
ships for federal tax purposes.

(ii) Exception for certain partnerships.
An organization does not operate a hospi-
tal facility despite owning a capital or
profits interest in an entity treated as a
partnership for federal tax purposes that
operates the hospital facility if-

(A) The organization does not have
control over the operation of the hospital
facility operated by the partnership suffi-
cient to ensure that the operation of the
hospital facility furthers an exempt pur-
pose described in section 501(c)(3) and
thus treats the operation of the hospital
facility, including the facility's provision
of medical care, as an unrelated trade or
business described in section 513 with
respect to the hospital organization; or

(B) At all times since March 23, 2010,
the organization has been organized and
operated primarily for educational or sci-
entific purposes and has not engaged pri-
marily in the operation of one or more
hospital facilities and, pursuant to a part-
nership agreement entered into before
March 23, 2010-

(1) Does not own more than 35 percent
of the capital or profits interest in the
partnership (determined in accordance
with section 707(b)(3));

(2) Does not own a general partner
interest, managing-member interest, or
similar interest in the partnership; and

(3) Does not have control over the op-
eration of the hospital facility sufficient to
ensure that the hospital facility complies
with the requirements of section 501(r).

(23) Partnership agreement means, for
purposes of paragraph (b)(22)(ii)(B) of
this section, all written agreements among
the partners, or between one or more part-
ners and the partnership, and concerning
affairs of the partnership and responsibil-
ities of the partners, whether or not em-
bodied in a document referred to by the
partners as the partnership agreement. A
partnership agreement also includes any
modifications to the agreement agreed to
by all partners, or adopted in any other
manner provided by the partnership agree-
ment, except for modifications adopted on
or after March 23, 2010, that affect
whether or not the agreement is described
in paragraph (b)(22)(ii)(B) of this section.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

In addition, a partnership agreement in-
cludes provisions of federal, state, or local
law that were in effect before March 23,
2010, and continue to be in effect that
govern the affairs of the partnership or are
considered under such law to be part of
the partnership agreement.

(24) Plain language summary of the
FAP means a written statement that noti-
fies an individual that the hospital facility
offers financial assistance under a FAP
and provides the following additional in-
formation in language that is clear, con-
cise, and easy to understand:

(i) A brief description of the eligibility
requirements and assistance offered under
the FAP.

(ii) A brief summary of how to apply
for assistance under the FAP.

(iii) The direct Web site address (or
URL) and physical locations where the
individual can obtain copies of the FAP
and FAP application form.

(iv) Instructions on how the individual
can obtain a free copy of the FAP and
FAP application form by mail.

(v) The contact information, including
telephone number and physical location,
of the hospital facility office or depart-
ment that can provide information about
the FAP and of either-

(A) The hospital facility office or de-
partment that can provide assistance with
the FAP application process; or

(B) If the hospital facility does not
provide assistance with the FAP applica-
tion process, at least one nonprofit orga-
nization or government agency that the
hospital facility has identified as an avail-
able source of assistance with FAP appli-
cations.

(vi) A statement of the availability of
translations of the FAP, FAP application
form, and plain language summary of the
FAP in other languages, if applicable.

(vii) A statement that a FAP-eligible
individual may not be charged more than
AGB for emergency or other medically
necessary care.

(25) Presumptive FAP-eligibility de-
termination means a determination that an
individual is FAP-eligible based on infor-
mation other than that provided by the
individual or based on a prior FAP-
eligibility determination, as described in
§ 1.501(r)-6(c)(2).

(26) Private health insurer means any
organization that is not a governmental
unit that offers health insurance, including
nongovernmental organizations adminis-
tering a health insurance plan under Medi-
care Advantage (Part C of Title XVIII of
the Social Security Act, 42 U.S.C.
1395w-21 through 1395w-29). For pur-
poses of § 1.501(r)-5(b), medical assis-
tance provided through a contract between
the state and a Medicaid managed care
organization or a prepaid inpatient health
plan is not considered to be a reimburse-
ment from or a claim allowed by a private
health insurer.

(27) Referring an individual's debt to a
debt collection agency or other party
means contracting with, delegating to, or
otherwise using the debt collection agency
or other party to collect amounts owed by
the individual to the hospital facility while
still maintaining ownership of the debt.

(28) Substantially-related entity
means, with respect to a hospital facility
operated by a hospital organization, an
entity treated as a partnership for federal
tax purposes in which the hospital organi-
zation owns a capital or profits interest, or
a disregarded entity of which the hospital
organization is the sole member or owner,
that provides emergency or other medi-
cally necessary care in the hospital facil-

ity, unless the provision of such care is an
unrelated trade or business described in
section 513 with respect to the hospital
organization. Notwithstanding the preced-
ing sentence, a partnership that qualifies
for the exception described in paragraph
(b)(22)(ii)(B) of this section is not consid-
ered a substantially-related entity within
the meaning of this paragraph (b)(28).

(29) Widely available on a Web site
means-

(i) The hospital facility conspicuously
posts a complete and current version of
the document on-

(A) The hospital facility's Web site;

(B) If the hospital facility does not
have its own Web site separate from the
hospital organization that operates it, the
hospital organization's Web site; or

(C) A Web site established and main-
tained by another entity, but only if the
Web site of the hospital facility or hospital
organization (if the facility or organiza-
tion has a Web site) provides a
conspicuously-displayed link to the Web

page where the document is posted, along
with clear instructions for accessing the
document on that Web site;

(ii) Individuals with access to the In-
ternet can access, download, view, and
print a hard copy of the document from
the Web site-

(A) Without requiring special com-
puter hardware or software (other than
software that is readily available to mem-
bers of the public without payment of any
fee);

(B) Without paying a fee to the hospi-
tal facility, hospital organization, or other
entity maintaining the Web site; and

(C) Without creating an account or be-
ing otherwise required to provide person-
ally identifiable information; and

(iii) The hospital facility provides indi-
viduals who ask how to access a copy of
the document online with the direct Web
site address, or URL, of the Web page
where the document is posted.

§ 1.501(r)-2 Failures to satisfy section
501(r).

(a) Revocation of section 501(c)(3) sta-
tus. Except as otherwise provided in para-
graphs (b) and (c) of this section, a hospital
organization failing to meet one or more of
the requirements of section 501(r) sepa-
rately with respect to one or more hospital
facilities it operates may have its section
501(c)(3) status revoked as of the first day
of the taxable year in which the failure
occurs. In determining whether to con-
tinue to recognize the section 501(c)(3)
status of a hospital organization that fails
to meet one or more of the requirements
of section 501(r) with respect to one or
more hospital facilities, the Commissioner
will consider all relevant facts and cir-
cumstances including, but not limited to,
the following:

(1) Whether the organization has pre-
viously failed to meet the requirements of
section 501(r), and, if so, whether the
same type of failure previously occurred.

(2) The size, scope, nature, and signif-
icance of the organization's failure(s).

(3) In the case of an organization that
operates more than one hospital facility,
the number, size, and significance of the
facilities that have failed to meet the sec-
tion 501(r) requirements relative to those

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

that have complied with these require-
ments.

(4) The reason for the failure(s).

(5) Whether the organization had, prior
to the failure(s), established practices or
procedures (formal or informal) reason-
ably designed to promote and facilitate
overall compliance with the section 501(r)
requirements.

(6) Whether the practices or proce-
dures had been routinely followed and the
failure(s) occurred through an oversight or
mistake in applying them.

(7) Whether the organization has im-
plemented safeguards that are reasonably
calculated to prevent similar failures from
occurring in the future.

(8) Whether the organization corrected
the failure(s) as promptly after discovery
as is reasonable given the nature of the
failure(s).

(9) Whether the organization took the
measures described in paragraphs (a)(7)
and (a)(8) of this section before the Com-
missioner discovered the failure(s).

(b) Minor omissions and errors-(1)
In general. A hospital facility's omission
of required information from a policy or
report described in § 1.501(r)-3 or
§ 1.501(r)-4, or error with respect to the
implementation or operational require-
ments described in §§ 1.501(r)-3 through
1.501(r)-6, will not be considered a fail-
ure to meet a requirement of section
501(r) if the following conditions are sat-
isfied:

(i) Such omission or error was minor
and either inadvertent or due to reasonable
cause.

(ii) The hospital facility corrects such
omission or error as promptly after dis-
covery as is reasonable given the nature of
the omission or error. Such correction
must include establishment (or review
and, if necessary, revision) of practices or
procedures (formal or informal) that are
reasonably designed to promote and facil-
itate overall compliance with the require-
ments of section 501(r).

(2) Minor. In the case of multiple omis-
sions or errors, the omissions or errors are
considered minor for purposes of this
paragraph (b) only if they are minor in the
aggregate.

(3) Inadvertent. For purposes of this
paragraph (b), the fact that the same
omission or error has been made and

corrected previously is a factor tending
to show that an omission or error is not
inadvertent.

(4) Reasonable cause. For purposes of
this paragraph (b), the fact that a hospital
facility has established practices or proce-
dures (formal or informal) reasonably de-
signed to promote and facilitate overall
compliance with the section 501(r) re-
quirements prior to the occurrence of an
omission or error is a factor tending to
show that the omission or error is due to
reasonable cause.

(c) Excusing certain failures if hospital
facility corrects and discloses. A hospital
facility's failure to meet one or more of the
requirements described in §§ 1.501(r)-3
through 1.501(r)-6 that is neither willful
nor egregious shall be excused for pur-
poses of this section if the hospital facility
corrects and makes disclosure in accor-
dance with rules set forth by revenue pro-
cedure, notice, or other guidance pub-
lished in the Internal Revenue Bulletin.
For purposes of this paragraph (c), a "will-
ful" failure includes a failure due to gross
negligence, reckless disregard, or willful
neglect, and an "egregious" failure in-
cludes only a very serious failure, taking
into account the severity of the impact and
the number of affected persons. Whether a
failure is willful or egregious will be de-
termined based on all of the facts and
circumstances. A hospital facility's cor-
rection and disclosure of a failure in ac-
cordance with the relevant guidance is a
factor tending to show that the failure was
not willful.

(d) Taxation of noncompliant hospital
facilities-(1) In general. Except as oth-
erwise provided in paragraphs (b) and (c)
of this section, if a hospital organization
that operates more than one hospital facil-
ity fails to meet one or more of the re-
quirements of section 501(r) separately
with respect to a hospital facility during a
taxable year, the income derived from the
noncompliant hospital facility (“noncom-
pliant facility income") during that tax-
able year will be subject to tax computed
as provided in section 11 (or as provided
in section 1(e) if the hospital organization
is a trust described in section 511(b)(2)),
but substituting the term "noncompliant
facility income" for "taxable income,"
if-

(i) The hospital organization continues
to be recognized as described in section
501(c)(3) during the taxable year; but

(ii) The hospital organization would
not continue to be recognized as described
in section 501(c)(3) during the taxable
year based on the facts and circumstances
described in paragraph (a) of this section
(but disregarding paragraph (a)(3) of this
section) if the noncompliant hospital fa-
cility were the only hospital facility oper-
ated by the organization.

(2) Noncompliant facility income-(i)
In general. For purposes of this paragraph
(d), the noncompliant facility income de-
rived from a hospital facility during a tax-
able year will be the gross income derived
from that hospital facility during the tax-
able year, less the deductions allowed by
chapter 1 that are directly connected to the
operation of that hospital facility during
the taxable year, excluding any gross in-
come and deductions taken into account in
computing any unrelated business taxable
income described in section 512 that is
derived from the facility during the tax-
able year.

(ii) Directly connected deductions. For
purposes of this paragraph (d), to be di-
rectly connected with the operation of a
hospital facility that has failed to meet the
requirements of section 501(r), an item of
deduction must have proximate and pri-
mary relationship to the operation of the
hospital facility. Expenses, depreciation,
and similar items attributable solely to the
operation of a hospital facility are proxi-
mately and primarily related to such op-
eration, and therefore qualify for deduc-
tion to the extent that they meet the
requirements of section 162, section 167,
or other relevant provisions of the Internal
Revenue Code (Code). Where expenses,
depreciation, and similar items are attrib-
utable to a noncompliant hospital facility
and other hospital facilities operated by
the hospital organization (and/or to other
activities of the hospital organization un-
related to the operation of hospital facili-
ties), such items shall be allocated among
the hospital facilities (and/or other activi-
ties) on a reasonable basis. The portion of
any such item so allocated to a noncom-
pliant hospital facility is proximately and
primarily related to the operation of that
facility and shall be allowable as a deduc-
tion in computing the facility's noncom-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

pliant facility income in the manner and to
the extent it would meet the requirements
of section 162, section 167, or other rele-
vant provisions of the Code.

(3) No aggregation. In computing the
noncompliant facility income of a hospital
facility, the gross income from (and the
deductions allowed with respect to) the
hospital facility may not be aggregated
with the gross income from (and the de-
ductions allowed with respect to) the hos-
pital organization's other noncompliant
hospital facilities subject to tax under this
paragraph (d) or its unrelated trade or
business activities described in section
513.

(4) Interaction with other Code pro-
visions-(i) Hospital organization oper-
ating a noncompliant hospital facility
continues to be treated as tax-exempt. A
hospital organization operating a non-
compliant hospital facility subject to tax
under this paragraph (d) shall continue
to be treated as an organization that is
exempt from tax under section 501(a)
because it is described in section
501(c)(3) for all purposes of the Code.
In addition, the application of this para-
graph (d) shall not, by itself, result in
the operation of the noncompliant hos-
pital facility being considered an unre-
lated trade or business described in sec-
tion 513 with respect to the hospital
organization. Thus, for example, the ap-
plication of this paragraph (d) shall not,
by itself, affect the tax-exempt status of
bonds issued to finance the noncompli-
ant hospital facility.

(ii) Noncompliant hospital facility op-
erated by a tax-exempt hospital organiza-
tion is subject to tax. A noncompliant
hospital facility described in paragraph
(d)(1) of this section is subject to tax
under this paragraph (d), notwithstanding
the fact that the hospital organization op-
erating the hospital facility is otherwise
exempt from tax under section 501(a) and
subject to tax under section 511(a) and
that § 1.11-1(a) of this chapter states such
organizations are not liable for the tax
imposed under section 11.

(iii) Noncompliant hospital facility not
a business entity. A noncompliant hospital
facility subject to tax under this paragraph
(d) is not considered a business entity for
purposes of § 301.7701-2(b)(7) of this
chapter.

(e) Instances in which a hospital orga-
nization is not required to meet section
501(r). A hospital organization is not re-
quired to meet the requirements of section
501(r) (and, therefore, is not subject to
any consequence described in this section
for failing to meet the requirements of
section 501(r)) with respect to-

(1) Any hospital facility it is not "op-
erating" within the meaning of § 1.501(r)-
1(b)(22);

(2) The operation of a facility that is
not required by a state to be licensed,
registered, or similarly recognized as a
hospital; or

(3) Any activities that constitute an un-
related trade or business described in sec-
tion 513 with respect to the hospital orga-
nization.

§ 1.501(r)-3 Community health needs
assessments.

(a) In general. With respect to any tax-
able year, a hospital organization meets
the requirements of section 501(r)(3) with
respect to a hospital facility it operates

only if-

(1) The hospital facility has conducted
a community health needs assessment
(CHNA) that meets the requirements of
paragraph (b) of this section in such tax-
able year or in either of the two taxable
years immediately preceding such taxable
year (except as provided in paragraph (d)
of this section); and

(2) An authorized body of the hospital
facility (as defined in § 1.501(r)-1(b)(4))
has adopted an implementation strategy to
meet the community health needs identi-
fied through the CHNA, as described in
paragraph (c) of this section, on or before
the 15th day of the fifth month after the
end of such taxable year.

(b) Conducting a CHNA-(1) In gen-
eral. To conduct a CHNA for purposes of
paragraph (a) of this section, a hospital
facility must complete all of the following
steps:

(i) Define the community it serves.

(ii) Assess the health needs of that
community.

(iii) In assessing the health needs of the
community, solicit and take into account
input received from persons who repre-
sent the broad interests of that community,

including those with special knowledge of
or expertise in public health.

(iv) Document the CHNA in a written
report (CHNA report) that is adopted for
the hospital facility by an authorized body
of the hospital facility.

(v) Make the CHNA report widely
available to the public.

(2) Date a CHNA is conducted. For
purposes of this section, a hospital facility
will be considered to have conducted a
CHNA on the date it has completed all of
the steps described in paragraph (b)(1) of
this section. Solely for purposes of deter-
mining the taxable year in which a CHNA
has been conducted under this paragraph
(b)(2), a hospital facility will be consid-
ered to have completed the step of making
a CHNA report widely available to the
public on the date it first makes the CHNA
report widely available to the public as
described in paragraph (b)(7)(i) of this
section.

(3) Community served by a hospital
facility. In defining the community it
serves for purposes of paragraph (b)(1)(i)
of this section, a hospital facility may take
into account all of the relevant facts and
circumstances, including the geographic
area served by the hospital facility, target
population(s) served (for example, chil-
dren, women, or the aged), and principal
functions (for example, focus on a partic-
ular specialty area or targeted disease).
However, a hospital facility may not de-
fine its community to exclude medically
underserved, low-income, or minority
populations who live in the geographic
areas from which the hospital facility
draws its patients (unless such populations
are not part of the hospital facility's target
patient population(s) or affected by its
principal functions) or otherwise should
be included based on the method the hos-
pital facility uses to define its community.
In addition, in determining its patient pop-
ulations for purposes of defining its com-
munity, a hospital facility must take into
account all patients without regard to
whether (or how much) they or their in-
surers pay for the care received or whether
they are eligible for assistance under the
hospital facility's financial assistance pol-
icy. In the case of a hospital facility con-
sisting of multiple buildings that operate
under a single state license and serve dif-
ferent geographic areas or populations, the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

community served by the hospital facility
is the aggregate of such areas or popula-
tions.

(4) Assessing community health needs.
To assess the health needs of the commu-
nity it serves for purposes of paragraph
(b)(1)(ii) of this section, a hospital facility
must identify significant health needs of
the community, prioritize those health
needs, and identify resources (such as or-
ganizations, facilities, and programs in the
community, including those of the hospi-
tal facility) potentially available to ad-
dress those health needs. For these pur-
poses, the health needs of a community
include requisites for the improvement or
maintenance of health status both in the
community at large and in particular parts
of the community (such as particular
neighborhoods or populations experienc-
ing health disparities). These needs may
include, for example, the need to address
financial and other barriers to accessing
care, to prevent illness, to ensure adequate
nutrition, or to address social, behavioral,
and environmental factors that influence
health in the community. A hospital facil-
ity may determine whether a health need
is significant based on all of the facts and
circumstances present in the community it
serves. In addition, a hospital facility may
use any criteria to prioritize the significant
health needs it identifies, including, but
not limited to, the burden, scope, severity,
or urgency of the health need; the esti-
mated feasibility and effectiveness of pos-
sible interventions; the health disparities
associated with the need; or the impor-
tance the community places on addressing
the need.

(5) Persons representing the broad in-
terests of the community-(i) In general.
For purposes of paragraph (b)(1)(iii) of
this section, a hospital facility must solicit
and take into account input received from
all of the following sources in identifying
and prioritizing significant health needs
and in identifying resources potentially
available to address those health needs:

(A) At least one state, local, tribal, or
regional governmental public health de-
partment (or equivalent department or
agency), or a State Office of Rural Health
described in section 338J of the Public
Health Service Act (42 U.S.C. 254r), with
knowledge, information, or expertise rel-

evant to the health needs of that commu-
nity.

(B) Members of medically under-
served, low-income, and minority pop-
ulations in the community served by the
hospital facility, or individuals or orga-
nizations serving or representing the inter-
ests of such populations. For purposes of
this paragraph (b), medically underserved
populations include populations experi-
encing health disparities or at risk of not
receiving adequate medical care as a re-
sult of being uninsured or underinsured or
due to geographic, language, financial, or
other barriers.

(C) Written comments received on the
hospital facility's most recently conducted
CHNA and most recently adopted imple-
mentation strategy.

(ii) Additional sources of input. In ad-
dition to the sources described in para-
graph (b)(5)(i) of this section, a hospital
facility may solicit and take into account
input received from a broad range of per-
sons located in or serving its community,
including, but not limited to, health care
consumers and consumer advocates, non-
profit and community-based organiza-
tions, academic experts, local government
officials, local school districts, health care
providers and community health centers,
health insurance and managed care orga-
nizations, private businesses, and labor
and workforce representatives.

(6) Documentation of a CHNA-(i) In
general. For purposes of paragraph
(b)(1)(iv) of this section, the CHNA report
adopted for the hospital facility by an au-
thorized body of the hospital facility must
include-

(A) A definition of the community
served by the hospital facility and a de-
scription of how the community was de-
termined;

(B) A description of the process and
methods used to conduct the CHNA;

(C) A description of how the hospital
facility solicited and took into account
input received from persons who repre-
sent the broad interests of the community
it serves;

(D) A prioritized description of the sig-
nificant health needs of the community
identified through the CHNA, along with
a description of the process and criteria
used in identifying certain health needs as

significant and prioritizing those signifi-
cant health needs;

(E) A description of the resources po-
tentially available to address the signifi-
cant health needs identified through the
CHNA; and

(F) An evaluation of the impact of any
actions that were taken, since the hospital
facility finished conducting its immedi-
ately preceding CHNA, to address the sig-
nificant health needs identified in the hos-
pital facility's prior CHNA(s).

(ii) Process and methods used to con-
duct the CHNA. A hospital facility's
CHNA report will be considered to de-
scribe the process and methods used to
conduct the CHNA for purposes of para-
graph (b)(6)(i)(B) of this section if the
CHNA report describes the data and other
information used in the assessment, as
well as the methods of collecting and an-
alyzing this data and information, and
identifies any parties with whom the hos-
pital facility collaborated, or with whom it
contracted for assistance, in conducting
the CHNA. In the case of data obtained
from external source material, the CHNA
report may cite the source material rather
than describe the method of collecting the
data.

(iii) Input from persons who represent
the broad interests of the community
served by the hospital facility. A hospital
facility's CHNA report will be considered
to describe how the hospital facility took
into account input received from persons
who represent the broad interests of the
community it serves for purposes of para-
graph (b)(6)(i)(C) of this section if the
CHNA report summarizes, in general
terms, any input provided by such persons
and how and over what time period such
input was provided (for example, whether
through meetings, focus groups, inter-
views, surveys, or written comments and
between what approximate dates); pro-
vides the names of any organizations pro-
viding input and summarizes the nature
and extent of the organization's input; and
describes the medically underserved, low-
income, or minority populations being
represented by organizations or individu-
als that provided input. A CHNA report
does not need to name or otherwise iden-
tify any specific individual providing in-
put on the CHNA. In the event a hospital
facility solicits, but cannot obtain, input

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

from a source described in paragraph
(b)(5)(i) of this section, the hospital facil-
ity's CHNA report also must describe the
hospital facility's efforts to solicit input
from such source.

(iv) Separate CHNA reports. While a
hospital facility may conduct its CHNA in
collaboration with other organizations and
facilities (including, but not limited to,
related and unrelated hospital organiza-
tions and facilities, for-profit and govern-
ment hospitals, governmental depart-
ments, and nonprofit organizations), every
hospital facility must document the infor-
mation described in this paragraph (b)(6)
in a separate CHNA report to satisfy para-
graph (b)(1)(iv) of this section unless it
adopts a joint CHNA report as described
in paragraph (b)(6)(v) of this section.
However, if a hospital facility is collabo-
rating with other facilities and organiza-
tions in conducting its CHNA or if an-
other organization (such as a state or local
public health department) has conducted a
CHNA for all or part of the hospital facil-
ity's community, portions of the hospital
facility's CHNA report may be substan-
tively identical to portions of a CHNA
report of a collaborating hospital facility
or other organization conducting a
CHNA, if appropriate under the facts and
circumstances. For example, if two hospi-
tal facilities with overlapping, but not
identical, communities are collaborating
in conducting a CHNA, the portions of
each hospital facility's CHNA report rel-
evant to the shared areas of their commu-
nities might be identical. Similarly, if the
state or local public health department
with jurisdiction over the community
served by a hospital facility conducts a
CHNA for an area that includes the hos-
pital facility's community, the hospital fa-
cility's CHNA report might include por-
tions of the state or local public health
department's CHNA report that are rele-
vant to its community.

(v) Joint CHNA reports-(A) In gen-
eral. A hospital facility that collaborates
with other hospital facilities or other or-
ganizations (such as state or local public
health departments) in conducting its
CHNA will satisfy paragraph (b)(1)(iv) of
this section if an authorized body of the
hospital facility adopts for the hospital
facility a joint CHNA report produced for
the hospital facility and one or more of the

collaborating facilities and organizations,
provided that the following conditions are
met:

(1) The joint CHNA report meets the
requirements of paragraph (b)(6)(i) of this
section.

(2) The joint CHNA report is clearly
identified as applying to the hospital facil-
ity.

(3) All of the collaborating hospital
facilities and organizations included in the
joint CHNA report define their commu-
nity to be the same.

(B) Example. The following example
illustrates this paragraph (b)(6)(v):

Example. P is one of 10 hospital facilities located
in and serving the populations of a particular Met-
ropolitan Statistical Area (MSA). P and seven other
facilities in the MSA, some of which are unrelated to
P, decide to collaborate in conducting a CHNA for
the MSA and to each define their community as
constituting the entire MSA. The eight hospital fa-
cilities work together with the state and local health
departments of jurisdictions in the MSA to assess the
health needs of the MSA and collaborate in conduct-
ing surveys and holding public forums to solicit and
receive input from the MSA's residents, including its
medically underserved, low-income, and minority
populations. The hospital facilities also consider the
written comments received on their most recently
conducted CHNAs and most recently adopted imple-
mentation strategies. The hospital facilities then
work together to prepare a joint CHNA report doc-
umenting this joint CHNA process that contains all
of the elements described in paragraph (b)(6)(i) of
this section. The joint CHNA report identifies all of
the collaborating hospital facilities included in the
report, including P, by name, both within the report
itself and on the cover page. The board of directors
of the hospital organization operating P adopts the
joint CHNA report for P. P has complied with the
requirements of this paragraph (b)(6)(v) and, accord-
ingly, has satisfied paragraph (b)(1)(iv) of this sec-
tion.

(7) Making the CHNA report widely
available to the public-(i) In general.
For purposes of paragraph (b)(1)(v) of this
section, a hospital facility's CHNA report
is made widely available to the public
only if the hospital facility-

(A) Makes the CHNA report widely
available on a Web site, as defined in
§ 1.501(r)-1(b)(29), at least until the date
the hospital facility has made widely
available on a Web site its two subsequent
CHNA reports; and

(B) Makes a paper copy of the CHNA
report available for public inspection upon
request and without charge at the hospital
facility at least until the date the hospital
facility has made available for public in-

spection a paper copy of its two subse-
quent CHNA reports.

(ii) Making draft CHNA reports widely
available. Notwithstanding paragraph
(b)(7)(i) of this section, if a hospital facil-
ity makes widely available on a Web site
(and/or for public inspection) a version of
the CHNA report that is expressly marked
as a draft on which the public may com-
ment, the hospital facility will not be con-
sidered to have made the CHNA report
widely available to the public for purposes
of determining the date on which the hos-
pital facility has conducted a CHNA un-
der paragraph (b)(2) of this section.

(c) Implementation strategy-(1) In
general. For purposes of paragraph (a)(2)
of this section, a hospital facility's imple-
mentation strategy to meet the community
health needs identified through the hospital
facility's CHNA is a written plan that, with
respect to each significant health need iden-
tified through the CHNA, either-

(i) Describes how the hospital facility
plans to address the health need; or

(ii) Identifies the health need as one the
hospital facility does not intend to address
and explains why the hospital facility does
not intend to address the health need.

(2) Description of how the hospital fa-
cility plans to address a significant health
need. A hospital facility's implementation
strategy will have described a plan to ad-
dress a significant health need identified
through a CHNA for purposes of para-
graph (c)(1)(i) of this section if the imple-
mentation strategy-

(i) Describes the actions the hospital
facility intends to take to address the
health need and the anticipated impact of
these actions;

(ii) Identifies the resources the hospital
facility plans to commit to address the
health need; and

(iii) Describes any planned collabora-
tion between the hospital facility and
other facilities or organizations in ad-
dressing the health need.

(3) Description of why a hospital facil-
ity is not addressing a significant health
need. In explaining why it does not intend
to address a significant health need for
purposes of paragraph (c)(1)(ii) of this
section, a brief explanation of the hospital
facility's reason for not addressing the
health need is sufficient. Such reasons
may include, for example, resource con-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

straints, other facilities or organizations in
the community addressing the need, a rel-
ative lack of expertise or competency to
effectively address the need, the need be-
ing a relatively low priority, and/or a lack
of identified effective interventions to ad-
dress the need.

(4) Joint implementation strategies. A
hospital facility may develop an imple-
mentation strategy in collaboration with
other hospital facilities or other organiza-
tions, including, but not limited to, related
and unrelated hospital organizations and
facilities, for-profit and government hos-
pitals, governmental departments, and
nonprofit organizations. In general, a hos-
pital facility that collaborates with other
facilities or organizations in developing
its implementation strategy must still doc-
ument its implementation strategy in a
separate written plan that is tailored to the
particular hospital facility, taking into ac-
count its specific resources. However, a
hospital facility that adopts a joint CHNA
report described in paragraph (b)(6)(v) of
this section may also adopt a joint imple-
mentation strategy that, with respect to
each significant health need identified
through the joint CHNA, either describes
how one or more of the collaborating fa-
cilities or organizations plan to address
the health need or identifies the health
need as one the collaborating facilities or
organizations do not intend to address and
explains why they do not intend to address
the health need. For a collaborating hos-
pital facility to meet the requirements of
paragraph (a)(2) of this section, such a
joint implementation strategy adopted for
the hospital facility must-

(i) Be clearly identified as applying to
the hospital facility;

(ii) Clearly identify the hospital facili-
ty's particular role and responsibilities in
taking the actions described in the imple-
mentation strategy and the resources the
hospital facility plans to commit to such
actions; and

(iii) Include a summary or other tool
that helps the reader easily locate those
portions of the joint implementation strat-
egy that relate to the hospital facility.

(5) When the implementation strategy
must be adopted-(i) In general. For pur-
poses of paragraph (a)(2) of this section,
an authorized body of the hospital facility
must adopt the implementation strategy

on or before the 15th day of the fifth
month after the end of the taxable year in
which the hospital facility completes the
final step for the CHNA described in para-
graph (b)(1) of this section, regardless of
whether the hospital facility began work-
ing on the CHNA in a prior taxable year.

(ii) Example. The following example
illustrates this paragraph (c)(5):

Example. M is a hospital facility that last con-
ducted a CHNA and adopted an implementation
strategy in Year 1. In Year 3, M defines the com-
munity it serves, assesses the significant health needs
of that community, and solicits and takes into ac-
count input received from persons who represent the
broad interests of that community. In Year 4, M
documents its CHNA in a CHNA report that is
adopted by an authorized body of M, makes the
CHNA report widely available on a Web site, and
makes paper copies of the CHNA report available
for public inspection. To meet the requirements of
paragraph (a)(2) of this section, an authorized body
of M must adopt an implementation strategy to meet
the health needs identified through the CHNA com-
pleted in Year 4 by the 15th day of the fifth month of
Year 5.

(d) Exception for acquired, new, and
terminated hospital facilities-(1) Ac-
quired hospital facilities. A hospital orga-
nization that acquires a hospital facility
(whether through merger or acquisition)
must meet the requirements of section
501(r)(3) with respect to the acquired hos-
pital facility by the last day of the organi-
zation's second taxable year beginning af-
ter the date on which the hospital facility
was acquired. In the case of a merger
between two organizations that results in
the liquidation of one organization and the
survival of the other organization, the hos-
pital facility or facilities formerly oper-
ated by the liquidated organization will be
considered "acquired" for purposes of this
paragraph (d)(1).

(2) New hospital organizations. An or-
ganization that becomes newly subject to
the requirements of section 501(r) because
it is recognized as described in section
501(c)(3) and is operating a hospital facil-
ity must meet the requirements of section
501(r)(3) with respect to any hospital fa-
cility by the last day of the second taxable
year beginning after the later of the effec-
tive date of the determination letter or
ruling recognizing the organization as de-
scribed in section 501(c)(3) or the first
date that a facility operated by the orga-
nization was licensed, registered, or sim-
ilarly recognized by a state as a hospital.

(3) New hospital facilities. A hospital
organization must meet the requirements
of section 501(r)(3) with respect to a new
hospital facility it operates by the last day
of the second taxable year beginning after
the date the facility was licensed, regis-
tered, or similarly recognized by its state
as a hospital.

(4) Transferred or terminated hospital
facilities. A hospital organization is not
required to meet the requirements of sec-
tion 501(r)(3) with respect to a hospital
facility in a taxable year if, before the end
of that taxable year, the hospital organi-
zation transfers all ownership of the hos-
pital facility to another organization or
otherwise ceases its operation of the hos-
pital facility or the facility ceases to be
licensed, registered, or similarly recog-
nized as a hospital by a state.

(e) Transition rule for CHNAs con-
ducted in taxable years beginning before
March 23, 2012. A hospital facility that
conducted a CHNA described in section
501(r)(3) in either its first taxable year
beginning after March 23, 2010, or its first
taxable year beginning after March 23,
2011, does not need to meet the require-
ments of section 501(r)(3) again until the
third taxable year following the taxable
year in which the hospital facility con-
ducted that CHNA, provided that the hos-
pital facility adopted an implementation
strategy to meet the community health
needs identified through that CHNA on or
before the 15th day of the fifth calendar
month following the close of its first tax-
able year beginning after March 23, 2012.

§ 1.501(r)-4 Financial assistance policy
and emergency medical care policy.

(a) In general. A hospital organization
meets the requirements of section
501(r)(4) with respect to a hospital facility
it operates only if the hospital organiza-
tion establishes for that hospital facility-

(1) A written financial assistance pol-
icy (FAP) that meets the requirements of
paragraph (b) of this section; and

(2) A written emergency medical care
policy that meets the requirements of
paragraph (c) of this section.

(b) Financial assistance policy-(1) In
general. To satisfy paragraph (a)(1) of this
section, a hospital facility's FAP must-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(i) Apply to all emergency and other
medically necessary care provided by the
hospital facility, including all such care
provided in the hospital facility by a
substantially-related entity (as defined in
§ 1.501(r)-1(b)(28));

(ii) Be widely publicized as described
in paragraph (b)(5) of this section; and

(iii) Include-

(A) The eligibility criteria for financial
assistance and whether such assistance in-
cludes free or discounted care;

(B) The basis for calculating amounts
charged to patients;

(C) The method for applying for finan-
cial assistance;

(D) In the case of a hospital facility that
does not have a separate billing and col-
lections policy, the actions that may be
taken in the event of nonpayment;

(E) If applicable, any information ob-
tained from sources other than an individ-
ual seeking financial assistance that the
hospital facility uses, and whether and
under what circumstances it uses prior
FAP-eligibility determinations, to pre-
sumptively determine that the individual
is FAP-eligible, as described in
§ 1.501(r)-6(c)(2); and

(F) A list of any providers, other than
the hospital facility itself, delivering
emergency or other medically necessary
care in the hospital facility that specifies
which providers are covered by the hos-
pital facility's FAP and which are not.

(2) Eligibility criteria and basis for
calculating amounts charged to pa-
tients-(i) In general. To satisfy para-
graphs (b)(1)(iii)(A) and (b)(1)(iii)(B) of
this section, the FAP must specify the
following:

(A) All financial assistance available
under the FAP, including all discounts and
free care available under the FAP and, if
applicable, the amount(s) (for example,
gross charges) to which any discount per-
centages available under the FAP will be
applied.

(B) The eligibility criteria that an indi-
vidual must satisfy to receive each dis-
count, free care, or other level of assis-
tance available under the FAP.

(C) The method under § 1.501(r)-5(b)
the hospital facility uses to determine the
amounts generally billed to individuals
who have insurance covering emergency
or other medically necessary care (AGB).

If the hospital facility uses the look-back
method described in § 1.501(r)-5(b)(3),
the FAP also must state the AGB percent-
age(s) that the hospital facility uses to
determine AGB and describe how the hos-
pital facility calculated such percentage(s)
or, alternatively, explain how members of
the public may readily obtain such per-
centage(s) and accompanying description
of the calculation in writing and free of
charge. In addition, the FAP must indicate
that, following a determination of FAP-
eligibility, a FAP-eligible individual may
not be charged more than AGB for emer-
gency or other medically necessary care.

(ii) Examples. The following examples illustrate
this paragraph (b)(2):

Example 1. (i) Q is a hospital facility that estab-
lishes a FAP that provides assistance to all uninsured
and underinsured individuals whose family income
is less than or equal to x% of the Federal Poverty
Level (FPL), with the level of discount for which an
individual is eligible under Q's FAP determined
based upon the individual's family income as a per-
centage of FPL. Q's FAP defines the meaning of
"uninsured," "underinsured," "family income," and
"Federal Poverty Level." Q's FAP also states that Q
determines AGB by multiplying the gross charges
for any emergency or other medically necessary care
it provides to a FAP-eligible individual by an AGB
percentage of 56%. The FAP states, further, that Q
calculated the AGB percentage of 56% based on all
claims allowed by Medicare and private health in-
surers over a specified 12-month period, divided by
the associated gross charges for those claims. Q's
FAP contains the following chart, specifying each
discount available under the FAP, the amounts
(gross charges) to which these discounts will be
applied, and the specific eligibility criteria for each
such discount:

Family income as % of FPL

Discount off of gross charges

&gt;y% - x%

50%

&gt;z% - y%

75%

≤z%

Free

(ii) Q's FAP also contains a statement that no
FAP-eligible individual will be charged more for
emergency or other medically necessary care than
AGB because Q's AGB percentage is 56% of gross
charges and the most a FAP-eligible individual will
be charged is 50% of gross charges. Q's FAP satis-
fies the requirements of this paragraph (b)(2).

Example 2. (i) R is a hospital facility that estab-
lishes a FAP that provides assistance based on
household income. R's FAP defines the meaning of
"household income." R's FAP contains the follow-
ing chart specifying the assistance available under
the FAP and the specific eligibility criteria for each
level of assistance offered, which R updates occa-
sionally to account for inflation:

Household income

Maximum amount individual will be responsible for paying

&gt;$b - $a

40% of gross charges, up to the lesser of AGB or x% of household income

&gt;$c - $b

20% of gross charges, up to the lesser of AGB or y% of household income

≤$c

$0 (free)

(ii) R's FAP contains a statement that no FAP-
eligible individual will be charged more for emer-
gency or other medically necessary care than AGB.
R's FAP also states that R determines AGB by
multiplying the gross charges for any emergency or
other medically necessary care it provides by AGB
percentages, which are based on claims allowed un-
der Medicare. In addition, the FAP provides a Web
site address individuals can visit, and a telephone
number they can call, if they would like to obtain an
information sheet stating R's AGB percentages and
explaining how these AGB percentages were calcu-
lated. This information sheet, which R makes avail-
able on its Web site and provides to any individual
who requests it, states that R's AGB percentages are
35% of gross charges for inpatient care and 61% of
gross charges for outpatient care. It also states that
these percentages were based on all claims allowed
for R's emergency or other medically necessary in-
patient and outpatient care by Medicare over a spec-
ified 12-month period, divided by the associated
gross charges for those claims. R's FAP satisfies the
requirements of this paragraph (b)(2).

(3) Method for applying for financial
assistance-(i) In general. To satisfy
paragraph (b)(1)(iii)(C) of this section, a
hospital facility's FAP must describe how
an individual applies for financial assis-
tance under the FAP. In addition, either
the hospital facility's FAP or FAP appli-
cation form (including accompanying in-
structions) must describe the information
and documentation the hospital facility
may require an individual to provide as
part of his or her FAP application and
provide the contact information described
in § 1.501(r)-1(b)(24)(v). A hospital fa-
cility may not deny financial assistance
under its FAP based on an applicant's
failure to provide information or docu-
mentation unless that information or doc-
umentation is described in the FAP or
FAP application form. However, a hospi-
tal facility may grant financial assistance
under its FAP notwithstanding an appli-
cant's failure to provide information or
documentation described in the FAP or
FAP application form and may, for exam-
ple, rely on other evidence of eligibility or
an attestation by the applicant to deter-
mine that the applicant is FAP-eligible.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(ii) Example. The following example illustrates
this paragraph (b)(3):

Example. S is a hospital facility with a FAP that
bases eligibility solely on an individual's household
income. S's FAP provides that an individual may
apply for financial assistance by completing and
submitting S's FAP application form. S's FAP also
describes how individuals can obtain copies of the
FAP application form. S's FAP application form
contains lines on which the applicant lists all items
of household income received by the applicant's
household over the last month and the names of the
applicant's household members. The instructions to
S's FAP application form tell applicants where to
submit the application and provide that an applicant
must attach to his or her FAP application form proof
of household income in the form of payroll check
stubs from the last month or, if last month's wages
are not representative of the applicant's annual in-
come, a copy of the applicant's most recent federal
tax return. Alternatively, the instructions state that an
applicant may provide documentation of his or her
qualification for certain specified state means-tested
programs. The instructions also state that if an ap-
plicant does not have any of the listed documents
proving household income, he or she may call S's
financial assistance office and discuss other evidence
that may be provided to demonstrate eligibility. S
does not deny financial assistance to FAP applicants
based on a failure to submit any information or
documentation not mentioned in the FAP application
form or instructions. S's FAP application form in-
structions also provide the contact information of the
hospital facility office that can provide an applicant
with information about the FAP and assistance with
the FAP application process. S's FAP satisfies the
requirements of this paragraph (b)(3).

(4) Actions that may be taken in the
event of nonpayment-(i) In general. To
satisfy paragraph (b)(1)(iii)(D) of this sec-
tion, either a hospital facility's FAP or a
separate written billing and collections
policy established for the hospital facility
must describe-

(A) Any actions that the hospital facil-
ity (or other authorized party) may take
related to obtaining payment of a bill for
medical care, including, but not limited to,
any extraordinary collection actions
(ECAs) described in § 1.501(r)-6(b);

(B) The process and time frames the
hospital facility (or other authorized
party) uses in taking the actions described
in paragraph (b)(4)(i)(A) of this section,
including, but not limited to, the reason-
able efforts it will make to determine
whether an individual is FAP-eligible be-
fore engaging in any ECAs, as described
in § 1.501(r)-6(c); and

(C) The office, department, committee,
or other body with the final authority or
responsibility for determining that the
hospital facility has made reasonable ef-

forts to determine whether an individual is
FAP-eligible and may therefore engage in
ECAs against the individual.

(ii) Separate billing and collections
policy. In the case of a hospital facility
that satisfies paragraph (b)(1)(iii)(D) of
this section by establishing a separate
written billing and collections policy, the
hospital facility's FAP must state that the
actions the hospital facility may take in
the event of nonpayment are described in
a separate billing and collections policy
and explain how members of the public
may readily obtain a free copy of this
separate policy.

(5) Widely publicizing the FAP-(i) In
general. To satisfy the requirement in
paragraph (b)(1)(ii) of this section to
widely publicize its FAP, a hospital facil-
ity must-

(A) Make the FAP, FAP application
form, and plain language summary of the
FAP (as defined in § 1.501(r)-1(b)(24))
widely available on a Web site (as defined
in § 1.501(r)-1(b)(29));

(B) Make paper copies of the FAP,
FAP application form, and plain language
summary of the FAP available upon re-
quest and without charge, both by mail
and in public locations in the hospital fa-
cility, including, at a minimum, in the
emergency room (if any) and admissions
areas;

(C) Notify and inform members of the
community served by the hospital facility
about the FAP in a manner reasonably
calculated to reach those members who
are most likely to require financial assis-
tance from the hospital facility; and

(D) Notify and inform individuals who
receive care from the hospital facility
about the FAP by-

(1) Offering a paper copy of the plain
language summary of the FAP to patients
as part of the intake or discharge process;

(2) Including a conspicuous written no-
tice on billing statements that notifies and
informs recipients about the availability of
financial assistance under the hospital fa-
cility's FAP and includes the telephone
number of the hospital facility office or
department that can provide information
about the FAP and FAP application pro-
cess and the direct Web site address (or
URL) where copies of the FAP, FAP ap-
plication form, and plain language sum-
mary of the FAP may be obtained; and

(3) Setting up conspicuous public dis-
plays (or other measures reasonably cal-
culated to attract patients' attention) that
notify and inform patients about the FAP
in public locations in the hospital facility,
including, at a minimum, the emergency
room (if any) and admissions areas.

(ii) Accessibility to limited English
proficient individuals. To widely publi-
cize its FAP, a hospital facility must ac-
commodate all significant populations that
have limited English proficiency (LEP) by
translating its FAP, FAP application form,
and plain language summary of the FAP
into the primary language(s) spoken by
such populations. A hospital facility will
satisfy this translation requirement in a
taxable year if it makes available transla-
tions of its FAP, FAP application form,
and plain language summary of the FAP
in the language spoken by each LEP lan-
guage group that constitutes the lesser of
1,000 individuals or 5 percent of the com-
munity served by the hospital facility or
the population likely to be affected or
encountered by the hospital facility. For
purposes of this paragraph (b)(5)(ii), a
hospital facility may determine the per-
centage or number of LEP individuals in
the hospital facility's community or likely
to be affected or encountered by the hos-
pital facility using any reasonable method.

(iii) Meaning of notify and inform. For
purposes of paragraphs (b)(5)(i)(C) and
(b)(5)(i)(D)(3) of this section, a measure
will notify and inform members of a com-
munity or patients about the hospital fa-
cility's FAP if the measure, at a minimum,
notifies the reader or listener that the hos-
pital facility offers financial assistance un-
der a FAP and informs him or her about
how or where to obtain more information
about the FAP and FAP application pro-
cess and to obtain copies of the FAP, FAP
application form, and plain language sum-
mary of the FAP.

(iv) Meaning of reasonably calculated.
Whether one or more measures to widely
publicize a hospital facility's FAP are rea-
sonably calculated to notify and inform
members of a community or patients about
the hospital facility's FAP in the manner
described in paragraphs (b)(5)(i)(C) and
(b)(5)(i)(D)(3) of this section will depend on
all of the facts and circumstances, including
the primary language(s) spoken by the
members of the community served by the

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

hospital facility and other attributes of the
community and the hospital facility.

(v) Examples. The following examples illustrate
this paragraph (b)(5):

Example 1. (i) Z is a hospital facility. The home
page and main billing page of Z's Web site conspic-
uously display the following message: "Need help
paying your bill? You may be eligible for financial
assistance. Click here for more information." When
readers click on the link, they are taken to a Web
page that explains the various discounts available
under Z's FAP and the specific eligibility criteria for
each such discount. This Web page also provides all
of the other information required to be included in a
plain language summary of the FAP (as defined in
§ 1.501(r)-1(b)(24)), including a telephone number
of Z that individuals can call and a room number of
Z that individuals can visit for more information
about the FAP and assistance with FAP applications.
In addition, the Web page contains prominently-
displayed links that allow readers to download PDF
files of the FAP and the FAP application form, free
of charge and without being required to create an
account or provide personally identifiable informa-
tion. Z provides any individual who asks how to
access a copy of the FAP, FAP application form, or
plain language summary of the FAP online with the
URL of this Web page. By implementing these mea-
sures, Z has made its FAP widely available on a Web
site within the meaning of paragraph (b)(5)(i)(A) of
this section.

(ii) Z distributes copies of the plain language
summary of its FAP and its FAP application form to
all of its referring staff physicians and to the com-
munity health centers serving its community. Z also
distributes copies of these documents to the local
health department and to numerous public agencies
and nonprofit organizations in its community that
address the health issues and other needs of low-
income populations, in quantities sufficient to meet
demand. In addition, every issue of the quarterly
newsletter that Z mails to the individuals in its cus-
tomer database contains a prominently-displayed ad-
vertisement informing readers that Z offers financial
assistance and that people having trouble paying
their hospital bills may be eligible for financial as-
sistance. The advertisement provides readers with
the URL of the Web page where Z's FAP and FAP
application form can be accessed and a telephone
number of Z that individuals can call and a room
number of Z that individuals can visit with questions
about the FAP or assistance with the FAP applica-
tion process. By implementing these measures, Z
notifies and informs members of its community
about the FAP within the meaning of paragraph
(b)(5)(i)(C) of this section.

(iii) Z makes paper copies of the FAP, FAP
application form, and plain language summary of the
FAP available upon request and without charge, both
by mail and in its admissions areas and emergency
room. Z also conspicuously displays a sign in large
font regarding the FAP in its admissions areas and
emergency room. The sign says: "Uninsured? Hav-
ing trouble paying your hospital bill? You may be
eligible for financial assistance." The sign also pro-
vides the URL of the Web page where Z's FAP and
FAP application form can be accessed. In addition,
the sign provides a telephone number of Z that

individuals can call and a room number of Z that
individuals can visit with questions about the FAP or
assistance with the FAP application process. Under-
neath each sign, Z conspicuously displays copies of
a brochure that contains all of the information re-
quired to be included in a plain language summary of
the FAP (as defined in § 1.501(r)-1(b)(24)). Z makes
these brochures available in quantities sufficient to
meet visitor demand. Z also offers a plain language
summary of the FAP as part of its intake process. Z's
billing statements include a conspicuously-placed
statement in large font containing the same informa-
tion that Z includes on its signs. By implementing
these measures, Z makes a paper copy of the FAP,
FAP application form, and plain language summary
of the FAP available upon request within the mean-
ing of paragraph (b)(5)(i)(B) of this section and
notifies and informs individuals who receive care
from the hospital facility about the FAP within the
meaning of paragraph (b)(5)(i)(D) of this section.

(iv) Because Z takes measures to widely publi-
cize the FAP described in paragraphs (b)(5)(i)(A),
(b)(5)(i)(B), (b)(5)(i)(C), and (b)(5)(i)(D) of this sec-
tion, Z meets the requirement to widely publicize its
FAP under paragraph (b)(1)(ii) of this section.

Example 2. Assume the same facts as Example 1,
except that Z serves a community in which 6% of the
members speak Spanish and have limited proficiency
in English. Z translates its FAP, FAP application
form, and FAP brochure (which constitutes a plain
language summary of the FAP) into Spanish, and
displays and distributes both Spanish and English
versions of these documents in its hospital facility
using all of the measures described in Example 1. Z
also distributes Spanish versions of its FAP applica-
tion form and FAP brochure to organizations serving
Spanish-speaking members of its community. More-
over, the home page and main billing page of Z's
Web site conspicuously display an "¿Habla Espa-
ñol?" link that takes readers to a Web page that
summarizes the FAP in Spanish and contains links
that allow readers to download PDF files of the
Spanish versions of the FAP and FAP application
form, free of charge and without being required to
create an account or provide personally identifiable
information. Z meets the requirement to widely pub-
licize its FAP under paragraph (b)(1)(ii) of this sec-
tion.

(6) Readily obtainable information.
For purposes of paragraphs (b)(2)(i)(C)
and (b)(4)(ii) of this section, information
is readily obtainable by members of the
public if a hospital facility-

(i) Makes the information available
free of charge on a Web site and via a
paper copy upon request in a manner sim-
ilar to that described in paragraphs
(b)(5)(i)(A) and (b)(5)(i)(B) of this sec-
tion; and

(ii) Provides translations of the infor-
mation as described in paragraph (b)(5)(ii)
of this section.

(7) Providing documents electroni-
cally. A hospital facility may provide
electronically (for example, on an elec-

tronic screen, by email, or by providing
the direct Web site address, or URL, of
the Web page where the document or in-
formation is posted) any document or in-
formation that is required by this para-
graph (b) to be provided in the form of a
paper copy to any individual who indi-
cates he or she prefers to receive or access
the document or information electroni-
cally.

(8) Medically necessary care. For pur-
poses of meeting the requirements of this
section, a hospital facility may (but is not
required to) use a definition of medically
necessary care applicable under the laws
of the state in which it is licensed, includ-
ing the Medicaid definition, or a definition
that refers to the generally accepted stan-
dards of medicine in the community or to
an examining physician's determination.

(c) Emergency medical care policy-
(1) In general. To satisfy paragraph (a)(2)
of this section, a hospital organization
must establish a written policy for a hos-
pital facility that requires the hospital fa-
cility to provide, without discrimination,
care for emergency medical conditions to
individuals regardless of whether they are
FAP-eligible.

(2) Interference with provision of
emergency medical care. A hospital facil-
ity's emergency medical care policy will
not be described in paragraph (c)(1) of
this section unless it prohibits the hospital
facility from engaging in actions that dis-
courage individuals from seeking emer-
gency medical care, such as by demanding
that emergency department patients pay
before receiving treatment for emergency
medical conditions or by permitting debt
collection activities that interfere with the
provision, without discrimination, of
emergency medical care.

(3) Relation to federal law governing
emergency medical care. Subject to para-
graph (c)(2) of this section, a hospital
facility's emergency medical care policy
will be described in paragraph (c)(1) of
this section if it requires the hospital fa-
cility to provide the care for emergency
medical conditions that the hospital facil-
ity is required to provide under Subchap-
ter G of Chapter IV of Title 42 of the
Code of Federal Regulations (or any suc-
cessor regulations).

(4) Examples. The following examples illustrate
this paragraph (c):

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Example 1. F is a hospital facility with a dedi-
cated emergency department that is subject to the
Emergency Medical Treatment and Labor Act
(EMTALA) and is not a critical access hospital. F
establishes a written emergency medical care policy
requiring F to comply with EMTALA by providing
medical screening examinations and stabilizing
treatment and referring or transferring an individual
to another facility, when appropriate, and providing
emergency services in accordance with 42 CFR
482.55 (or any successor regulation). F's emergency
medical care policy also states that F prohibits any
actions that would discourage individuals from seek-
ing emergency medical care, such as by demanding
that emergency department patients pay before re-
ceiving treatment for emergency medical conditions
or permitting debt collection activities that interfere
with the provision, without discrimination, of emer-
gency medical care. F's emergency medical care
policy is described in paragraph (c)(1) of this sec-
tion.

Example 2. G is a rehabilitation hospital facility.
G does not have a dedicated emergency department,
nor does it have specialized capabilities that would
make it appropriate to accept transfers of individuals
who need stabilizing treatment for an emergency
medical condition. G establishes a written emer-
gency medical care policy that addresses how it
appraises emergencies, provides initial treatment,
and refers or transfers an individual to another facil-
ity, when appropriate, in a manner that complies
with 42 CFR 482.12(f)(2) (or any successor regula-
tion). G's emergency medical care policy also pro-
hibits G from engaging in actions that discourage
individuals from seeking emergency medical care,
such as by demanding that patients pay before re-
ceiving initial treatment for emergency medical con-
ditions or permitting debt collection activities that
interfere with the facility's appraisal and provision,
without discrimination, of such initial treatment. G's
emergency medical care policy is described in para-
graph (c)(1) of this section.

(d) Establishing the FAP and other
policies-(1) In general. A hospital orga-
nization has established a FAP, a billing
and collections policy, or an emergency
medical care policy for a hospital facility
only if an authorized body of the hospital
facility (as defined in § 1.501(r)-1(b)(4))
has adopted the policy for the hospital
facility and the hospital facility has imple-
mented the policy.

(2) Implementing a policy. For pur-
poses of this paragraph (d), a hospital
facility will be considered to have imple-
mented a policy if the hospital facility has
consistently carried out the policy.

(3) Establishing a policy for more than
one hospital facility. A hospital organiza-
tion may establish a FAP, billing and col-
lections policy, and/or emergency medical
care policy for a hospital facility that is
identical to that of other hospital facilities
or a joint policy that is shared with mul-

tiple hospital facilities provided that any
joint policy clearly identifies each facility
to which it applies. However, hospital fa-
cilities that have different AGB percent-
ages or use different methods to determine
AGB must include in their FAPs (or, in
the case of information related to AGB
percentages, otherwise make readily ob-
tainable) different information regarding
AGB to meet the requirements of para-
graph (b)(2)(i)(C) of this section.

§ 1.501(r)-5 Limitation on charges.

(a) In general. A hospital organization
meets the requirements of section
501(r)(5) with respect to a hospital facility
it operates only if the hospital facility (and
any substantially-related entity, as defined
in § 1.501(r)-1(b)(28)) limits the amount
charged for care it provides to any indi-
vidual who is eligible for assistance under
its financial assistance policy (FAP) to-

(1) In the case of emergency or other
medically necessary care, not more than
the amounts generally billed to individu-
als who have insurance covering such care
(AGB), as determined under paragraph (b)
of this section; and

(2) In the case of all other medical care
covered under the FAP, less than the gross
charges for such care, as described in
paragraph (c) of this section.

(b) Amounts generally billed-(1) In
general. For purposes of meeting the re-
quirements of paragraph (a)(1) of this sec-
tion, a hospital facility must determine
AGB for emergency or other medically
necessary care using a method described
in paragraph (b)(3) or (b)(4) of this sec-
tion or any other method specified in reg-
ulations or other guidance published in the
Internal Revenue Bulletin. A hospital fa-
cility may use only one of these methods
to determine AGB at any one time, but
different hospital facilities operated by the
same hospital organization may use dif-
ferent methods. A hospital facility may
change the method it uses to determine
AGB at any time.

(2) Meaning of charged. For purposes
of paragraph (a)(1) of this section, a FAP-
eligible individual is considered to be
"charged" only the amount he or she is
personally responsible for paying, after all
deductions, discounts (including dis-
counts available under the FAP), and in-

surance reimbursements have been ap-
plied. Thus, in the case of a FAP-eligible
individual who has health insurance cov-
erage, a hospital facility will meet the
requirements of paragraph (a)(1) of this
section if the FAP-eligible individual is
not personally responsible for paying (for
example, in the form of co-payments, co-
insurance, and deductibles) more than
AGB for the care after all reimbursements
by the health insurer have been applied,
even if the total amount paid by the FAP-
eligible individual and his or her health
insurer together exceeds AGB.

(3) Look-back method-(i) In general.
A hospital facility may determine AGB
for any emergency or other medically nec-
essary care it provides to a FAP-eligible
individual by multiplying the hospital fa-
cility's gross charges for the care by one
or more percentages of gross charges
(AGB percentage(s)). A hospital facility
using this method must calculate its AGB
percentage(s) at least annually by dividing
the sum of the amounts of all of its claims
for emergency and other medically neces-
sary care that have been allowed by health
insurers described in paragraph (b)(3)(ii)
of this section during a prior 12-month
period by the sum of the associated gross
charges for those claims. Whether a claim
is used in calculating a hospital facility's
AGB percentage(s) depends on whether
the claim was allowed by a health insurer
during the 12-month period used in the
calculation, not on whether the care result-
ing in the claim was provided during that
12-month period. If the amount a health
insurer will allow for a claim has not been
finally determined as of the last day of the
12-month period used to calculate the
AGB percentage(s), a hospital facility
should exclude the amount of the claim
from that calculation and include it in the
subsequent 12-month period during which
the amount allowed is finally determined.
When including allowed claims in calcu-
lating its AGB percentage(s), the hospital
facility should include the full amount that
has been allowed by the health insurer,
including both the amount the insurer will
pay or reimburse and the amount (if any)
the individual is personally responsible
for paying in the form of co-payments,
co-insurance, and deductibles, regardless
of whether or when the full amount al-
lowed is actually paid and disregarding

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

any discounts applied to the individual's
portion.

(ii) Health insurers used in calculating
AGB percentage(s). In calculating its
AGB percentage(s), a hospital facility
must include the claims allowed during a
prior 12-month period by-

(A) Medicare fee-for-service;

(B) Medicare fee-for-service and all
private health insurers that pay claims to
the hospital facility; or

(C) Medicaid, either alone or in com-
bination with the insurer(s) described in
paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) of
this section.

(iii) One or multiple AGB percentages.
A hospital facility's AGB percentage that
is calculated using the method described
in this paragraph (b)(3) may be one aver-
age percentage of gross charges for all
emergency and other medically necessary
care provided by the hospital facility. Al-
ternatively, a hospital facility may calcu-
late multiple AGB percentages for sepa-
rate categories of care (such as inpatient
and outpatient care or care provided by
different departments) or for separate
items or services, as long as the hospital
facility calculates AGB percentages for all
emergency and other medically necessary
care provided by the hospital facility.

(iv) Start date for applying AGB per-
centages. For purposes of determining
AGB under this paragraph (b)(3), with
respect to any AGB percentage that a hos-
pital facility has calculated, the hospital
facility must begin applying the AGB per-
centage by the 120th day after the end of
the 12-month period the hospital facility
used in calculating the AGB percentage.

(v) Use of all claims for medical care.
A hospital facility determining AGB un-
der this paragraph (b)(3) may use claims
allowed for all medical care during a prior
12-month period rather than just those al-
lowed for emergency and other medically
necessary care.

(vi) Determining AGB percentages for
more than one hospital facility. Although
generally a hospital organization must cal-
culate AGB percentage(s) separately for
each hospital facility it operates, hospital
facilities that are covered under the same
Medicare provider agreement (as defined
in 42 CFR 489.3 or any successor regula-
tions) may calculate one AGB percentage
(or multiple AGB percentages for separate

categories of care or for separate items or
services) using the method described in
this paragraph (b)(3) based on the claims
and gross charges for all such hospital
facilities and implement the AGB percent-
age(s) across all such hospital facilities.

(4) Prospective Medicare or Medicaid
method. A hospital facility may determine
AGB for any emergency or other medi-
cally necessary care provided to a FAP-
eligible individual by using the billing and
coding process the hospital facility would
use if the FAP-eligible individual were a
Medicare fee-for-service or Medicaid
beneficiary and setting AGB for the care
at the amount the hospital facility deter-
mines would be the total amount Medi-
care or Medicaid would allow for the care
(including both the amount that would be
reimbursed by Medicare or Medicaid and
the amount the beneficiary would be per-
sonally responsible for paying in the form
of co-payments, co-insurance, and deduct-
ibles). A hospital facility using the method
described in this paragraph (b)(4) may
base AGB on Medicare fee-for-service or
Medicaid or both, provided that, if it uses
both, its FAP describes the circumstance
under which it will use Medicare fee-for-
service or Medicaid in determining AGB.

(5) Examples. The following examples illustrate
this paragraph (b):

Example 1. On March 15 of Year 1, Y, a hospital
facility, generates data on the amount of all of Y's
claims for emergency and other medically necessary
care that were allowed by all private health insurers
and Medicare fee-for-service over the immediately
preceding calendar year. Y determines that the pri-
vate health insurers allowed a total amount of $250
million and Medicare fee-for-service allowed a total
amount of $150 million, with the total allowed
amounts including both the portion the insurers
agreed to reimburse and the portion that the insured
patients were personally responsible for paying. Y's
gross charges for these claims totaled $800 million.
Y calculates that its AGB percentage is 50% of gross
charges ($400 million/$800 million). Y updates its
FAP to reflect the new AGB percentage of 50% and
makes the updated FAP widely available (both on its
Web site and via paper copies upon request) on April
1 of Year 1. Between April 1 of Year 1 (less than 120
days after the end of the preceding calendar year)
and March 31 of Year 2, Y determines AGB for any
emergency or other medically necessary care it pro-
vides to a FAP-eligible individual by multiplying the
gross charges for the care provided to the individual
by 50%. Y has determined AGB between April 1 of
Year 1 and March 31 of Year 2 in accordance with
this paragraph (b) by using the look-back method
described in paragraph (b)(3) of this section.

Example 2. On August 20 of Year 1, X, a hos-
pital facility, generates data on the amount of all of

X's claims for emergency and other medically nec-
essary care that were allowed by Medicare fee-for-
service over the 12 months ending on July 31 of
Year 1. X determines that, of these claims for inpa-
tient services, Medicare allowed a total amount of
$100 million (including both the portion Medicare
agreed to reimburse and the portion Medicare bene-
ficiaries were personally responsible for paying). X's
gross charges for these inpatient claims totaled $250
million. Of the claims for outpatient services, Medi-
care allowed a total amount of $125 million. X's
gross charges for these outpatient claims totaled
$200 million. X calculates that its AGB percentage
for inpatient services is 40% of gross charges ($100
million/$250 million) and its AGB percentage for
outpatient services is 62.5% of gross charges ($125
million/$200 million). Y discloses its AGB percent-
ages and describes how they were calculated on the
Web page where its FAP can be accessed, and it
updates this Web page to reflect the new AGB per-
centages on November 1. Y also starts making an
updated information sheet with the new AGB per-
centages available upon request on and after Novem-
ber 1. Between November 1 of Year 1 (less than 120
days after the end of the 12-month claim period) and
October 31 of Year 2, X determines AGB for any
emergency or other medically necessary inpatient
care it provides to a FAP-eligible individual by mul-
tiplying the gross charges for the inpatient care it
provides to the individual by 40% and AGB for any
emergency or other medically necessary outpatient
care it provides to a FAP-eligible individual by mul-
tiplying the gross charges for the outpatient care it
provides to the individual by 62.5%. X has deter-
mined AGB between November 1 of Year 1 and
October 31 of Year 2 in accordance with this para-
graph (b) by using the look-back method described
in paragraph (b)(3) of this section.

Example 3. Whenever Z, a hospital facility, pro-
vides emergency or other medically necessary care
to a FAP-eligible individual, Z determines the AGB
for the care by using the billing and coding process
it would use if the individual were a Medicare fee-
for-service beneficiary and setting AGB for the care
at the amount it determines Medicare and the Medi-
care beneficiary together would be expected to pay
for the care. Z has determined AGB in accordance
with this paragraph (b) by using the prospective
Medicare method described in paragraph (b)(4) of
this section.

Example 4. Using the look-back method de-
scribed in paragraph (b)(3) of this section, W, a
hospital facility, calculates that its AGB percentage
for Year 1 is 60% of gross charges. Under W's FAP,
which applies to all emergency and other medically
necessary care provided by W and which has been
updated to reflect the AGB percentage for Year 1,
the most that W charges a FAP-eligible individual is
50% of gross charges. W properly implements its
FAP and charges no FAP-eligible individual more
for emergency or other medically necessary care
than 50% of gross charges in Year 1. W has met the
requirements of paragraphs (a)(1) and (b) of this
section in Year 1.

Example 5. A, an individual, receives medically
necessary care from hospital facility V for which the
AGB is $3y. A is insured by U, a health insurer.
Under U's contracts with V and A, the amount

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

allowed for the care V provided to A is $5y. Of that
amount allowed, A is personally responsible for pay-
ing $1y (in co-payments and deductibles) while U is
responsible for paying $4y. Based on the eligibility
criteria specified in its FAP, V determines that A is
FAP-eligible. Pursuant to paragraph (b)(2) of this
section, V may charge U and A collectively $5y
while still meeting the requirements of paragraph
(a)(1) of this section because the amount A is per-
sonally responsible for paying in co-payments and
deductibles ($1y) is less than the AGB for the care
($3y).

Example 6. Assume the same facts as Example 5,
except that under U's contracts with V and A, A is
personally responsible for paying $4y (in co-
payments and deductibles) for the care while U is
responsible for paying V $1y. Because A is FAP-
eligible under V's FAP, paragraph (a)(1) of this
section requires that A not be personally responsible
for paying V more than $3y (the AGB for the care
provided).

(c) Gross charges. A hospital facility
must charge a FAP-eligible individual less
than the gross charges for any medical
care covered under the hospital facility's
FAP. A billing statement issued by a hos-
pital facility to a FAP-eligible individual
for medical care covered under the FAP
may state the gross charges for such care
and apply contractual allowances, dis-
counts, or deductions to the gross charges,
provided that the actual amount the indi-
vidual is personally responsible for paying
is less than the gross charges for such
care.

(d) Safe harbor for certain charges in
excess of AGB. A hospital facility will be
deemed to meet the requirements of para-
graph (a) of this section, even if it charges
more than AGB for emergency or other
medically necessary care (or gross
charges for any medical care covered un-
der the FAP) provided to a FAP-eligible
individual, if-

(1) The charge in excess of AGB was
not made or requested as a pre-condition
of providing medically necessary care to
the FAP-eligible individual (for example,
an upfront payment that a hospital facility
requires before providing medically nec-
essary care);

(2) As of the time of the charge, the
FAP-eligible individual has not submitted
a complete FAP application to the hospital
facility to obtain financial assistance for
the care or has not otherwise been deter-
mined by the hospital facility to be FAP-
eligible for the care; and

(3) If the individual subsequently sub-
mits a complete FAP application and is
determined to be FAP-eligible for the

care, the hospital facility refunds any
amount the individual has paid for the
care (whether to the hospital facility or
any other party to whom the hospital fa-
cility has referred or sold the individual's
debt for the care) that exceeds the amount
he or she is determined to be personally
responsible for paying as a FAP-eligible
individual, unless such excess amount is
less than $5 (or such other amount set by
notice or other guidance published in the
Internal Revenue Bulletin).

(e) Medically necessary care. For pur-
poses of meeting the requirements of this
section, a hospital facility may (but is not
required to) use a definition of medically
necessary care applicable under the laws
of the state in which it is licensed, includ-
ing the Medicaid definition, or a definition
that refers to the generally accepted stan-
dards of medicine in the community or to
an examining physician's determination.

§ 1.501(r)-6 Billing and collection.

(a) In general. A hospital organization
meets the requirements of section
501(r)(6) with respect to a hospital facility
it operates only if the hospital facility does
not engage in extraordinary collection ac-
tions (ECAs), as defined in paragraph (b)
of this section, against an individual to
obtain payment for care before the hospi-
tal facility has made reasonable efforts to
determine whether the individual is eligi-
ble for assistance for the care under its
financial assistance policy (FAP), as de-
scribed in paragraph (c) of this section.
For purposes of this section, with respect
to any debt owed by an individual for care
provided by a hospital facility-

(1) ECAs against the individual in-
clude ECAs to obtain payment for the care
against any other individual who has ac-
cepted or is required to accept responsi-
bility for the individual's hospital bill for
the care; and

(2) The hospital facility will be deemed
to have engaged in an ECA against the
individual to obtain payment for the care,
or to have taken one or more of the steps
necessary to have made reasonable efforts
to determine whether the individual is
FAP-eligible for the care, if any purchaser
of the individual's debt, any debt collec-
tion agency or other party to which the
hospital facility has referred the individu-

al's debt, or any substantially-related en-
tity (as defined in § 1.501(r)-1(b)(28)) has
engaged in such an ECA or taken such
steps (whichever is applicable).

(b) Extraordinary collection actions-
(1) In general. Except as otherwise pro-
vided in this paragraph (b), the following
actions taken by a hospital facility against
an individual related to obtaining payment
of a bill for care covered under the hospi-
tal facility's FAP are ECAs:

(i) Selling an individual's debt to an-
other party (other than debt sales de-
scribed in paragraph (b)(2) of this sec-
tion).

(ii) Reporting adverse information
about the individual to consumer credit
reporting agencies or credit bureaus.

(iii) Deferring or denying, or requiring
a payment before providing, medically
necessary care because of an individual's
nonpayment of one or more bills for pre-
viously provided care covered under the
hospital facility's FAP (which is consid-
ered an ECA to obtain payment for the
previously provided care, not the care be-
ing potentially deferred or denied). If a
hospital facility requires a payment before
providing medically necessary care to an
individual with one or more outstanding
bills for previously provided care, such a
requirement for payment will be pre-
sumed to be because of the individual's
nonpayment of such bill(s) unless the hos-
pital facility can demonstrate that it re-
quired the payment from the individual
based on factors other than, and without
regard to, the individual's nonpayment of
past bills.

(iv) Actions that require a legal or ju-
dicial process, including but not limited
to-

(A) Placing a lien on an individual's
property (other than a lien described in
paragraph (b)(3) of this section);

(B) Foreclosing on an individual's real
property;

(C) Attaching or seizing an individu-
al's bank account or any other personal
property;

(D) Commencing a civil action against
an individual;

(E) Causing an individual's arrest;

(F) Causing an individual to be subject
to a writ of body attachment; and

(G) Garnishing an individual's wages.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(2) Certain debt sales that are not
ECAs. A hospital facility's sale of an in-
dividual's debt for care provided by the
hospital facility will not be considered an
ECA if, prior to the sale, the hospital
facility has entered into a legally binding
written agreement with the purchaser of
the debt pursuant to which-

(i) The purchaser is prohibited from
engaging in any ECAs to obtain payment
for the care;

(ii) The purchaser is prohibited from
charging interest on the debt in excess of
the rate in effect under section 6621(a)(2)
at the time the debt is sold (or such other
interest rate set by notice or other guid-
ance published in the Internal Revenue
Bulletin);

(iii) The debt is returnable to or recall-
able by the hospital facility upon a deter-
mination by the hospital facility or the
purchaser that the individual is FAP-eligi-
ble; and

(iv) If the individual is determined to
be FAP-eligible and the debt is not re-
turned to or recalled by the hospital facil-
ity, the purchaser is required to adhere to
procedures specified in the agreement that
ensure that the individual does not pay,
and has no obligation to pay, the pur-
chaser and the hospital facility together
more than he or she is personally respon-
sible for paying as a FAP-eligible individ-
ual.

(3) Liens on certain judgments, settle-
ments, or compromises. Any lien that a
hospital facility is entitled to assert under
state law on the proceeds of a judgment,
settlement, or compromise owed to an in-
dividual (or his or her representative) as a
result of personal injuries for which the
hospital facility provided care is not an
ECA.

(4) Bankruptcy claims. The filing of a
claim in any bankruptcy proceeding is not
an ECA.

(c) Reasonable efforts-(1) In general.
A hospital facility will have made reason-
able efforts to determine whether an indi-
vidual is FAP-eligible for care only if the
hospital facility meets the requirements
described in paragraph (c)(2) or (c)(3) of
this section.

(2) Presumptive FAP-eligibility deter-
minations based on third-party informa-
tion or prior FAP-eligibility determina-
tions-(i) In general. With respect to any

care provided by a hospital facility to an
individual, the hospital facility will have
made reasonable efforts to determine
whether the individual is FAP-eligible for
the care if it determines that the individual
is FAP-eligible for the care based on in-
formation other than that provided by the
individual or based on a prior FAP-
eligibility determination and, if the indi-
vidual is presumptively determined to be
eligible for less than the most generous
assistance available under the FAP, the
hospital facility-

(A) Notifies the individual regarding
the basis for the presumptive FAP-
eligibility determination and the way to
apply for more generous assistance avail-
able under the FAP;

(B) Gives the individual a reasonable
period of time to apply for more generous
assistance before initiating ECAs to ob-
tain the discounted amount owed for the
care; and

(C) If the individual submits a com-
plete FAP application seeking more gen-
erous assistance during the application pe-
riod (as defined in § 1.501(r)-1(b)(3)),
determines whether the individual is eli-
gible for a more generous discount and
otherwise meets the requirements de-
scribed in paragraph (c)(6) of this section
with respect to that complete FAP appli-
cation.

(ii) Examples. The following examples illustrate
this paragraph (c)(2):

Example 1. V is a hospital facility with a FAP
under which the specific assistance for which an
individual is eligible depends exclusively upon that
individual's household income. The most generous
assistance offered for care under V's FAP is free
care. V's FAP states that V uses enrollment in cer-
tain specified means-tested public programs to pre-
sumptively determine that individuals are FAP-
eligible. D, an individual, receives care from V.
Although D does not submit a FAP application to V,
V learns that D is eligible for certain benefits under
a state program that bases eligibility on household
income. Based on this knowledge, V presumptively
determines that D is eligible to receive free care
under its FAP. V notifies D that it has determined he
is eligible for free care based on his eligibility for the
benefits under the state program and therefore does
not owe V anything for the care he received. V has
made reasonable efforts to determine whether D is
FAP-eligible under this paragraph (c)(2).

Example 2. X is a hospital facility with a FAP
that describes the data, including both hospital and
publicly-available data, X uses to make presumptive
FAP-eligibility determinations. On January 16, F, an
individual, receives care from X. Using the hospital
and publicly-available data described in its FAP, X
presumptively determines that F is eligible for a 50%

discount under its FAP, a discount that is not the
most generous discount available under the FAP.
The first billing statement that X sends to F indicates
that F has been given a 50% discount under X's
FAP, explains the basis for this presumptive FAP-
eligibility determination, and informs F that she may
apply for financial assistance if she believes she is
eligible for a more generous discount. The billing
statement indicates that F may call 1-800-888-xxxx
or visit X's Web site at www.hospitalX.org/FAP to
learn more about the FAP or the FAP application
process. X sends F three more billing statements,
each of which contains the standard written notice
about the FAP that X includes on all of its billing
statements in accordance with § 1.501(r)-4(b)(5),
but F neither pays the amount she is personally
responsible for paying nor applies for more generous
financial assistance. The time between the first and
fourth billing statement constitutes a reasonable pe-
riod of time for F to apply for more generous assis-
tance. V has made reasonable efforts to determine
whether D is FAP-eligible under this paragraph
(c)(2).

(3) Reasonable efforts based on notifi-
cation and processing of applications.
With respect to any care provided by a
hospital facility to an individual, the hos-
pital facility will have made reasonable
efforts to determine whether the individ-
ual is FAP-eligible for the care if it-

(i) Notifies the individual about the
FAP as described in paragraph (c)(4) of
this section before initiating any ECAs to
obtain payment for the care and refrains
from initiating such ECAs (with the ex-
ception of an ECA described in paragraph
(b)(1)(iii) of this section) for at least 120
days from the date the hospital facility
provides the first post-discharge billing
statement for the care;

(ii) In the case of an individual who
submits an incomplete FAP application
during the application period, notifies the
individual about how to complete the FAP
application and gives the individual a rea-
sonable opportunity to do so as described
in paragraph (c)(5) of this section; and

(iii) In the case of an individual who
submits a complete FAP application dur-
ing the application period, determines
whether the individual is FAP-eligible for
the care and otherwise meets the require-
ments described in paragraph (c)(6) of this
section.

(4) Notification-(i) In general. With
respect to any care provided by a hospital
facility to an individual and except as pro-
vided in paragraph (c)(4)(iii) of this sec-
tion, a hospital facility will have notified
an individual about its FAP for purposes
of paragraph (c)(3)(i) of this section only

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

if the hospital facility does the following
at least 30 days before first initiating one
or more ECA(s) to obtain payment for the
care:

(A) Provides the individual with a writ-
ten notice that indicates financial assis-
tance is available for eligible individuals,
that identifies the ECA(s) that the hospital
facility (or other authorized party) intends
to initiate to obtain payment for the care,
and that states a deadline after which such
ECA(s) may be initiated that is no earlier
than 30 days after the date that the written
notice is provided.

(B) Provides the individual with a plain
language summary of the FAP (as defined
in § 1.501(r)-1(b)(24)) with the written
notice described in paragraph (c)(4)(i)(A)
of this section (or, if applicable, paragraph
(c)(4)(iii) of this section).

(C) Makes a reasonable effort to orally
notify the individual about the hospital
facility's FAP and about how the individ-
ual may obtain assistance with the FAP
application process.

(ii) Notification in the event of multiple
episodes of care. A hospital facility may
satisfy the notification requirements de-
scribed in paragraph (c)(4)(i) of this sec-
tion simultaneously for multiple episodes
of care and notify the individual about the
ECA(s) the hospital facility intends to ini-
tiate to obtain payment for multiple out-
standing bills for care. However, if a hos-
pital facility aggregates an individual's
outstanding bills for multiple episodes of
care before initiating one or more ECAs to
obtain payment for those bills, it will have
not have made reasonable efforts to deter-
mine whether the individual is FAP-
eligible under paragraph (c)(3) of this sec-
tion unless it refrains from initiating the
ECA(s) until 120 days after it provided
the first post-discharge billing statement
for the most recent episode of care in-
cluded in the aggregation.

(iii) Notification before deferring or
denying care due to nonpayment for prior
care. In the case of an ECA described in
paragraph (b)(1)(iii) of this section, a hos-
pital facility may notify the individual
about its FAP less than 30 days before
initiating the ECA, provided that the hos-
pital facility does the following:

(A) Otherwise meets the requirements
of paragraph (c)(4)(i) of this section but,
instead of the notice described in para-

graph (c)(4)(i)(A) of this section, provides
the individual with a FAP application
form and a written notice indicating that
financial assistance is available for eligi-
ble individuals and stating the deadline, if
any, after which the hospital facility will
no longer accept and process a FAP ap-
plication submitted (or, if applicable,
completed) by the individual for the pre-
viously provided care at issue. This dead-
line must be no earlier than the later of 30
days after the date that the written notice
is provided or 240 days after the date that
the first post-discharge billing statement
for the previously provided care was pro-
vided.

(B) If the individual submits a FAP
application for the previously provided
care on or before the deadline described in
paragraph (c)(4)(iii)(A) of this section (or
at any time, if the hospital facility didn't
provide any such deadline to the individ-
ual), processes the FAP application on an
expedited basis.

(iv) Examples. The following example illustrates
this paragraph (c)(4):

Example 1. A, an individual, receives care from
T, a hospital facility, in February. T provides A with
the first post-discharge billing statement for that care
on March 3. This and subsequent billing statements
that T sends to A contain the standard written notice
about the FAP that X includes on all of its billing
statements in accordance with § 1.501(r)-4(b)(5). A
has not paid her bill or submitted a FAP application
when T provides her with the third billing statement
for the care, postmarked June 1. With this third
billing statement, T includes a plain language sum-
mary of the FAP and a letter informing A that if she
does not pay the amount owed or submit a FAP
application by July 1, T intends to report A's delin-
quency to credit reporting agencies. T also calls A
and informs her about the financial assistance avail-
able to eligible patients under T's FAP and about
how to obtain assistance with the FAP application
process. A does not pay her bill or submit a FAP
application by July 1. T has made reasonable efforts
to determine whether A is FAP-eligible, and thus
may report A's delinquency to credit reporting agen-
cies, as of July 2.

Example 2. G, an individual, receives care from
Y, a hospital facility, on May 25 of Year 1. G does
not pay or submit a FAP application over the next
year, despite Y's sending out numerous bills begin-
ning on June 24 that contain the standard written
notice about the FAP that Y includes on all of its
billing statements in accordance with the require-
ments under § 1.501(r)-4(b)(5). Y also makes nu-
merous attempts to encourage G to apply for finan-
cial assistance, including by calling G to inform her
about the financial assistance available to eligible
patients under Y's FAP and to offer assistance with
the FAP application process. By June 24 of Year 2,
Y, which had not previously initiated any ECAs
against G to obtain payment for the care, notifies G

in writing that if G does not pay or complete a FAP
application by July 24 of Year 2, Y intends to file a
lawsuit seeking a judgment for the amount G owes
for the care and to seek court permission to enforce
the judgment by either seizing G's bank account or
garnishing G's wages. The written notice also in-
cludes a plain language summary of the FAP. G fails
to pay or submit a FAP application by July 24 of
Year 2. Y has made reasonable efforts to determine
whether G is FAP-eligible, and may seek a judgment
for the amount G owes and court permission to
enforce the judgment by seizing G's bank account or
garnishing G's wages, as of July 25 of Year 2.

(5) Incomplete FAP applications-(i)
In general. With respect to any care pro-
vided by a hospital facility to an individ-
ual, if an individual submits an incomplete
FAP application during the application
period, the hospital facility will have no-
tified the individual about how to com-
plete the FAP application and given the
individual a reasonable opportunity to do
so for purposes of paragraph (c)(3)(ii) of
this section only if the hospital facility-

(A) Suspends any ECAs to obtain pay-
ment for the care as described in para-
graph (c)(8) of this section; and

(B) Provides the individual with a writ-
ten notice that describes the additional
information and/or documentation re-
quired under the FAP or FAP application
form that must be submitted to complete
the FAP application and that includes the
contact information described in
§ 1.501(r)-1(b)(24)(v).

(ii) FAP application completed. If an
individual who has submitted an incom-
plete FAP application during the applica-
tion period subsequently completes the
FAP application during the application
period (or, if later, within a reasonable
timeframe given to respond to requests for
additional information and/or documenta-
tion), the individual will be considered to
have submitted a complete FAP applica-
tion during the application period, and the
hospital facility will have made reason-
able efforts to determine whether the in-
dividual is FAP-eligible only if it meets
the requirements for complete FAP appli-
cations described in paragraph (c)(6) of
this section.

(iii) Examples. The following examples illustrate
this paragraph (c)(5):

Example 1. (i) Assume the same facts as Exam-
ple 1 in paragraph (c)(4)(iv) of this section and the
following additional facts: A submits an incomplete
FAP application to T on July 15, which is before the
last day of the application period on October 29 but
after T has already initiated ECAs. Eligibility for
assistance under T's FAP is based solely on an

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

individual's family income and the instructions to
T's FAP application form require applicants to at-
tach to their application forms certain documentation
verifying family income. The FAP application form
that A submits to T on July 15 includes all of the
required income information, but A fails to attach the
required documentation verifying her family income.
On July 22, a member of T's staff calls A to inform
her that she failed to attach any of the required
documentation of her family income and explains
what kind of documentation A needs to submit and
how she can submit it. T indicates that the documen-
tation should be provided by September 22. T also
sends A a letter that describes the missing documen-
tation that A must submit by September 22 (and how
to submit it) and provides a telephone number A can
call and room number she can visit to get assistance
with the FAP application process. T does not initiate
any new ECAs against A and does not take any
further action on the ECAs T previously initiated
against A between July 15 and September 22. A does
not respond to T's letter and does not submit any
missing documentation by September 22. T has
made reasonable efforts to determine whether A is
FAP-eligible, and may initiate or resume ECAs
against A, as of September 23.

(ii) On October 10, before the last day of the
application period on October 29, A provides T with
the missing documentation. Because A has submit-
ted a complete FAP application during the applica-
tion period, to meet the requirements of paragraph
(a) of this section, T must process the FAP applica-
tion documentation to determine whether A is FAP-
eligible and otherwise meet the requirements for
complete FAP applications described in paragraph
(c)(6) of this section.

Example 2. (i) B, an individual, receives care
from U, a hospital facility, on January 10. U has
established a FAP that provides assistance to all
individuals whose household income is less than $y,
and the instructions to U's FAP application form
specify the documentation that applicants must pro-
vide to verify their household income. Shortly after
receiving care, B submits a FAP application form to
U indicating that he has household income of less
than $y. B's FAP application form includes all of the
required income information, but B fails to attach the
required documentation verifying household income.

(ii) On February 9, U sends B the first post-
discharge billing statement for the care that contains
the standard written notice about the FAP that U
includes on all of its billing statements in accordance
with § 1.501(r)-4(b)(5). With this first post-
discharge billing statement, U includes a letter in-
forming B that the income information he provided
on his FAP application form indicates that he may be
eligible to pay only x% of the amount stated on the
billing statement if he can provide documentation
that verifies his household income. In addition, this
letter describes the type of documentation (which is
also described in the instructions to U's FAP appli-
cation form) that B needs to provide to complete his
FAP application and provides a telephone number
that B may call and room number he may visit if he
has questions or needs assistance with the FAP ap-
plication process. By the time U is getting ready to
send B a third billing statement for the care, B has
not provided any response to U's request for the

missing documentation. Accordingly, with the third
billing statement postmarked May 10, U includes a
plain language summary of the FAP plus a written
notice informing B that U intends to report B's
delinquency to credit reporting agencies if B does
not submit the missing documentation or pay the
amount due by June 9. U also calls B to inform B
about the impending ECA and to see if he has
questions about the missing documentation that U
has requested. B does not provide any response to
U's request for the missing documentation by June 9.
U has made reasonable efforts to determine whether
B is FAP-eligible, and thus may report B's delin-
quency to credit reporting agencies, as of June 10.

(6) Complete FAP applications-(i) In
general. With respect to any care provided
by a hospital facility to an individual, if an
individual submits a complete FAP appli-
cation during the application period, the
hospital facility will have made reason-
able efforts to determine whether the in-
dividual is FAP-eligible for the care only
if the hospital facility does the following
in a timely manner:

(A) Suspends any ECAs to obtain pay-
ment for the care as described in para-
graph (c)(8) of this section.

(B) Makes a determination as to
whether the individual is FAP-eligible for
the care and notifies the individual in writ-
ing of this eligibility determination (in-
cluding, if applicable, the assistance for
which the individual is eligible) and the
basis for this determination.

(C) If the hospital facility determines
the individual is FAP-eligible for the care,
does the following:

(1) If the individual is determined to be
eligible for assistance other than free care,
provides the individual with a billing
statement that indicates the amount the
individual owes for the care as a FAP-
eligible individual and how that amount
was determined and that states, or de-
scribes how the individual can get infor-
mation regarding, the AGB for the care.

(2) Refunds to the individual any
amount he or she has paid for the care
(whether to the hospital facility or any
other party to whom the hospital facility
has referred or sold the individual's debt
for the care) that exceeds the amount he or
she is determined to be personally respon-
sible for paying as a FAP-eligible individ-
ual, unless such excess amount is less than
$5 (or such other amount set by notice or
other guidance published in the Internal
Revenue Bulletin).

(3) Takes all reasonably available mea-
sures to reverse any ECA (with the excep-
tion of a sale of debt and an ECA de-
scribed in paragraph (b)(1)(iii) of this
section) taken against the individual to
obtain payment for the care. Such reason-
ably available measures generally include,
but are not limited to, measures to vacate
any judgment against the individual, lift
any levy or lien (other than a lien de-
scribed in paragraph (b)(3) of this section)
on the individual's property, and remove
from the individual's credit report any ad-
verse information that was reported to a
consumer reporting agency or credit bu-
reau.

(ii) Anti-abuse rule for complete FAP
applications. A hospital facility will not
have made reasonable efforts to determine
whether an individual is FAP-eligible if
the hospital facility bases its determina-
tion that the individual is not FAP-eligible
on information that the hospital facility
has reason to believe is unreliable or in-
correct or on information obtained from
the individual under duress or through the
use of coercive practices. For purposes of
this paragraph (c)(6)(ii), a coercive prac-
tice includes delaying or denying emer-
gency medical care to an individual until
the individual has provided information
requested to determine whether the indi-
vidual is FAP-eligible for the care being
delayed or denied.

(iii) Determination based on complete
FAP applications sufficient for reasonable
efforts. A hospital facility will have made
reasonable efforts to determine whether
an individual is FAP-eligible with respect
to any ECAs it initiates to obtain payment
for care if, before initiating any such
ECAs, it determines whether the individ-
ual is FAP-eligible for the care based on a
complete FAP application and otherwise
meets the requirements described in this
paragraph (c)(6). If these conditions are
satisfied, the hospital facility will have
made reasonable efforts to determine
whether the individual is FAP-eligible for
the care regardless of whether it has noti-
fied the individual as described in para-
graph (c)(4) of this section or, if applica-
ble, in paragraph (c)(5)(i)(B) of this
section.

(iv) Determining Medicaid eligibility.
A hospital facility will not fail to have
made reasonable efforts to determine

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

whether an individual is FAP-eligible for
care if, upon receiving a complete FAP
application from an individual who the
hospital facility believes may qualify for
Medicaid, the hospital facility postpones
determining whether the individual is
FAP-eligible for the care until after the
individual's Medicaid application has
been completed and submitted and a de-
termination as to the individual's Medic-
aid eligibility has been made.

(v) Examples. The following examples illustrate
this paragraph (c)(6):

Example 1. C, an individual, receives care from
W, a hospital facility, on September 1. W has
established a FAP that provides assistance only to
individuals whose family income is less than or
equal to x% of the Federal Poverty Level (FPL),
which, in the case of C's family size, is $y. Upon
discharge, W's staff gives C a plain language
summary of the FAP and informs C that if she
needs assistance filling out a FAP application
form, W has a social worker on staff who can
assist her. C expresses interest in getting assis-
tance with a FAP application while she is still on
site and is directed to K, one of W's social work-
ers. K explains the eligibility criteria in W's FAP
to C, and C realizes that to determine her family
income as a percentage of FPL she needs to look
at her prior year's tax returns. On September 20,
after returning home and obtaining the necessary
information, C submits a FAP application to W
that contains all of the information and documen-
tation required in the FAP application form in-
structions. W's staff promptly examines C's FAP
application and, based on the information and
documentation therein, determines that C's family
income is well in excess of $y. On October 1, W
sends C her first post-discharge billing statement
for the care she received on September 1. With the
billing statement, W includes a letter informing C
that she is not eligible for financial assistance
because her FAP application indicates that she has
family income in excess of x% of FPL ($y for a
family the size of C's family) and W only provides
financial assistance to individuals with family in-
come that is less than x% of FPL. W has made
reasonable efforts to determine whether C is FAP-
eligible as of October 1.

Example 2. E, an individual, receives care from
P, a hospital facility, from February 24 to 28. E
pays a co-payment of $30 at discharge and is
determined by her insurer to be personally respon-
sible for paying another $550 in deductibles. P
sends E several billing statements starting on
March 20 indicating that E owes $550. By July 30,
E has not paid the $550 or submitted a FAP
application. On July 30, P notifies E in writing that
if E does not pay or complete a FAP application by
August 30, P intends to report B's delinquency to
credit reporting agencies. The written notice also
includes a plain language summary of the FAP. In
addition, P calls E and informs her about the
financial assistance available to eligible patients
under P's FAP and about how to obtain assistance
with the FAP application process. E fails to pay or

submit a FAP application by August 30. P subse-
quently reports E's delinquency to credit reporting
agencies. E then provides a complete FAP appli-
cation to P on November 10, before the last day of
the application period on November 15. P
promptly examines the application and determines
that E is eligible for free care under P's FAP. P
contacts the credit reporting agencies to which it
had reported E's delinquency and asks them to
remove the adverse information from E's credit
report. P also sends E a letter that informs her that
she is eligible for free care under P's FAP and
explains the basis for this eligibility determination
and includes with this letter a check for $30 (the
co-payment E had paid). P has made reasonable
efforts to determine whether E is FAP-eligible.

Example 3. R, a hospital facility, has established
a FAP that provides financial assistance only to
individuals whose family income is less than or
equal to x% of the Federal Poverty Level (FPL),
based on their prior year's federal tax return. L, an
individual, receives care from R. While L is being
discharged from R, she is approached by M, an
employee of a debt collection company that has a
contract with R to handle all of R's patient billing.
M asks L for her family income information, tell-
ing L that this information is needed to determine
whether L is eligible for financial assistance. L
tells M that she does not know what her family
income is and would need to consult her tax re-
turns to determine it. M tells L that she can just
provide a "rough estimate" of her family income.
L states that her family income may be around $y,
an amount slightly above the amount that would
allow her to qualify for financial assistance. M
enters $y on the income line of a FAP application
form with L's name on it and marks L as not
FAP-eligible. Based on M's information collec-
tion, R determines that L is not FAP-eligible and
notifies L of this determination with her first bill-
ing statement. Because M had reason to believe
that the income estimate provided by L was unre-
liable, R has violated the anti-abuse rule described
in paragraph (c)(6)(ii) of this section. Thus, R has
not made reasonable efforts to determine whether
L is FAP-eligible.

(7) When no FAP application is sub-
mitted. Unless and until an individual sub-
mits a FAP application during the applica-
tion period, any paragraphs of this section
that are conditioned on an individual's sub-
mitting a FAP application (namely, para-
graphs (c)(2)(i)(C), (c)(3)(ii), and (c)(3)(iii)
of this section) do not apply, and the
hospital facility will have made reason-
able efforts to determine whether the
individual is FAP-eligible for care, and
may initiate one or more ECAs to obtain
payment for the care, once it has met the
requirements of this section that are not
contingent on an individual's submission
of a FAP application. For example, unless
and until a hospital facility receives a FAP
application from an individual during the
application period, the hospital facility has

made reasonable efforts to determine
whether the individual is FAP-eligible for
care (and thus may initiate ECAs to obtain
payment for the care) once it has notified
the individual about the FAP as described
in paragraph (c)(3)(i) of this section.

(8) Suspending ECAs while a FAP ap-
plication is pending. With respect to any
care provided by a hospital facility to an
individual, if an individual submits a FAP
application during the application period,
the hospital facility (or other authorized
party) will have suspended ECAs for pur-
poses of this paragraph (c) only if, after
receiving the application, the hospital fa-
cility (or other authorized party) does not
initiate, or take further action on any
previously-initiated, ECAs (with the ex-
ception of an ECA described in paragraph
(b)(1)(iii) of this section) to obtain pay-
ment for the care until either-

(i) The hospital facility has determined
whether the individual is FAP-eligible
based on a complete FAP application and
otherwise met the requirements of para-
graph (c)(6) of this section; or

(ii) In the case of an incomplete FAP
application, the individual has failed to
respond to requests for additional infor-
mation and/or documentation within a
reasonable period of time given to re-
spond to such requests.

(9) Waiver does not constitute reason-
able efforts. For purposes of this para-
graph (c), obtaining a signed waiver from
an individual, such as a signed statement
that the individual does not wish to apply
for assistance under the FAP or receive
the information described in paragraphs
(c)(4) or (c)(5) of this section, will not
itself constitute a determination that the
individual is not FAP-eligible and will not
satisfy the requirement to make reason-
able efforts to determine whether the in-
dividual is FAP-eligible before engaging
in ECAs against the individual.

(10) Agreements with other parties.
With the exception of sales described in
paragraph (b)(2) of this section, if a hos-
pital facility sells or refers an individual's
debt related to care to another party, the
hospital facility will have made reason-
able efforts to determine whether the in-
dividual is FAP-eligible for the care only
if it first enters into (and, to the extent
applicable, enforces) a legally binding
written agreement with the party that is

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

reasonably designed to ensure that no
ECAs are taken to obtain payment for the
care until reasonable efforts have been
made to determine whether the individual
is FAP-eligible for the care. At a mini-
mum, such an agreement must provide the
following:

(i) If the individual submits a FAP ap-
plication after the referral or sale of the
debt but before the end of the application
period, the party will suspend ECAs to
obtain payment for the care as described
in paragraph (c)(8) of this section.

(ii) If the individual submits a FAP
application after the referral or sale of the
debt but before the end of the application
period and is determined to be FAP-
eligible for the care, the party will do the
following in a timely manner:

(A) Adhere to procedures specified in
the agreement that ensure that the individ-
ual does not pay, and has no obligation to
pay, the party and the hospital facility
together more than he or she is required to
pay for the care as a FAP-eligible individ-
ual.

(B) If applicable and if the party (rather
than the hospital facility) has the authority
to do so, take all reasonably available
measures to reverse any ECA (other than
the sale of a debt or an ECA described in
paragraph (b)(1)(iii) of this section) taken
against the individual as described in
paragraph (c)(6)(i)(C)(3) of this section.

(iii) If the party refers or sells the debt
to yet another party during the application
period, the party will obtain a written
agreement from that other party including
all of the elements described in this para-
graph (c)(10).

(11) Clear and conspicuous placement.
A hospital facility may print any written
notice or communication described in this
paragraph (c), including any plain lan-
guage summary of the FAP, on a billing
statement or along with other descriptive
or explanatory matter, provided that the
required information is conspicuously
placed and of sufficient size to be clearly
readable.

(12) Providing documents electroni-
cally. A hospital facility may provide any
written notice or communication de-
scribed in this paragraph (c) electronically
(for example, by email) to any individual
who indicates he or she prefers to receive

the written notice or communication elec-
tronically.

§ 1.501(r)-7 Effective/applicability
date.

(a) Effective/applicability date. The
rules of §§ 1.501(r)-1 through 1.501(r)-6
apply to taxable years beginning after De-
cember 29, 2015.

(b) Reasonable interpretation for tax-
able years beginning on or before Decem-
ber 29, 2015. For taxable years beginning
on or before December 29, 2015, a hospi-
tal facility may rely on a reasonable, good
faith interpretation of section 501(r). A
hospital facility will be deemed to have
operated in accordance with a reasonable,
good faith interpretation of section 501(r)
if it has complied with the provisions of
the proposed or final regulations under
section 501(r) (REG-130266-11 and/or
REG-106499-12). Accordingly, a hospi-
tal facility may rely on § 1.501(r)-3 of the
proposed or final regulations, or another
reasonable interpretation of section
501(r)(3), for any CHNA conducted or
implementation strategy adopted before
the first day of the hospital organization's
first taxable year beginning after Decem-
ber 29, 2015.

Par. 4. Section 1.6012-2 is amended by
redesignating paragraphs (i) through (k)
as paragraphs (j) through (l) and adding
new paragraph (i) to read as follows:

§ 1.6012-2 Corporations required to
make returns of income.

* * * * *

(i) Hospital organizations with non-
compliant hospital facilities. Every hospi-
tal organization (as defined in § 1.501(r)-
1(b)(18)) that is subject to the tax imposed
by § 1.501(r)-2(d) shall make a return on
Form 990-T. The filing of a return to pay
the tax described in § 1.501(r)-2(d) does
not relieve the organization of the duty of
filing other required returns.

* * * * *

Par. 5. Section 1.6012-3 is amended by
adding new paragraph (a)(10) to read as
follows:

§ 1.6012-3 Returns by fiduciaries.

(a) * * *

(10) Hospital organizations organized
as trusts with noncompliant hospital facil-
ities. Every fiduciary for a hospital orga-
nization (as defined in § 1.501(r)-
1(b)(18)) organized as a trust described in
section 511(b)(2) that is subject to the tax
imposed by § 1.501(r)-2(d) shall make a
return on Form 990-T. The filing of a
return to pay the tax described in
§ 1.501(r)-2(d) does not relieve the orga-
nization of the duty of filing other re-
quired returns.

* * * * *

Par. 6. Section 1.6033-2 is amended by
adding paragraphs (a)(2)(ii)(l) and (k)(4)
to read as follows:

§ 1.6033-2 Returns by exempt
organizations (taxable years beginning
after December 31, 1969) and returns
by certain nonexempt organizations
(taxable years beginning after December
31, 1980).

(a) * * *

(2) * * *

(ii) * * *

(I) In the case of a hospital organiza-
tion (as defined in § 1.501(r)-1(b)(18))
described in section 501(c)(3) during the
taxable year-

(1) A copy of its audited financial state-
ments for the taxable year (or, in the case
of an organization the financial statements
of which are included in consolidated fi-
nancial statements with other organiza-
tions, such consolidated financial state-
ments);

(2) Either a copy of the most recently
adopted implementation strategy, within
the meaning of § 1.501(r)-3(c), for each
hospital facility it operates or the URL of
each Web page where it has made each
such implementation strategy widely
available on a Web site within the mean-
ing of § 1.501(r)-1(b)(29) along with or as
part of the report documenting the com-
munity health needs assessment (CHNA)
to which the implementation strategy re-
lates;

(3) For each hospital facility it oper-
ates, a description of the actions taken
during the taxable year to address the sig-
nificant health needs identified through its
most recently conducted CHNA, within
the meaning of § 1.501(r)-3(b), or, if no
actions were taken with respect to one or

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

more of these health needs, the reason(s)
why no actions were taken; and

(4) The amount of the excise tax im-
posed on the organization under section
4959 during the taxable year.

* * * * *

(k) * * *

(4) The applicability of paragraph
(a)(2)(ii)(!) of this section shall be limited
to returns filed on or after December 29,
2014.

PART 53-FOUNDATION AND
SIMILAR EXCISE TAXES

Par. 7. The authority citation for part
53 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 8. Section 53.4959-1 is added to
read as follows:

§ 53.4959-1 Taxes on failures by
hospital organizations to meet section
501(r)(3).

(a) Excise tax for failure to meet the
section 501(r)(3) requirements-(1) In
general. If a hospital organization (as de-
fined in § 1.501(r)-1(b)(18)) fails to meet
the requirements of section 501(r)(3) sep-
arately with respect to a hospital facility it
operates in any taxable year, there is
imposed on the hospital organization a
tax equal to $50,000. If a hospital orga-
nization operates multiple hospital facil-
ities and fails to meet the requirements
of section 501(r)(3) with respect to more
than one facility it operates, the $50,000
tax is imposed on the hospital organiza-
tion separately for each hospital facili-
ty's failure. The tax is imposed for each
taxable year that a hospital facility fails
to meet the requirements of section
501(r)(3).

(2) Examples. The following examples illustrate
this paragraph (a):

Example 1. (i) U is a hospital organization that
operates only one hospital facility, V. In Year 1, V
conducts a community health needs assessment
(CHNA) and adopts an implementation strategy to
meet the health needs identified through the CHNA.
In Years 2 and 3, V does not conduct a CHNA. V
fails to conduct a CHNA by the last day of Year 4.
Accordingly, U has failed to meet the requirements
of section 501(r)(3) with respect to V in Year 4
because V has failed to conduct a CHNA in Years 2,
3, and 4. U is subject to a tax equal to $50,000 for
Year 4.

(ii) V also fails to conduct a CHNA by the last
day of Year 5. Accordingly, U has failed to meet the
requirements of section 501(r)(3) with respect to V
in Year 5 because V has failed to conduct a CHNA

in Years 3, 4, and 5. U is subject to a tax equal to
$50,000 for Year 5.

Example 2. P is a hospital organization that op-
erates only one hospital facility, Q. In Year 1, Q
conducts a CHNA and adopts an implementation
strategy to meet the health needs identified through
the CHNA. In Years 2 and 3, Q does not conduct a
CHNA. In Year 4, Q conducts a CHNA but does not
adopt an implementation strategy to meet the health
needs identified through that CHNA by the 15th day
of the fifth month of Year 5. Accordingly, P has
failed to meet the requirements of section 501(r)(3)
with respect to Q in Year 4 because Q has failed to
adopt an implementation strategy by the 15th day of
the fifth month after the end of the taxable year in
which Q conducted its CHNA. P is subject to a tax
equal to $50,000 for Year 4.

Example 3. R is a hospital organization that
operates two hospital facilities, S and T. In Year 1, S
and T each conduct a CHNA and adopt an imple-
mentation strategy to meet the health needs identi-
fied through the CHNA. In Years 2 and 3, S and T do
not conduct a CHNA. S and T each fail to conduct a
CHNA by the last day of Year 4. Accordingly, R has
failed to meet the requirements of section 501(r)(3)
with respect to both S and T in Year 4. R is subject
to a tax equal to $100,000 ($50,000 for S's failure
plus $50,000 for T's failure) for Year 4.

(b) Interaction with other provisions-
(1) Correction. Unless a hospital organi-
zation's failure to meet the requirements
of section 501(r)(3) involves an omission
or error that is described in and corrected
in accordance with § 1.501(r)-2(b) (and is
thus not considered a failure), a failure to
meet the requirements of section 501(r)(3)
will result in a tax being imposed on the
organization under this section, notwith-
standing the organization's correction and
disclosure of the failure in accordance with
the guidance described in § 1.501(r)-2(c).

(2) Interaction with other taxes. The
tax imposed by this section is in addition
to any tax imposed by § 1.501(r)-2(d) or
as a result of revocation of a hospital
organization's section 501(c)(3) status.

(c) Effective/applicability date. Para-
graph (a) of this section applies on and
after December 29, 2014.

Par. 9. Section 53.6011-1 is amended
by:

1\. Removing from the first sentence of
paragraph (b) the language "or
4965(a)," and adding "4959, or
4965(a)," in its place.

2\. Adding a sentence at the end of para-
graph (b).

3\. Removing paragraphs (c) and (g).
* * * * *

4\. Redesignating paragraphs (d) through
(f) as (c) through (e).

The addition reads as follows:

§ 53.6011-1 General requirement of
return, statement, or list.

* * * * *

(b) * * * In the case of a tax imposed
by section 4959 on a hospital organization
(as defined in § 1.501(r)-1(b)(18)), the
annual return must include the required
information for each of the organization's
hospital facilities that failed to meet the
requirements of section 501(r)(3) for the
taxable year.

* * * * *

§ 53.6011-1T [Removed]

Par. 10. Section 53.6011-1T is removed.

Par. 11. Section 53.6071-1 is amended
by revising paragraphs (h) and (i)(2) to
read as follows:

§ 53.6071-1 Time for filing returns.

* * * * *

(h) Taxes on failures by charitable hos-
pital organizations to satisfy the community
health needs assessment requirements of
section 501(r)(3). A hospital organization
(as defined in § 1.501(r)-1(b)(18)) liable for
tax imposed by section 4959 must file a
Form 4720 as required by § 53.6011-1(b),
on or before the 15th day of the fifth month
after the end of the hospital organization's
taxable year for which it failed to meet the
requirements of section 501(r)(3).

(i) * * *

(2) Paragraph (h) of this section applies
on and after August 15, 2013.

§ 53.6071-1T [Removed]

Par. 12. Section 53.6071-1T is re-
moved.

PART 602-OMB CONTROL NUM-
BERS UNDER THE PAPERWORK RE-
DUCTION ACT

Par. 13. The authority citation for part
602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 14. In § 602.101, paragraph (b) is
amended by adding the following entries in
numerical order to the table to read as follows:

§ 602.101 OMB Control numbers.

(b) * * *

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

CFR part or

section where identified and described

Current OMB Control No.

* * * * *

1.501(r)-3

1545-0047

1.501(r)-4

1545-0047

1.501(r)-6 * * * *

1545-0047

John M. Dalrymple,
Deputy Commissioner for
Services and Enforcement.

(Filed by the Office of the Federal Register on December 29,
2014, 8:45 a.m., and published in the issue of the Federal
Register for December 31, 2014, 79 F.R. 78954).

Approved December 22, 2014,

Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

## Part III. Administrative, Procedural, and Miscellaneous

Property Qualifying for the
Energy Credit under
Section 48

### Notice 2015-4

### SECTION 1: PURPOSE

This notice provides guidance on the
energy credit under section 48 of the In-
ternal Revenue Code (Code). Specifically,
this notice provides performance and
quality standards that small wind energy
property must meet to qualify for the en-
ergy credit under section 48.

### SECTION 2: BACKGROUND

For purposes of computing the invest-
ment credit under section 46 of the Code,
section 48(a)(1) provides, in part, that
the energy credit for any taxable year is
the energy percentage of the basis of each
energy property placed in service during
such taxable year. Section 48(a)(3)(A)(vi)
provides that energy property includes
qualified small wind energy property. Sec-
tion 48(a)(2)(A)(i)(IV) provides that the
energy percentage in the case of qualified
small wind energy property is 30 percent
for periods ending before January 1, 2017.

Under section 48(a)(3), energy prop-
erty includes qualified small wind energy
property that is constructed, recon-
structed, or erected by the taxpayer (or
acquired by the taxpayer if the original
use of the property commences with the
taxpayer), subject to depreciation (or
amortization in lieu of depreciation), and
meets the performance and quality stan-
dards (if any) that have been prescribed by
the Secretary by regulations (after consul-
tation with the Secretary of Energy) and
are in effect at the time of the acquisition
of the property.

Section 48(c)(4) defines qualified small
wind energy property as property that uses
a "qualifying small wind turbine" to gen-
erate electricity. A qualifying small wind
turbine is a wind turbine that has a name-
plate capacity of not more than 100 kilo-
watts (kW). Qualified small wind energy
property shall not include any property for
any period after December 31, 2016.

### SECTION 3: SMALL WIND ENERGY PROPERTY STANDARDS

.01 Performance and Quality Stan-
dards. To qualify as small wind energy
property under section 48, the property
must use a wind turbine that has a name-
plate capacity of not more than 100 kW
and meets the performance and quality
standards as set forth in either of the fol-
lowing:

(1) American Wind Energy Associa-
tion Small Wind Turbine Performance
and Safety Standard 9.1-2009 (AWEA);
or

(2) International Electrotechnical Com-
mission 61400-1, 61400-12, and 61400-11
(IEC).

.02 Time of Acquisition. For these pur-
poses, a small wind turbine must meet
the performance and quality standards of
the AWEA or the IEC that are in effect
at the time of acquisition of the small
wind turbine. In the case of a small wind
turbine constructed, reconstructed, or
erected by the taxpayer, the time of acqui-
sition for purposes of this section 3.02 of
this Notice shall be the time the small
wind turbine is placed in service.

### SECTION 4: CERTIFICATION

.01 In General. The manufacturer of
the small wind turbine may certify to a
taxpayer that the small wind turbine meets
the performance and quality standards of
AWEA or IEC by providing the taxpayer
with a certification that satisfies the re-
quirements of this section 4. The manu-
facturer may provide the certification by
including a written copy of the certifica-
tion in printable form on the manufactur-
er's website, or in any other manner that
will permit the taxpayer to retain the cer-
tification for tax recordkeeping purposes.

.02 Content of the Certification. The
certification must be issued by an eligible
certifier and must contain the following:

(a) The name and address of the man-
ufacturer;

(b) The property name and model num-
ber;

(c) The name and address of the eligi-
ble certifier;

(d) The nameplate capacity of the wind
turbine; and

(e) A signed and dated statement by the
eligible certifier that the property com-
plies with the performance and quality
standards of AWEA or IEC.

.03 Eligible Certifier. An eligible cer-
tifier is a third party that is accredited by
the American Association for Laboratory
Accreditation or other similar accredita-
tion body.

.04 Manufacturer's Records. A manu-
facturer that certifies to a taxpayer that a
small wind turbine meets the performance
and quality standards of AWEA or IEC
must retain in its records documentation
establishing that the turbine meets the re-
quirements of this section 4. The manu-
facturer must, upon request, make such
documentation, including any test reports
conforming to AWEA or IEC, available
for inspection by the Internal Revenue
Service (Service).

.05 Taxpayer Reliance. Except as pro-
vided in section 4.06 of this notice, a
taxpayer may rely on a manufacturer's
certification that a small wind turbine
meets the performance and quality stan-
dards of AWEA or IEC. A taxpayer is not
required to attach a certification or any
other documentation to the return on
which the credit is claimed. However,
§ 1.6001-1(a) of the Income Tax Regula-
tions requires that taxpayers maintain
such books and records as are sufficient to
establish the entitlement to, and amount
of, any credit claimed by the taxpayer.
Accordingly, a taxpayer claiming a credit
for a small wind turbine should retain the
certification statement as part of the tax-
payer's records for purposes of § 1.6001-
1(a).

.06 Effect of Erroneous Certification or
Failure to Satisfy Documentation Re-
quirements. The Service may, upon exam-
ination, determine that a small wind tur-
bine that has been certified under this
section 4 does not meet the performance
and quality standards of AWEA or IEC. In
that event, or if the manufacturer fails to
satisfy the requirements relating to docu-
mentation in section 4.04 of this notice,
the manufacturer's right to provide a cer-
tification on which future purchasers of
small wind turbines may rely will be with-
drawn, and taxpayers purchasing turbines
after the date on which the Service pub-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

lishes an announcement of the withdrawal
may not rely on the manufacturer's certi-
fication. Taxpayers may continue to rely
on the certification for small wind turbines
purchased on or before the date on which
the announcement of the withdrawal is
published (even if the property is not
installed or the credit is not claimed
before the announcement of the with-
drawal is published). This notice re-
minds manufacturers that an erroneous
certification may result in the imposition
of penalties -

(a) Under section 7206 for fraud and
making false statements; and

(b) Under section 6701 for aiding and
abetting an understatement of tax liability
(in the amount of $1,000 per return on
which a credit is claimed in reliance on
the certification).

.07 Examples. The following examples
illustrate appropriate reliance on a certifi-
cation:

Example 1. On August 1, 2015, Taxpayer ac-
quires wind turbines with a nameplate capacity of
not more than 100 kW manufactured by Manufac-
turer, and in December 2015, Taxpayer places in
service qualified small wind energy property that
includes the turbines. At the time of the acquisi-
tion of the wind turbines, Manufacturer provides
to Taxpayer a certification issued by an eligible
certifier that includes all of the information re-
quired by section 4.02 of this notice and is valid
for a period that includes August 1, 2015. Tax-
payer may rely on this certification as documen-
tation that Taxpayer's small wind energy property
meets the performance and quality standards re-
quired in this notice. Taxpayer should keep this
certification in Taxpayer's records as required by
§1.6001-1(a).

Example 2. The facts are the same as those in
Example 1, except that on August 1, 2015, the time
of the acquisition of the wind turbines, Taxpayer
does not receive a certification from Manufacturer
for the wind turbines. On March 1, 2016, however,
an eligible certifier issues a certification meeting the
requirements of section 4.02 of this notice and ap-
plying the same quality and performance standards
that were in effect on August 1, 2015, for the same
model of wind turbine as the wind turbines pur-
chased by Taxpayer. The Manufacturer posts the
certification in printable form on its website, and the
certification is valid for a period beginning on March
1, 2016. Because the certification uses the quality
and performance standards that were in effect on
August 1, 2015, the Taxpayer may rely on the
certification statement as documentation that the
Taxpayer's small wind energy property met the
performance and quality standards required in this
notice as of the date of acquisition. Taxpayer
should keep this certification in Taxpayer's re-
cords as required by §1.6001-1(a).

### SECTION 5: EFFECTIVE DATE

This notice is effective for small wind
energy property acquired or placed in ser-
vice (in the case of property constructed,
reconstructed, or erected by the taxpayer)
after February 2, 2015.

### SECTION 6: PAPERWORK REDUCTION ACT

The collection of information con-
tained in this notice has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545-2259.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid OMB control number.

The collection of information in this
notice is in section 4. This information is
required to be collected and retained in
order to ensure that property meets the
requirements for the energy property
credit under section 48. This information
will be used to determine whether the
small wind energy property qualifies for
the energy credit. The collection of infor-
mation is required to ensure that property
meets certain requirements that must be
satisfied to qualify for the credit. The
likely respondents are corporations, part-
nerships, and individuals.

The estimated total annual reporting
burden is 400 hours.

The estimated annual burden per re-
spondent varies from 2 hours to 3 hours,
depending on individual circumstances,
with an estimated average burden of
2.5 hours to complete the requests for
certification required under this notice.
The estimated number of respondents is
160.

The estimated annual frequency of re-
sponses is on occasion. Books or records
relating to a collection of information
must be retained as long as their contents
may become material in the administra-
tion of any internal revenue law. Gener-
ally, tax returns and tax return information
are confidential, as required by section
6103.

### SECTION 7: DRAFTING INFORMATION

The principal author of this notice is
Martha M. Garcia of the Office of Asso-
ciate Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this notice, contact Ms.
Garcia on 202-317-6853 (not a toll-free
number).

## Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

## Notice 2015-5

This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used un-
der § 417(e)(3), and the 24-month average
segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I). The rates in
this notice reflect the application of
§ 430(h)(2)(C)(iv), which was added by
the Moving Ahead for Progress in the 21st
Century Act, Public Law 112-141 (MAP-
21) and amended by section 2003 of the
Highway and Transportation Funding Act
of 2014, Public Law 113-159 (HATFA).

## YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans un-
der sections 104 and 105 of the Pension
Protection Act of 2006 and CSEC plans
under § 414(y), § 430 of the Code speci-
fies the minimum funding requirements
that apply to single-employer plans pursuant
to § 412. Section 430(h)(2) specifies the
interest rates that must be used to determine
a plan's target normal cost and funding tar-
get. Under this provision, present value is
generally determined using three 24-month
average interest rates ("segment rates"),
each of which applies to cash flows during
specified periods. To the extent provided
under § 430(h)(2)(C)(iv), these segment

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

rates are adjusted by the applicable percent-
age of the 25-year average segment rates for
the period ending September 30 of the year
preceding the calendar year in which the
plan year begins. However, an election may
be made under § 430(h)(2)(D)(ii) to use the
monthly yield curve in place of the segment
rates.

Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. In accor-
dance with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from December
2014 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of December
2014 are, respectively, 1.48, 3.77, and
4.79.

The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to

§ 430(h)(2)(C)(iv) by the applicable per-
centage of the corresponding 25-year av-
erage segment rates. Section 2003(a) of
HATFA amended the applicable percent-
ages under § 430(h)(2)(C)(iv). This
change generally applies to plan years be-
ginning on or after January 1, 2013. How-
ever, pursuant to section 2003(e)(2) of
HATFA, a plan sponsor can elect not to
have the amendments made to the appli-
cable percentages by section 2003 of
HATFA apply to any plan year beginning
in 2013. These elections can be made ei-
ther for all purposes or, alternatively, for
purposes of determining the adjusted
funding target attainment percentage un-
der § 436. The 25-year average segment
rates for plan years beginning in 2012,
2013, 2014 and 2015 were published in
Notice 2012-55, 2012-36 I.R.B. 332, No-
tice 2013-11, 2013-11 I.R.B. 610, Notice
2013-58, 2013-40 I.R.B. 294, and Notice
2014-50, 2014-40 I.R.B. 590, respec-
tively.

For plan years beginning in years 2012
through 2017, pursuant to the changes
made by HATFA, the applicable mini-
mum percentage is 90% and the applica-
ble maximum percentage is 110%. These
applicable percentages are referred to as
HATFA applicable percentages. As de-
scribed in the preceding paragraph, a spe-
cial election is available for any plan year
beginning in 2013 under which this
change made by HATFA can be disre-
garded for all purposes or for limited
purposes. To the extent such an election
is made, the applicable minimum per-
centage for a plan year beginning in
2013 is 85% and the applicable maxi-
mum percentage for that plan year is
115%. These applicable percentages are
referred to as MAP-21 applicable per-
centages.

The three 24-month average corporate
bond segment rates applicable for January
2015 without adjustment for the 25-year
average segment rate limits are as follows:

Applicable Month

First Segment

Second Segment

Third Segment

January 2015

1.22

4.11

5.20

Based on § 430(h)(2)(C)(iv)
as
amended by section 2003 of HATFA, the
24-month averages applicable for January

2015 adjusted for the HATFA applicable
average segment rates, are as follows:

percentages of the corresponding 25-year

For Plan Years Beginning In

Adjusted 24-Month Average Segment Rates, Based on the HATFA Applicable Percentage of 25-Year Average Rates

Applicable Month

First Segment

Second Segment

Third Segment

2013

January

2015

5.23

6.51

7.16

2014

January

2015

4.99

6.32

6.99

2015

January

2015

4.72

6.11

6.81

Based on § 430(h)(2)(C)(iv) as in ef-
fect prior to amendment by section 2003
of HATFA, the three 24-month averages

applicable for January 2015 adjusted for
the MAP-21 applicable percentages of the
corresponding 25-year average segment

rates, for plan years beginning in 2013,
are as follows:

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

For Plan Years Beginning In

Adjusted 24-Month Average Segment Rates, Based on the MAP-21 Applicable Percentage of 25-Year Average Rates

Applicable Month

First Segment

Second Segment

Third Segment

2013

January 2015

4.94

6.15

6.76

## 30-YEAR TREASURY SECURITIES INTEREST RATES

Generally for plan years beginning af-
ter 2007, § 431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to § 412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation de-
scribed in section 431(c)(6)(A), based
on the plan's current liability. Section

431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 per-
cent below the weighted average of the
rates of interest on 30-year Treasury se-
curities during the four-year period ending
on the last day before the beginning of the
plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determining
the weighted average interest rate. The

rate of interest on 30-year Treasury secu-
rities for December 2014 is 2.83 percent.
The Service has determined this rate as
the average of the daily determinations of
yield on the 30-year Treasury bond ma-
turing in November 2044. The following
rates were determined for plan years be-
ginning in the month shown below.

For Plan Years Beginning in

30-Year Treasury Weighted Average

Permissible Range

Month

Year

90%

to

105%

January

2015

3.35

3.01

3.51

## MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-

ment rates determined for December 2014
are as follows:

First Segment

Second Segment

Third Segment

1.48

3.77

4.79

## DRAFTING INFORMATION

The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Table I Monthly Yield Curve for December 2014 Derived from December 2014 Data

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

0.5

0.33

20.5

4.44

40.5

4.83

60.5

4.97

80.5

5.04

1.0

0.65

21.0

4.46

41.0

4.84

61.0

4.97

81.0

5.04

1.5

0.94

21.5

4.48

41.5

4.84

61.5

4.97

81.5

5.04

2.0

1.22

22.0

4.49

42.0

4.85

62.0

4.97

82.0

5.04

2.5

1.46

22.5

4.51

42.5

4.85

62.5

4.98

82.5

5.04

3.0

1.67

23.0

4.52

43.0

4.86

63.0

4.98

83.0

5.04

3.5

1.87

23.5

4.54

43.5

4.86

63.5

4.98

83.5

5.04

4.0

2.05

24.0

4.55

44.0

4.87

64.0

4.98

84.0

5.04

4.5

2.22

24.5

4.57

44.5

4.87

64.5

4.98

84.5

5.05

5.0

2.38

25.0

4.58

45.0

4.87

65.0

4.99

85.0

5.05

5.5

2.53

25.5

4.59

45.5

4.88

65.5

4.99

85.5

5.05

6.0

2.67

26.0

4.61

46.0

4.88

66.0

4.99

86.0

5.05

6.5

2.81

26.5

4.62

46.5

4.89

66.5

4.99

86.5

5.05

7.0

2.94

27.0

4.63

47.0

4.89

67.0

4.99

87.0

5.05

7.5

3.06

27.5

4.64

47.5

4.89

67.5

5.00

87.5

5.05

8.0

3.17

28.0

4.65

48.0

4.90

68.0

5.00

88.0

5.05

8.5

3.28

28.5

4.66

48.5

4.90

68.5

5.00

88.5

5.05

9.0

3.38

29.0

4.67

49.0

4.90

69.0

5.00

89.0

5.06

9.5

3.47

29.5

4.68

49.5

4.91

69.5

5.00

89.5

5.06

10.0

3.56

30.0

4.69

50.0

4.91

70.0

5.00

90.0

5.06

10.5

3.64

30.5

4.70

50.5

4.91

70.5

5.01

90.5

5.06

11.0

3.71

31.0

4.71

51.0

4.92

71.0

5.01

91.0

5.06

11.5

3.78

31.5

4.72

51.5

4.92

71.5

5.01

91.5

5.06

12.0

3.84

32.0

4.72

52.0

4.92

72.0

5.01

92.0

5.06

12.5

3.90

32.5

4.73

52.5

4.93

72.5

5.01

92.5

5.06

13.0

3.96

33.0

4.74

53.0

4.93

73.0

5.01

93.0

5.06

13.5

4.01

33.5

4.75

53.5

4.93

73.5

5.02

93.5

5.06

14.0

4.06

34.0

4.75

54.0

4.93

74.0

5.02

94.0

5.07

14.5

4.10

34.5

4.76

54.5

4.94

74.5

5.02

94.5

5.07

15.0

4.14

35.0

4.77

55.0

4.94

75.0

5.02

95.0

5.07

15.5

4.18

35.5

4.78

55.5

4.94

75.5

5.02

95.5

5.07

16.0

4.21

36.0

4.78

56.0

4.95

76.0

5.02

96.0

5.07

16.5

4.24

36.5

4.79

56.5

4.95

76.5

5.02

96.5

5.07

17.0

4.27

37.0

4.79

57.0

4.95

77.0

5.03

97.0

5.07

17.5

4.30

37.5

4.80

57.5

4.95

77.5

5.03

97.5

5.07

18.0

4.33

38.0

4.81

58.0

4.96

78.0

5.03

98.0

5.07

18.5

4.35

38.5

4.81

58.5

4.96

78.5

5.03

98.5

5.07

19.0

4.38

39.0

4.82

59.0

4.96

79.0

5.03

99.0

5.07

19.5

4.40

39.5

4.82

59.5

4.96

79.5

5.03

99.5

5.07

20.0

4.42

40.0

4.83

60.0

4.97

80.0

5.03

100.0

5.08

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

## Reporting Sick Pay Paid by Third Parties

Notice 2015-6

### PURPOSE

This notice provides that Internal Rev-
enue Service (IRS) Form 8922, Third-
Party Sick Pay Recap, must be used by
third parties and employers to report total
payments of certain sick pay paid by third
parties on or after January 1, 2014. In
particular, Form 8922 must be used for
filing "third-party sick pay recaps" to rec-
oncile the reporting of sick pay paid by a
third party on behalf of employers to em-
ployees in situations in which the liability
for the Federal Insurance Contributions
Act (FICA) taxes on the sick pay is split
between the employer and the third party
under applicable regulations.

Forms 8922 must be filed instead of the
Form W-2 and Form W-3 third-party sick
pay recaps, which were filed with the So-
cial Security Administration (SSA) for
third-party sick pay paid before January 1,
2014. Employers and third parties will file
the Form 8922 with the IRS rather than
the SSA, and will no longer file third-
party sick pay recaps with SSA for pay-
ments made on or after January 1, 2014. If
a taxpayer (either a third party or an em-
ployer) was formerly obligated to file with
SSA third-party sick pay recaps on Forms
W-2 and W-3 for sick pay paid in 2013
and prior years and the sick pay is paid
under the same factual circumstances, that
same taxpayer instead will be required to
file Form 8922 with IRS for sick pay paid
in 2014 and subsequent years.

This modified procedure only affects
the filing of the third-party sick pay recaps
and does not otherwise affect the current
rules for (1) furnishing statements of the
third-party sick pay to individual employ-
ees on Form W-2, Wage and Tax State-
ment, (2) filing with SSA copies of the
Forms W-2 together with Form W-3,
Transmittal of Wage and Tax Statements,
that are not third-party sick pay recaps,
and (3) reporting such payments to the
IRS on Form 941, Employer's QUAR-
TERLY Federal Tax Return (or on Form
944, Employer's ANNUAL Federal Tax
Return, if applicable). The change to us-
ing Form 8922 also has no effect on lia-

bility for FICA tax, income tax withhold-
ing, Federal Unemployment Tax Act
(FUTA) tax (collectively, "employment
taxes"), or other taxes.

This notice also sets forth the rules
concerning responsibility for the with-
holding and payment of employment
taxes and for reporting employment taxes
and wages with respect to third-party sick
pay. This notice supersedes Notice 91-26,
1991-2 C.B. 619.

## BACKGROUND

### DEFINITION OF SICK PAY

Sick pay is any amount paid to an
employee for any period during which the
employee is temporarily absent from work
because of injury, sickness, or disability.
Sick pay does not include disability retire-
ment payments or payments for medical
and hospitalization expenses. Third-party
sick pay is sick pay that is paid to an
employee by some person (the third party)
other than the employer for whom ser-
vices are normally performed. Sections
3121(a) and 3306(b) of the Internal Rev-
enue Code (Code) provide that any third
party that pays sick pay that is included in
wages shall be treated as the employer for
purposes of the FICA and the FUTA, re-
spectively, with respect to such wages,
except as provided in regulations pre-
scribed by the Secretary. As explained
below, a third-party payer of sick pay can
be either an agent of the employer or a
third party that is not an agent of the
employer. Section 32.1 of the Temporary
Employment Tax Regulations under the
Act of December 29, 1981 (Public Law
97-123) ("temporary regulations") sets
forth rules concerning liability for FICA
taxes, income tax withholding, and report-
ing with respect to third-party sick pay
and these rules are still in effect.

### DEFINITION OF AGENT

In determining responsibility for pay-
ment and reporting of employment taxes
with respect to sick pay, a threshold ques-
tion is whether the sick pay is paid by the
employer for whom services are per-
formed (that is, the common law employer
or employer of a statutory employee, such
as a corporate officer; hereinafter referred
to as "employer"), by a third party that is

an agent of the employer, or by a third
party that is not an agent of the employer.

Section 32.1(e) of the temporary regu-
lations and section 31.3401(a)-1(b)(8)(i)(b)(I)
of the Employment Tax Regulations pro-
vide the rules for determining whether a
third party is an agent of the employer.
Whether a third party is an agent of the
employer for sick pay purposes depends
on the terms of the agreement between the
third party and the employer. The deter-
mining factor is whether the third party
has insurance risk with respect to the sick
pay benefits provided. Under section
32.1(e), a third-party payer is an employ-
er's agent if the third party bears no in-
surance risk and is reimbursed on a cost-
plus-fee basis for payment of sick pay and
similar amounts. For example, if a third
party provides only administrative ser-
vices for the employer, the third party is
the employer's agent. A third party may
be an agent even if the third party is
responsible for determining which em-
ployees are eligible to receive payments.
In contrast, if the employer pays the third
party an insurance premium rather than
reimbursing the third party on a cost-plus-
fee basis, the third party is not the agent of
the employer. See section 32.1(e)(3) of
the temporary regulations and section
31.3401(a)-1(b)(8)(i)(b)(1) of the regula-
tions.

A third party that is an agent under
section 32.1(e) is an agent for purposes of
the sick pay that it pays regardless of
whether the third party files Form 2678,
Employer/Payer Appointment of Agent,
to request authorization as an agent to
perform the acts of the employer under
section 3504 of the Code. However, a
third party that is an agent under section
32.1(e) may request authorization under
section 3504 of the Code by filing Form
2678. A third-party payer of sick pay that
is not an agent under section 32.1(e) may
not become an agent of the employer un-
der section 3504 with respect to the sick
pay because the third party is treated as
the employer with respect to the sick pay
under the last sentence of section 3121(a),
as explained more fully below.

For purposes of the remainder of this
notice, the term "agent" refers to a third
party that is an agent within the meaning
of section 32.1(e) of the temporary reg-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

ulations and section 31.3401(a)-1(b)(8)
(i)(b)(1) of the regulations.

WHETHER SICK PAY IS SUBJECT
TO INCOME TAX WITHHOLDING

The requirements for federal income
tax withholding on sick pay and the ap-
plicable method for determining the
amount of withholding depend on whether
the sick pay is paid by the employer of the
employee, by an agent of the employer, or
by a third party that is not the agent of the
employer.

A. SICK PAY PAID BY THE EM-
PLOYER

Sick pay paid by the employer to an
employee is wages subject to income tax
withholding to the extent the sick pay is
includible in the gross income of the em-
ployee. Section 31.3401(a)-1(b)(8)(i)(a)
of the regulations provides that income
tax withholding is required on all em-
ployer payments of amounts includible in
gross income under section 105(a) and
section 1.105-1 of the Income Tax Regu-
lations to an employee under an accident
or health plan for a period of absence from
work on account of personal injuries or
sickness. If the sick pay is regular wages,
the amount of withholding is based on the
Form W-4, Employee's Withholding Al-
lowance Certificate, filed by the employee
with the employer, and the applicable
withholding tables. If the sick pay is sup-
plemental wages, the amount of withhold-
ing is determined using the general rules
applicable in determining income tax
withholding on supplemental wages. See
section 31.3402(g)-1 of the regulations.

B. SICK PAY PAID BY AN AGENT
OF THE EMPLOYER

Sick pay paid by an agent of the
employer is also wages subject to in-
come tax withholding to the extent in-
cludible in gross income. Section
31.3401(a)-1(b)(8)(i)(b)(2) of the regu-
lations provides further that sick pay paid
by a third party that is an agent of the
employer is supplemental wages, and
therefore subject to the rules regarding
withholding on supplemental wages pro-
vided in section 31.3402(g)-1 of the reg-
ulations. To determine the amount of in-
come tax withholding on supplemental
wages paid by an agent, see sections
31.3401(a)-1(b)(8)(i)(b)(2) and 31.3402(g)-
1(a) of the regulations.

C. SICK PAY PAID BY A THIRD
PARTY THAT IS NOT AN AGENT OF
THE EMPLOYER

Section 31.3401(a)-1(b)(8)(i)(a) of the
regulations provides that sick pay that is
paid by a third party that is not an agent of
the employer (that is, a third party with
insurance risk) is not wages under section
3401(a) and thus is not subject to manda-
tory income tax withholding under section
3402(a). However, section 31.3402(0)-3
provides that employees receiving third-
party payments of sick pay in this situa-
tion may request withholding, and if such
a request is made, the third-party payer
must deduct and withhold as requested.
To request withholding, an employee
must submit a completed Form W-4S,
Request for Federal Income Tax With-
holding from Sick Pay, to the third party.
See section 31.3402(0)-3 for rules relat-
ing to submission of Forms W-4S and
withholding by third parties that are not
agents.

## WHETHER SICK PAY IS SUBJECT TO FICA AND FUTA TAXES

The determination of whether sick pay
is subject to FICA and FUTA taxes is
based on the same rules regardless of
whether the sick pay is paid by the em-
ployer, an agent of the employer, or a
third party that is not an agent of the
employer.

FICA taxes are imposed on wages,
which are defined in section 3121(a) as all
remuneration for employment, unless spe-
cifically excepted. FICA taxes consist of
Old-Age, Survivors, and Disability Insur-
ance taxes ("social security taxes") im-
posed on employers and employees by
sections 3111(a) and 3101(a), respec-
tively, and Hospital Insurance taxes
("Medicare taxes") imposed on employers
and employees by sections 3111(b) and
3101(b), respectively. Section 3102 pro-
vides that the employee FICA taxes im-
posed by section 3101 shall be collected
by the employer by deducting the amount
of the tax from wages as and when paid.
Section 3101(b)(2) imposes the Addi-
tional Medicare Tax on employees, and
section 3102(f) imposes special rules for
the employer's collection of Additional
Medicare Tax. Section 3301 imposes
FUTA tax with respect to wages. Section
3306(b) defines wages for FUTA pur-

poses as all remuneration for employment
with certain specific exceptions.

A. SICK PAY EXCLUDED FROM
WAGES UNDER FICA AND FUTA
CODE PROVISIONS

Generally, sick pay paid with respect to
employment by employers and third par-
ties is wages for purposes of FICA and
FUTA taxation, but the following pay-
ments are statutorily excluded from the
definition of wages in section 3121(a) and
section 3306(b):

(1) Payments made under workers'
compensation acts or under statutes in the
nature of workers' compensation acts
(sections 3121(a)(2)(A) and 3306(b)(2)(A)
of the Code, and section 31.3121(a)(2)-1(a)
and (d) of the regulations);

(2) Payments made on account of sick-
ness or accident disability made by an
employer to or on behalf of an employee
after the expiration of 6 calendar months
following the last calendar month in
which the employee worked for such em-
ployer (sections 3121(a)(4) and 3306(b)(4)
of the Code and sections 31.3121(a)(4)-1
and 31.3306(b)(4)-1 of the regulations);

(3) Payments made after the calendar
year of the employee's death (sections
3121(a)(14), 3306(b)(15)); and

(4) For purposes of the social security
tax portion of the FICA, payments made
with respect to employment by one em-
ployer that exceed the social security tax
maximum wage base under section
3121(a)(1) and, for purposes of the
FUTA, payments that are paid with re-
spect to employment by one employer and
that exceed the FUTA maximum wage
base under section 3306(b)(1). Agents and
third-party payers paying sick pay with
respect to employment by an employer to
an employee of that employer may com-
bine sick pay with other wages paid by
that employer for that employee's em-
ployment (and other wages paid by other
agents or third parties for that employee's
employment by that employer) to deter-
mine the applicability of the maximum
wage base exceptions for social security
tax and FUTA tax.

B. PAYMENTS ON ACCOUNT OF
SICKNESS OR ACCIDENT DISABIL-
ITY THAT ARE NOT SUBJECT TO
FICA AND FUTA TAXATION UNDER
THE TEMPORARY REGULATIONS

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

In addition to the statutory exceptions
explained in the preceding section, section
32.1(d) of the temporary regulations pro-
vides that the following payments on ac-
count of sickness or accident disability are
not subject to FICA and FUTA taxes:

(1) Payments on account of sickness or
accident disability that are attributable to
contributions by the employee for insur-
ance and excludable from the gross in-
come of the employee. See section
32.1(d)(3) of the temporary regulations
(see also section 1.105-1(c), (d), and (e)
of the Income Tax Regulations).

(2) Payments for the permanent loss or
permanent loss of use of a member or
function of the body, or the permanent
disfigurement, of the taxpayer, the taxpay-
er's spouse or a dependent (as defined in
section 152), provided the amount of the
payments are computed with reference to
the nature of the injury without regard to
the period the employee is absent from
work. See section 32.1(d)(2) of the tem-
porary regulations (see also section 105(c)
of the Code and section 1.105-3 of the
regulations). and

(3) Payments that are excluded from
gross income under Code section 104(a)(2)
(the amount of any damages, other than
punitive damages, received on account
of personal physical injuries or physical
sickness), 104(a)(4) (amounts received
as a pension, annuity, or similar allow-
ance for personal injuries or sickness
resulting from active service in the armed
forces of any country or for certain other
federal service), or 104(a)(5) (amounts re-
ceived by an individual as disability in-
come attributable to injuries incurred as a
direct result of a terroristic or military
action as defined in section 692(c)(2)).
See section 32.1(d) of the temporary reg-
ulations (see also section 1.104-1 of the
regulations).

C.TREATMENT OF THIRD-PARTY
SICK PAY FOR PURPOSES OF THE
ADDITIONAL MEDICARE TAX

Generally, the 0.9% Additional Medi-
care Tax imposed by section 3101(b)(2)
that employers are required to withhold
under section 3102(f) applies to third-
party sick pay if the sick pay that is wages
in combination with other wages subject
to Medicare tax paid to the employee ex-
ceeds the threshold amount ($200,000).
Generally, wages paid by an employer and

sick pay wages paid by the third party are
aggregated to determine whether the
$200,000 withholding threshold has been
met.

## LIABILITY FOR PAYMENT OF FICA TAX, FUTA TAX, AND INCOME TAX WITHHOLDING ON SICK PAY AND REPORTING OF SICK PAY ON FORMS 940, 941 and W-2

The liability for the payment of FICA
tax, FUTA tax, and federal income tax
withholding and the reporting of sick pay
depends on whether the sick pay is paid
by the employer of the employee, an agent
of the employer, or a third party that is not
an agent of the employer.

A. SICK PAY PAID BY AN EM-
PLOYER OR BY AN AGENT OF THE
EMPLOYER

If sick pay is paid by the employer of
the employee, the employer is liable for
withholding and payment of employee
FICA tax and federal income tax with-
holding from the sick pay that is wages,
and the employer is also liable for the
payment of employer FICA tax and
FUTA tax with respect to the sick pay.
The employer reports the sick pay, the
income tax withholding, and the FICA tax
with respect to the sick pay on Form 941,
and the sick pay and FUTA tax with re-
spect to the sick pay on Form 940, Em-
ployer's Annual Federal Unemployment
(FUTA) Tax Return. The employer also
reports the sick pay on Form W-2.

A third party that makes payments of
sick pay as an employer's agent as defined
under section 32.1(e) is not considered the
employer and generally has no responsi-
bility for the payment of FICA tax, FUTA
tax, and income tax withholding on the
sick pay. The employer remains liable for
FICA tax, FUTA tax, and income tax
withholding on the sick pay. However, the
employer and the agent may enter into an
agreement that makes the agent responsi-
ble for some or all of the payment and
reporting of employment taxes with re-
spect to the sick pay. For example, the
agreement may make the agent responsi-
ble only for the payment of the income tax
withholding and the employee FICA tax
on the sick pay. If the agent has agreed to
be responsible for the income tax with-
holding and employee FICA tax on the

sick pay, the agent must deposit, pay, and
report the taxes under the agent's em-
ployer identification number (EIN). In that
case, the employer remains responsible
for FUTA tax, for reporting the employer
FICA tax on its Form 941, and for report-
ing the sick pay on Forms W-2 under the
employer's name and EIN. Alternatively,
the employer and the agent may enter into
an agreement that makes the agent respon-
sible for employee and employer FICA
tax, FUTA tax, income tax withholding on
the sick pay, and for reporting on Form
W-2. In that case, the agent must deposit
and pay the FICA and FUTA taxes, report
the employer and employee FICA taxes
on its Form 941, and report the sick pay
on Forms W-2 under the agent's name
and EIN. The agreement with the agent
does not relieve the employer of liability
for the taxes if the taxes are not paid. See
section 32.1(e)(3) of the temporary regu-
lations.

The employer (or the agent if the agent
has agreed to be responsible for the taxes
and for the reporting on Form W-2 under
an agreement with the employer) must
furnish each employee to whom it paid
sick pay a Form W-2 including the sick
pay by January 31 of the following year.
See section 6051(a) of the Code. The em-
ployer (or the agent) must also file the
Form W-2 including the sick pay, to-
gether with Form W-3, with SSA, gener-
ally by the last day of February (or March
31 if the Forms W-2 are electronically
filed) of the following year. The employer
may either combine the sick pay with
other wages paid to the employee and
prepare a single Form W-2 for each em-
ployee, or the employer may prepare a
separate Form W-2 including only the
sick pay and related taxes for each em-
ployee and another Form W-2 including
other wages and related taxes for each
employee. The Form W-2 furnished and
filed by the employer or the agent with
respect to the sick pay is required to in-
clude the following information:

(a) the employer's name, address, and
EIN (or the agent's name, address, and
EIN if the agent has agreed to be respon-
sible for the taxes with respect to the sick
pay);

(b) the employee's name, address, and
social security number;

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(c) the Federal income tax withheld, if
any, from the sick pay (in the box titled
"Federal income tax withheld");

(d) the amount of sick pay the em-
ployee must include in income (in the box
titled "Wages, tips, other compensation");

(e) the amount not includible, if any,
because the employee contributed to the
sick pay plan (in the box for payments that
must be reported with specific letter codes
(for example, box 12 of the 2014 Form
W-2));

(f) the amount of sick pay subject to
employee social security tax (in the box
titled "Social security wages");

(g) the employee social security tax
withheld from the sick pay (in the box
titled "Social security tax withheld");

(h) the amount of sick pay subject to
employee Medicare tax (in the box titled
"Medicare wages and tips"); and

(i) the employee Medicare tax with-
held, including Additional Medicare Tax
withheld (in the box titled "Medicare tax
withheld").

B. SICK PAY PAID BY THIRD-
PARTY PAYER THAT IS NOT AN
AGENT

1\. Liability for FICA, FUTA, and
income tax withholding

Under section 31.3402(0)-3 of the reg-
ulations and section 32.1(c) of the tempo-
rary regulations, a third party that makes
payments of sick pay other than as an
agent of the employer is liable for federal
income tax withholding (if requested by
the employee), as described above, and
the employee FICA tax with respect to the
sick pay. The third party is also liable for
the employer FICA tax and FUTA tax,
unless the third party transfers this liabil-
ity to the employer. The liability for the
employer FICA tax and FUTA tax is
transferred to the employer if the third
party takes the following steps as set forth
in section 32.1(e)(1) of the temporary reg-
ulations:

(1) withholds employee FICA tax from
the sick pay;

(2) makes timely deposits of employee
FICA tax; and

(3) notifies the employer of the sick
pay payments on which employee FICA
tax were withheld and deposited.

The third party must notify the em-
ployer within the time required for the
third party's deposit of the employee
FICA tax to satisfy the notification re-
quirement.1

2\. Reporting requirements if liability for
employer tax is not transferred to the
employer

If the third party that is not the employ-
er's agent does not follow the require-
ments for transferring liability for the em-
ployer FICA tax and the FUTA tax to the
employer, the third party is treated as the
employer for purposes of liability and re-
porting of both employee and employer
FICA tax, FUTA tax, and income tax
withholding. The third party reports the
sick pay on Form 940 and Form 941, and
must deposit, pay, and report the FICA
tax, FUTA tax, and income tax withhold-
ing under its EIN. The third party must
give each employee to whom it paid sick
pay a Form W-2 by January 31 of the
following year. See section 32.1 of the tem-
porary regulations and section 6051(a). The
Form W-2 must include the third party's
name, address, and EIN as the employer.
The third party must also file the Form
W-2 including the sick pay, together with
Form W-3, with SSA, generally by the last
day of February (or March 31 if the Forms
W-2 are electronically filed) of the follow-
ing year.

### 3. Reporting requirements if liability for employer tax is transferred to the employer

If the third party follows the steps de-
scribed in B.1. to transfer the liability for
the employer FICA tax and FUTA tax,
then the employer and not the third party
must deposit, pay, and report the em-
ployer FICA tax and FUTA tax. See sec-
tion 32.1(e) of the temporary regulations.
The employer reports the sick pay wages
on the line on the Form 941 for "wages,
tips, and other compensation" but does not

report the income tax withheld from the
sick pay on Form 941. The employer re-
ports the sick pay wages as taxable wages
on Form 941 for social security tax pur-
poses and Medicare tax purposes, and
then makes a current quarter's adjustment
for sick pay on the Form 941 to reflect the
employee social security and Medicare
tax paid by the third party. The employer
also files Form 940 with respect to the
sick pay. In addition, the employer is re-
quired to furnish and file Forms W-2 re-
porting the sick pay (although the em-
ployer and the third party may agree that
the third party will furnish and file the
Forms W-2 reporting the sick pay, as
discussed at the end of this section).

If the third party transfers liability for
the employer FICA tax and FUTA tax to
the employer, the third party remains lia-
ble with regard to the employee FICA tax
and any income tax withheld based on the
employees' Forms W-4S. The third party
reports any income tax withheld on the
sick pay on the line on Form 941 for
income tax withholding, reports the sick
pay wages as taxable wages on Form 941
for social security tax purposes and Medi-
care tax purposes, and then makes a cur-
rent quarter's adjustment for sick pay on
the Form 941 to reflect the employer por-
tion of social security and Medicare tax
paid by the employer. Because the sick
pay is reported as wages on the third par-
ty's Form 941 but the third party does not
issue Forms W-2 with respect to the sick
pay (unless the employer and the third
party agree that the third party will furnish
and file the Forms W-2 reporting the sick
pay, as discussed at the end of this sec-
tion), the wages on the third party's Form
941 and the total wages reported on Forms
W-2 filed by the third party do not match.

As noted above, the employer and the
third party may enter into an agreement
designating the third party as the employ-
er's agent for purposes of filing Forms
W-2 reporting the sick pay. The agree-
ment is separate from the procedure that
results in the transfer of liability for the
employer tax from the third party to the
employer. Because the sick pay is re-

1Section 32.1(g)(3) of the temporary regulations provides that a special rule applies to sick pay payments made to employees by a third-party insurer under an insurance contract with a
multi-employer plan established under a collectively bargained agreement. If the third-party insurer making the payments withholds the employee FICA tax from the sick pay payments and
makes timely deposits of the employee FICA tax, and gives the plan (rather than the employer) the required timely notification of the payments, then the plan (not the third-party insurer)
must pay the employer portion of the FICA tax and the FUTA tax. Similarly, if within six business days of the plan's receipt of notification, the plan gives notice to the employer, the employer
(not the plan) must pay the employer portion of the FICA tax and the FUTA tax.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ported as wages on the employer's Form
941 but the employer does not issue
Forms W-2 with respect to the sick pay,
the wages on the employer's Form 941
and the total wages reported on Forms
W-2 filed by the employer do not match.
The agreement must specify what part, if
any, of the payments under the sick pay
plan is excludable from the employees'
gross income because it is attributable to
employees' contributions to the plan. Un-
der the agreement, the third party fur-
nishes to the employee and files a Form
W-2 reporting the sick pay for each em-
ployee who receives sick pay from the
third party.

Under section 31.6051-3 of the regu-
lations, a third party that is not an agent
and that has not agreed to file Forms W-2
reporting the sick pay (as described in the
preceding paragraph) must furnish the
employer with a sick pay statement by
January 15 of the year following the year
in which the sick pay was paid. The writ-
ten statement must contain the following
information about each employee who re-
ceived sick pay:

(1) the name;

(2) the employee's social security
number, if social security taxes, Medicare
taxes, or income taxes were withheld from
the sick pay;

(3) the sick pay paid to the employee;

(4) any federal income tax withheld;

(5) any employee social security tax
withheld; and

(6) any employee Medicare tax with-
held.

## FORM 8922

The SSA and IRS match amounts re-
ported on Forms 941 and on the aggregate
of Forms W-2 filed by taxpayers to verify
that employers' and employees' wage re-
cords are correct and appropriate FICA
tax and income tax withholding are paid.
If liability for the employer FICA tax on
sick pay is transferred from the third party
to the employer, the sick pay wages and
liability for the employer FICA tax are
reported on the Form 941 of the employer,
and the sick pay wages and liability for
the employee FICA are reported on the
Form 941 of the third party. However, the
sick pay wages are reported only on
Forms W-2 filed by one party. Because of

this split reporting, the Forms 941 and
Forms W-2 of the third party may have
differing wage totals and taxes, or the
Forms 941 and the Forms W-2 of the
employer may have differing wage totals
and taxes. The Form 8922 is designed to
reconcile differences between wages and
taxes reported on Form 941 and wages
and taxes reported on Forms W-2 arising
from the payment of third-party sick pay
in these circumstances.

Beginning with sick pay wages paid on
or after January 1, 2014, an employer or
third party is required to file Form 8922
after the end of the calendar year if the
employer is including the employer FICA
tax on sick pay wages on the employer's
Form 941 but the third party (whether as
an agent that has agreed to be responsible
for such reporting or not as an agent) is
including the employee FICA tax on the
same sick pay wages on the third party's
Form 941 (split liability). Whether the
employer or the third party is required to
file the Form 8922 depends on which en-
tity is filing Form W-2 with respect to the
sick pay. If the sick pay is reported on
Forms W-2 under the name and EIN of
the third party (whether as an agent that
has agreed to be responsible for such re-
porting or not as an agent) in this split lia-
bility situation, Form 8922 must be filed by
the employer. If the sick pay is reported on
Forms W-2 under the name and EIN of the
employer in this split liability situation, the
third party (whether as an agent or not as an
agent) must file Form 8922.

More specifically, the requirement to
file Form 8922 can arise in three situa-
tions:

(1) A third party is required to file
Form 8922 when the third party is liable
for the employee FICA tax (whether or
not the third party is also liable for income
tax withholding) but the liability for the
employer FICA tax and for reporting the
sick pay on Forms W-2 has been trans-
ferred to the employer;

(2) An employer is required to file
Form 8922 when the third party is liable
for the employee FICA tax and income
tax withholding, the liability for the em-
ployer FICA tax has been transferred to
the employer, and the employer and third
party have entered into an agreement to
have the third party act as the employer's
agent for reporting on Forms W-2; and

(3) A third party that is an agent under
section 32.1(e) is required to file Form
8922 when the agency agreement pro-
vides that (a) the agent will withhold and
pay employee FICA tax and report the
taxes on its Form 941, and (b) the em-
ployer will pay the employer FICA tax,
report the employer FICA tax on its Form
941, and report the employee's wages on
Forms W-2.

When there is no split reporting of sick
pay on Forms 941, there is no obligation
to file Form 8922. Accordingly, except as
provided in (3) above, there is generally
no obligation to file Form 8922 with re-
spect to sick pay paid by an agent. There
is also no obligation to file Form 8922
when the third party paying the sick pay is
not an agent and does not transfer liability
for the FICA employer tax on the sick pay
to the employer.

The taxpayer required to file Form
8922 includes its name, address, and tele-
phone number as the filer's name. If the
third party is the filer, the third party also
checks the "insurer/agent" box. The Form
8922 shows sick pay subject to federal
income tax (Box 1), the Federal income
tax withheld from sick pay, if any (Box 2),
sick pay subject to social security tax
(Box 3), social security tax withheld from
sick pay (Box 4), sick pay subject to
Medicare tax (Box 5), and Medicare tax
withheld from sick pay (Box 6).

Form 8922 also includes boxes for the
"Other party's name" and "Other party's
employer identification number." If the
employer files Form 8922, the employer
shows the name and EIN of the third party
paying the sick pay for which there is split
reporting.

However, to ease the transition from
Form W-2 and Form W-3 third-party sick
pay recaps to use of Form 8922, a differ-
ent rule currently applies for purposes of
third parties who are filing Form 8922. If
the third party is filing Form 8922 (that is,
the "Insurer/Agent" box on Form 8922 is
checked), the third party may, but is not
required to, provide the other party's (that
is, the employer's) name and EIN. If the
third party is providing the other party's
(that is, the employer's) name and EIN, it
must file a separate Form 8922 with re-
spect to the sick pay paid to employees of
that employer.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Thus, the third party has three choices
in filing Form 8922:

(1) It may submit one Form 8922 that
completes all information on the form
other than the boxes for other party's
name and other party's EIN.

(2) It may choose to provide the other
party's name and the other party's EIN
with respect to all third-party sick pay that
it pays for all employers. If it makes this
choice, it files a separate Form 8922 for
the sick pay wages and taxes related to
each employer.

(3) It may choose to provide the other
party's name and other party's EIN for
the third-party sick pay that it pays for
some but not all employers. If it makes
this choice, it files a separate Form 8922
for the sick pay wages and taxes related
to each employer for which it is supply-
ing the name and EIN, and it files one
Form 8922 for the wages and taxes re-
lated to the employers for which it is not
supplying the name and EIN.

This rule for third parties filing Form
8922 is designed to ease the administra-
tive burden on third-party filers who may
be paying third-party sick pay on behalf
of many employers and reflects the fact
that, at this time, Form 8922 may not be
filed electronically but must be filed on
paper. The rule will be subject to review
in future years to determine whether it
remains appropriate. The IRS intends to
give advance notice if the rule is
changed to require third parties to pro-
vide each employer's name and EIN.
For example, if the Form 8922 becomes
eligible for electronic filing, the third
party may be required to furnish the
other party's name and EIN with respect
to each employer. The advance notice of
any changes to this requirement may be
provided in the instructions for Form
8922.

The rule applicable to third parties
filing Form 8922 is not applicable to
employers because employers will
likely have a limited number of other
parties (often only one) for which re-
porting the name and EIN will be re-
quired. Accordingly, the IRS anticipates
that the administrative burden will be
significantly less than it would be for
third parties.

## EXAMPLE WHEN THE THIRD PARTY TRANSFERS THE SOCIAL SECURITY AND MEDICARE TAX LIABILITY TO THE EMPLOYER

This example illustrates the reporting
of third-party sick pay and other pay with
respect to one employee only, and does
not consider other wages paid by the em-
ployer or third party to employees that
would also be reported on Form 941,
Form W-2, or Form 8922.

Employee T of M Corp. received
$5,000 of sick pay (subject to income tax
and includible in wages for purposes of
social security tax and Medicare tax) from
P Corp. (third party) in the first quarter of
2014. Employee T also received $10,000
of remuneration for employment from M
Corp. in the first quarter of 2014 and total
remuneration for employment of $40,000
from M Corp. during calendar year 2014.
All remuneration for employment re-
ceived by employee T from M Corp. in
2014 was includible in wages for purposes
of social security, Medicare tax, and in-
come tax withholding. P Corp. withheld
employee T's share of social security and
Medicare taxes from the $5,000 sick pay P
Corp. paid to employee T, and also with-
held federal income tax as requested by
employee T on Form W-4S. P Corp. de-
posited these taxes and provided M Corp.
timely notification of the amount of wages
paid on which the taxes were withheld and
deposited. By taking these steps, P Corp.
transferred to M Corp. the liability for the
employer portion of social security and
Medicare taxes on the sick pay and the
obligation to file Form W-2 with respect
to the sick pay.

The companies complete Forms 941,
W-2, W-3, and Form 8922 with respect
to employee T as described in the follow-
ing paragraphs.

M CORP. (EMPLOYER)

For the first quarter Form 941, M Corp.
includes $15,000 of wages for employee
T, including the $10,000 of wages it paid
and the $5,000 of sick pay employee T
received from P Corp., on the line for
"Wages, tips, and other compensation"
(Line 2 of the 2014 Form 941). M Corp.
does not include the amount of federal
income tax withholding withheld by P
Corp. on the line for "Federal income tax

withheld from wages, tips, and other com-
pensation" (Line 3) because P Corp. will
include that withholding on its Form 941.
M Corp. then computes social security tax
(Line 5a) and Medicare tax liability (Line
5c) with respect to employee T based on
including the total social security wages
($15,000) and Medicare wages ($15,000)
received by employee T from M Corp.
and P Corp. However, because P Corp.
withheld and deposited employee T's
share of social security and Medicare
taxes for the $5,000 of sick pay, M Corp.
reports an adjustment in the amount of the
employee social security and Medicare
taxes withheld on the sick pay on the line
for "Current quarter's adjustment for sick
pay" (Line 8).

At the end of the year, M Corp. issues
a Form W-2 to employee T. The form
combines $40,000 of wages M Corp. paid
and $5,000 of sick pay from P Corp. It
also combines the taxes withheld by both
corporations in reporting the taxes with-
held on Form W-2. The sick pay would be
included in the box for "Wages, tips, other
compensation" (Box 1 of the 2014 Form
W-2), the box for "social security wages"
(Box 3)," and the box for "Medicare
wages and tips" (Box 5). M Corp. also
checks the "third-party sick pay" (Box 13)
checkbox as required. The income tax
withheld by P Corp is included in the box
for "Federal income tax withheld" (Box
2); the social security tax withheld by P
Corp. is included in the box for "Social
security tax withheld" (Box 4); and the
Medicare tax withheld by P Corp. is in-
cluded in the box for "Medicare tax with-
held" (Box 6). On its Form W-3, M Corp.
shows the amount of income tax withheld
by P Corp. on employee T's sick pay in
the box for "Income tax withheld by payer
of third-party sick pay" (Box 14 of the
2014 Form W-3). M Corp. does not file
Form 8922 with respect to the sick pay
paid by P Corp. because M Corp. is ful-
filling the Form W-2 reporting require-
ments to employee T with respect to the
wages.

P CORP. (THIRD PARTY)

For the first quarter Form 941, P Corp.
does not include the $5,000 sick pay it
paid to employee T on the line for
"Wages, tips, and other compensation"
(Line 2 of the 2014 Form 941). It includes

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

the amount of federal income tax with-
holding requested by employee T with
respect to the sick pay on the line for
"Federal income tax withheld from wages,
tips, and other compensation" (Line 3).
The sick pay it paid to employee T is
included in the lines for "Taxable social
security wages" (Line 5a) and "Taxable
Medicare wages & tips" (Line 5c).

Because P Corp. transferred the em-
ployer tax liability on employee T's sick
pay to M Corp., it must adjust social se-
curity and Medicare taxes. It does this on
the line for "Current quarter's adjustment
for sick pay" (Line 8).

Because the employer FICA tax on the
third-party sick pay is reported on the
return of M Corp. and the sick pay is
reported on Forms W-2 issued by M
Corp., at the end of the year, P Corp.
prepares a Form 8922 to report the sick
pay it paid employees of M Corp. in 2014.
On the Form 8922, it includes P Corp.'s
name and identification number as the
filer of the form, and checks the box for
"Insurer/agent." P Corp. also completes
the other boxes on the form, including the

$5,000 sick pay subject to income tax paid
to employee T ("Sick pay subject to fed-
eral income tax," Box 1), and information
related to that sick pay, and P chooses to
complete the boxes for other party's name
(M Corp.) and other party's identification
number, and files these forms with the IRS
by March 2, 2015.

## EFFECT ON OTHER DOCUMENTS

Notice 91-26 is superseded.
REQUEST FOR COMMENTS

The IRS requests comments on the ap-
propriate length of time to retain the rule
under which third-party filers (insurers or
agents) of Form 8922 are not required to
complete the boxes for the other party's
name and EIN, including whether third-
party filers would need additional transi-
tion time prior to being required to com-
plete these boxes if electronic filing of
Form 8922 becomes available. Comments
should be submitted in writing on or be-
fore June 30, 2015. Please include "Notice
2015-6" on the cover page. All Com-

ments will be available for public inspec-
tion and copying. Comments may be sub-
mitted in one of three ways:

1\. By mail to CC:PA:LPD:PR (Notice
2015-6), Room 5203, Internal Revenue
Service, P.O. Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044.

2\. Electronically to Notice.Comments@
irscounsel.treas.gov Please include "Notice
2015-6" in the subject line of any electronic
communications.

3\. By hand-delivery Monday through
Friday between the hours of 8:00 a.m. and
4:00 p.m. to CC:PA:LPD:PR (Notice
2015-6), Courier's Desk, Internal Reve-
nue Service, 1111 Constitution Ave. N.W.,
Washington, DC 20224.

## DRAFTING INFORMATION

The principal author of this notice is
Alfred G. Kelley of the Office of Associ-
ate Chief Counsel (Tax Exempt & Gov-
ernment Entities). For further information
regarding this notice, contact Mr. Kelley
at (202) 317-4774 (not a toll-free num-
ber).

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 446, 481; 1.446-1, 1.481-1, 1.481-4.)

## Rev. Proc. 2015-13

SECTION 1. PURPOSE.

423

SECTION 2. BACKGROUND

424

.01 Method of accounting

424

.02 Changing a method of accounting

424

.03 Securing consent for a change in method of accounting

424

.04 Terms and conditions of a change in method of accounting

425

.05 No retroactive change in method of accounting

425

.06 Change in method of accounting with a § 481(a) adjustment

425

(1) Need for adjustment.

425

(2) Effect on earnings and profits

425

.07 Change in method of accounting using a cut-off basis

425

.08 Separate trades or businesses

425

.09 Change made as part of an examination

425

SECTION 3. DEFINITIONS

425

.01 Applicable provisions

425

.02 Automatic change

425

.03 Automatic change procedures

425

.04 Cessation of a trade or business

425

(1) In general

425

(2) Examples of transactions that are treated as the cessation of a trade or business

426

(3) Exception for conversion to or from S corporation status

426

(4) Exception for certain transfers to which § 381(a) applies

426

(5) Exception for certain transfers within a consolidated group to which § 351 applies

426

.05 Director

426

.06 Federal income tax return

426

.07 Form 3115

426

(1) In general

426

(2) Short Form 3115

426

.08 Issue under consideration

426

(1) Under examination

426

(2) Before an Appeals office

426

(3) Before a federal court

427

(4) Certain foreign corporations

427

.09 List of Automatic Changes

427

.10 Non-automatic change

427

.11 Non-automatic change procedures

427

.12 Present method

427

.13 Proposed method

427

.14 SECTION

427

.15 Section 481(a) adjustment

427

.16 Section 481(a) adjustment period

428

.17 Taxpayer

428

(1) In general

428

(2) Consolidated group

428

.18 Under examination

428

(1) In general

428

(2) Consolidated group member

428

(3) Partnerships subject to TEFRA

428

(4) Certain foreign corporations

429

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(5) Taxpayer before Joint Committee on Taxation

429

(6) Taxpayer in Compliance Assurance Process

429

.19 Year of change

429

SECTION 4. SCOPE

429

SECTION 5. ELIGIBILITY

429

.01 In general

429

(1) Automatic change

429

(2) Non-automatic change

430

.02 Liquidations and reorganizations under § 381(a)

430

(1) In general

430

(2) Exception

430

.03 Final year of trade or business.

430

(1) In general

430

(2) Exceptions

430

.04 Prior five-year overall method change

430

(1) In general

430

(2) Exception

430

(3) Examples

430

.05 Prior five-year item change

430

(1) In general

430

(2) Exceptions

430

(3) Examples

431

SECTION 6. GENERAL APPLICATION PROCEDURES

431

.01 Requesting consent

431

.02 Completing Form 3115

431

(1) Separate Forms 3115

431

(2) Form 3115 contents

431

(3) Designated automatic accounting method change number

431

(4) Taxpayer with more than one trade or business.

431

(5) Consolidated groups

431

(6) Certain foreign corporations

431

(7) Certain foreign partnerships

432

(8) Signature requirements

432

.03 Filing Form 3115

432

(1) Automatic change

431

(a) When and where to file Form 3115

432

(i) In general

432

(A) Original Form 3115

432

(B) Ogden copy of Form 3115

432

(ii) Certain foreign corporations

432

(iii) Certain foreign partnerships

432

(b) Certain concurrent changes in method of accounting

432

(c) No user fee

432

(d) No acknowledgement of receipt

432

(e) Correspondence regarding a previously filed Form 3115

432

(2) Non-automatic change

433

(a) When to file Form 3115

433

(i) In general

433

(ii) New member of a consolidated group in CAP

433

(iii) Certain transactions to which § 381(a) applies

433

(b) Where to file Form 3115

433

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(c) User fee

433

(3) Additional required copies of Form 3115 and Consent Agreement

433

(a) Taxpayer under examination, before an Appeals office, or before a federal court.

433

(b) Certain foreign corporations

433

(c) Certain foreign partnerships

433

(4) Extensions of time to file

433

(a) Automatic extension for Form 3115

433

(b) Other extensions of time

433

SECTION 7. TERMS AND CONDITIONS OF CHANGE

433

.01 In general

433

.02 Section 481(a) adjustment

434

.03 Section 481(a) adjustment period

434

(1) In general

434

(2) Short period as a separate taxable year

434

(a) In general

434

(b) Examples

434

(c) Certain transfers to which § 381(a) applies

434

(3) Shortened adjustment periods

434

(a) Cooperatives

434

(b) Taxpayers under examination with positive § 481(a) adjustments

434

(c) De minimis election

434

(d) Eligible acquisition transaction election

434

(i) In general

434

(ii) Election Statement

435

(iii) Eligible acquisition transaction.

435

(iv) Examples

435

(4) Accelerated adjustment periods

435

(a) Ceasing to engage in the trade or business.

435

(b) S election effective for year of LIFO discontinuance

436

(c) S election effective for a year after LIFO discontinuance

436

(d) Certain transfers pursuant to a § 351 transaction within a consolidated group

436

(i) In general

436

(ii) Exception

436

.04 Changes within the LIFO method of accounting

436

.05 NOL carryback limitation for taxpayer subject to criminal investigation

436

.06 Maintenance of adequate records

436

.07 Certain foreign corporations

437

.08 Trade or business of a domestic corporation, domestic partnership, or other

United States person that affects the amount of foreign source taxable income

437

.09 Foreign partnerships

438

SECTION 8. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE

438

.01 In general

438

.02 Exceptions

438

(1) No audit protection for taxpayers under examination

438

(a) Change filed in a three-month window

438

(i) In general

438

(ii) Three-month window.

438

(iii) Certain foreign corporations

438

(iv) Statement required

439

(b) Change filed in a 120-day window

439

(i) In general

439

(ii) 120-day window

439

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(iii) Certain foreign corporations

440

(c) Present method not before the director

439

(i) In general

439

(ii) Statement required

439

(d) New member of a consolidated group in CAP

439

(i) In general

439

(ii) Statement required

439

(e) Change resulting in a negative § 481(a) adjustment

439

(i) In general

439

(ii) Example

439

(iii) Statement required

439

(f) No examination-imposed change and item not under consideration

439

(i) In general

439

(ii) Certain foreign corporations

439

(A) In general

440

(B) Conditions for SECTION 8.02(1)(f)(ii)(A) to apply

440

(iii) Examples

439

(2) Change lacking audit protection

440

(3) Change not made or made improperly

440

(4) Change in sub-method of accounting

440

(5) CFC or 10/50 corporation

440

(6) Criminal investigation

440

(7) Issue under consideration

441

(8) Prior year IRS-initiated change

441

SECTION 9. GRANT OF CONSENT FOR AN AUTOMATIC CHANGE

441

SECTION 10. EFFECT OF CONSENT

441

.01 In general

441

.02 Required change or modification of method of accounting

441

.03

Revoked or modified if found to be in error.

441

.04 Change treated as initiated by the taxpayer

441

SECTION 11. REVIEW BY NATIONAL OFFICE

441

.01 Incomplete Form 3115

441

(1) Requests for additional information

441

(2) Extension of time to provide additional information

441

(3) Failure to provide additional information

442

.02

National office discretion to deny a request

442

(1) Final year of a trade or business

442

(2) National office consideration of prior (requested) changes for the same item

442

(a) Prior change in method of accounting implemented

442

(i) In general

442

(ii) Limitation on LIFO inventory method of accounting change

442

(b) Prior method of accounting requests

442

.03 National office determination

442

(1) Conference in the national office

442

(2) Letter ruling and Consent Agreement

442

(a) In general

442

(b) Signature requirements

443

(c) Consent Agreement copy not signed or change not timely or properly implemented.

443

(d) Disagreement with terms and conditions

443

(e) Letter ruling received after implementing change

443

(3) Consent not granted for an automatic change

443

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(a) In general

443

(b) Exception

443

SECTION 12. REVIEW BY DIRECTOR

443

.01 In general

443

.02 Change not made in compliance with all applicable provisions

444

(1) In general

444

(2) Improperly determined § 481(a) adjustment.

444

(3) Penalties and additions to tax

444

(4) Referral to the national office

444

SECTION 13. REQUEST TO REVISE THE YEAR OF CHANGE FOR A NON-AUTOMATIC CHANGE

444

.01 In general

444

(1) Timely written request.

444

(a) In general

444

(b) Form 3115 filed on or before the last day of the sixth month of the year of change

444

(2) Pending Form 3115

444

(3) Acceleration and revision of § 481(a) adjustment

444

(4) Examples

445

(5) Multiple applicants on one Form 3115

445

.02 Compelling circumstances

445

.03 Submitting a request for a revised year of change

445

.04 Notification of approval or denial

445

.05 National office's discretion to deny a request

445

SECTION 14. APPLICABILITY OF REV. PROC. 2015-1 and REV. PROC. 2015-4

445

SECTION 15. EFFECTIVE DATE

445

.01 In general

445

.02 Transition rules

445

(1) Additional time to file Forms 3115 under Rev. Proc. 97-27, Rev. Proc. 2011-14, or this revenue procedure for taxable years ending on or before January 31, 2015.

445

(2) Limited time to convert a Form 3115 filed under Rev. Proc. 97-27

446

(3) Early election of one-year § 481(a) adjustment period for certain Forms 3115 filed under Rev. Proc. 97-27 and Rev. Proc. 2011-14

446

(4) Request to revise the year of change for a Form 3115 filed

under Rev. Proc. 97-27 on or before the last day of the 6th month of the year of change

446

(5) Open 90-day window period

446

SECTION 16. EFFECT ON OTHER DOCUMENTS

447

SECTION 17. PAPERWORK REDUCTION ACT

447

SECTION 18. SIGNIFICANT CHANGES

447

.01 Changes affecting both Rev. Proc. 2011-14 and Rev. Proc. 97-27

447

.02 Other changes affecting Rev. Proc. 2011-14

448

.03 Other changes affecting Rev. Proc. 97-27

449

DRAFTING INFORMATION

449

### SECTION 1. PURPOSE

This revenue procedure updates and re-
vises the general procedures under § 446(e)
of the Internal Revenue Code and § 1.446-
1(e) of the Income Tax Regulations to
obtain the consent of the Commissioner of

Internal Revenue (Commissioner) to
change a method of accounting for federal
income tax purposes. Specifically, this
revenue procedure provides the general
procedures to obtain the advance (non-
automatic) consent of the Commissioner
to change a method of accounting and

provides the procedures to obtain the au-
tomatic consent of the Commissioner to
change a method of accounting de-
scribed in Rev. Proc. 2015-14, 2015-5
I.R.B. 450, (or successor) (List of Au-
tomatic Changes).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

### SECTION 2. BACKGROUND

.01 Method of accounting.

(1) The term "method of accounting"
includes (a) an overall plan of accounting,
such as for gross income and deductions,
and (b) the treatment of any material item.
A material item is any item that involves the
proper time for the inclusion of the item in
income or the taking of the item as a deduc-
tion, or both. See § 1.446-1(e)(2)(ii)(a). In
determining whether a taxpayer's ac-
counting practice for an item involves
timing, generally the relevant question is
whether the practice permanently changes
the amount of the taxpayer's lifetime tax-
able income. If the practice does not per-
manently affect the taxpayer's lifetime
taxable income, but does or could change
the taxable year(s) in which the item is
taken into account, it involves timing and
is therefore a method of accounting. See
Rev. 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 charac-
terization of the method as permissible or
impermissible, represents consistent treat-
ment of that item for purposes of § 1.446-
1(e)(2)(ii)(a). If a taxpayer treats an item
properly in the first federal income tax
return that reflects the item, however, it is
not necessary for the taxpayer to treat the
item consistently in two or more consec-
utive returns to have adopted a method of
accounting. Once a taxpayer has adopted a
method of accounting, the taxpayer has
established a method of accounting. An
established method of accounting includes
a finalized Internal Revenue Service (IRS)
imposed method of accounting under Rev.
Proc. 2002-18, 2002-1 C.B. 678.

(3) The regulations under § 446 pro-
vide that no method of accounting is ac-
ceptable unless, in the opinion of the
Commissioner, it clearly reflects income.
To clearly reflect income, the method
must, for example, be used consistently
from one taxable year to another. See

§§ 1.446-1(a)(2), 1.446-1(c)(1)(ii)(C),
and 1.446-1(c)(2)(ii).

(4) Section 446(a) and § 1.446-1(a)(1)
provide that taxable income shall be com-
puted under the method of accounting on
the basis of which the taxpayer regularly
computes income in keeping the taxpay-
er's books (§ 446 book-tax conformity
requirement). Section 1.446-1(a)(4) re-
quires each taxpayer to maintain account-
ing records that will enable the taxpayer to
file a correct return and states that ac-
counting records include the taxpayer's
regular books of account and other re-
cords and data as may be necessary to
support the entries on the taxpayer's
books of account and on the taxpayer's
return, as for example, a reconciliation of
any differences between such books and
his return. Thus, a taxpayer satisfies the
§ 446 book-tax conformity requirement if
the taxpayer reconciles the results ob-
tained under the method of accounting
used in keeping its records and accounts
and the method used for federal income
tax purposes and maintains sufficient re-
cords to support that reconciliation.

.02 Changing a method of accounting.
(1) A change in method of accounting
occurs when the method of accounting to
be used by the taxpayer for an item (or
that would be used if the taxpayer had the
item in the year of change) in computing
its taxable income for the year of change
is different than the taxpayer's established
method of accounting used (or that would
have been used if the taxpayer had the
item in the immediately preceding year) to
compute the taxpayer's taxable income
for the immediately preceding taxable
year.

(2) A change in method of accounting
does not include correction of mathematical
or posting errors, or errors in the computa-
tion of tax liability (such as errors in com-
putation of the foreign tax credit, net oper-
ating loss, percentage depletion, or
investment credit). See § 1.446-1(e)(2)(ii)(b).

.03 Securing consent for a change in
method of accounting.

(1) Section 446(e) and § 1.446-
1(e)(2)(i) state that, except as otherwise
provided, a taxpayer must secure the con-
sent of the Commissioner before changing
a method of accounting for any item for
federal income tax purposes. Unless spe-
cifically authorized by the Commissioner

or by statute, a taxpayer may not change
an established method of accounting by
amending its prior federal income tax re-
turn(s). See Rev. Rul. 90-38, 1990-1
C.B. 57. A taxpayer must secure the con-
sent of the Commissioner regardless of
whether the taxpayer's established or pro-
posed method is a permissible method or
clearly reflects the taxpayer's income and
regardless of the administrative guidance
used to request consent or to change the
established method of accounting. If a tax-
payer changes a method of accounting
without complying with all the applicable
procedures, the taxpayer has initiated a
change in method of accounting without
obtaining the consent of the Commis-
sioner as required by § 446(e).

(2) Under § 1.446-1(e)(3)(i), to obtain
the Commissioner's consent to change a
method of accounting, a taxpayer gener-
ally must file a Form 3115, Application
for Change in Accounting Method, during
the taxable year for which the taxpayer
desires to make the proposed change in
method of accounting, except as otherwise
provided in administrative guidance. Sec-
tion 1.446-1(e)(3)(ii) provides that the
Commissioner may prescribe the admin-
istrative procedures under which a tax-
payer will be permitted to change its
method of accounting. Many Forms 3115
filed under the non-automatic change pro-
cedures require additional information
and development. Therefore, the IRS rec-
ommends that taxpayers file a Form 3115
under the non-automatic change proce-
dures as early as possible during the re-
quested year of change. See also, SEC-
TION 13.01(1)(b).

(3) Rev. Proc. 2011-14, 2011-4 I.R.B.
330, as clarified and modified by Rev.
Proc. 2012-39, 2012-41 I.R.B. 470, pre-
viously provided procedures for automatic
changes in method of accounting listed
in its APPENDIX. Rev. Proc. 97-27,
1997-1 C.B. 680, as amplified and modi-
fied 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 mod-
ified by Rev. Proc. 2007-67, 2007-2 C.B.
1072, as clarified and modified by Rev.
Proc. 2009-39, 2009-38 I.R.B. 371, as
modified by Rev. Proc. 2011-14, 2011-4
I.R.B. 330, and as modified by Rev. Proc.
2012-39, 2012-41 I.R.B. 470, previously
provided procedures for non-automatic

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

changes in method of accounting. This
revenue procedure, in conjunction with the
List of Automatic Changes, provides the
current procedures for automatic changes
and non-automatic changes.

.04 Terms and conditions of a change
in method of accounting. Section 1.446-
1(e)(3)(ii) provides that the Commissioner
may prescribe administrative procedures
setting forth the terms and conditions
deemed necessary to permit a taxpayer to
obtain consent to change a method of ac-
counting under § 446(e). The terms and
conditions the Commissioner may pre-
scribe 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.

.05 No retroactive change in method of
accounting. Unless specifically authorized
by the Commissioner or by statute, a tax-
payer may not request, or otherwise make,
a retroactive change in method of ac-
counting. See generally Rev. Rul. 90-38.

.06 Change in method of accounting
with a § 481(a) adjustment.

(1) Need for adjustment. Section
481(a) requires those adjustments neces-
sary to prevent amounts from being dupli-
cated or omitted to be taken into account
when the taxpayer's taxable income is
computed under a method of accounting
different from the method of accounting
used to compute taxable income for the
preceding taxable year. When there is a
change in method of accounting to which
§ 481(a) is applied, taxable income for the
taxable year preceding the year of change
must be determined under the method of
accounting that was then employed, and
taxable income for the year of change and
the following taxable years must be deter-
mined under the method of accounting for
which consent is granted as if that method
of accounting had always been used. The
§ 481(a) adjustment is computed notwith-
standing that the period of limitations on
assessment and collection of tax may have
closed on the taxable years (closed years)
in which the events giving rise to the need
for an adjustment occurred.

When the Commissioner grants con-
sent to a taxpayer to change its method of
accounting, § 481(c) and §§ 1.446-
1(e)(3)(ii) and 1.481-4 provide that the
taxpayer may take the adjustment required
by § 481(a) into account in determining

taxable income only in the manner and
subject to the conditions agreed to by the
Commissioner and the taxpayer.

(2) Effect on earnings and profits. A
corporation takes any § 481(a) adjustment
resulting from a change in method of ac-
counting into account in computing its
earnings and profits. See § 1.312-6 and
Rev. Proc. 79-47, 1979-2 C.B. 528.

.07 Change in method of accounting
using a cut-off basis. The IRS may deter-
mine that certain changes in methods of
accounting must be made without a
§ 481(a) adjustment. When a change in
method of accounting is made without a
§ 481(a) adjustment (for example, 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 method of
accounting for which consent is granted.
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 ex-
ample, § 263A (which generally applies to
costs incurred after December 31, 1986,
for non-inventory property), § 461(h)
(which generally applies to amounts in-
curred on or after July 18, 1984), and
sections 2.01, 5.01, and 22.02 of the List
of Automatic Changes. When a change in
method of accounting is made on a cut-off
basis, no amounts are duplicated or omit-
ted, and therefore, a § 481(a) adjustment
is not necessary or permitted.

.08 Separate trades or businesses.

(1) 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,
provided 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 will be considered
separate and distinct unless the taxpayer
keeps a complete and separable set of
books and records for that trade or busi-
ness. See § 1.446-1(d)(2).

(2) If, by reason of maintaining differ-
ent methods of accounting, there is a cre-
ation or shifting of profits or losses be-
tween the taxpayer's trades or businesses
(for example, through inventory adjust-
ments, sales, purchases, or expenses) so
that the taxpayer's income is not clearly

reflected, the taxpayer's trades or busi-
nesses will not be considered to be sepa-
rate and distinct. See § 1.446-1(d)(3).

.09 Change made as part of an exam-
ination. 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 IRS
may change the taxpayer's method of ac-
counting to one that, in the opinion of the
IRS, does clearly reflect income. In that
case, a change in method of accounting
resulting in a positive § 481(a) adjustment
ordinarily will be made in the earliest tax-
able year under examination with a one-
year § 481(a) adjustment period. See Rev.
Proc. 2002-18. But see SECTION 8 re-
garding audit protection.

## SECTION 3. DEFINITIONS

The following definitions apply to this
revenue procedure and the List of Auto-
matic Changes:

.01 Applicable provisions. The term
"applicable provisions" means all provi-
sions and requirements of this revenue
procedure and either the List of Automatic
Changes (in the case of an automatic
change) or the letter ruling (in the case of
a non-automatic change) pertinent to the
taxpayer and its requested change in
method of accounting.

.02 Automatic change. An "automatic
change" is a change in method of account-
ing for which the taxpayer is eligible un-
der SECTION 5.01(1) to request the Com-
missioner's consent for the requested year
of change.

.03 Automatic change procedures. The
"automatic change procedures" are all of
the procedures and provisions in this rev-
enue procedure applicable to an automatic
change and in the applicable section of the
List of Automatic Changes.

.04 Cessation of a trade or business.

(1) In general. Except as provided in
SECTION 3.04(3), 3.04(4), or 3.04(5), a
taxpayer is considered to cease to engage
in a trade or business if the taxpayer ter-
minates its existence for federal income
tax purposes, ceases operation of the trade
or business, or transfers substantially all
the assets of the trade or business to an-
other taxpayer. For this purpose, "substan-
tially all" has the same meaning as in
section 3.01 of Rev. Proc. 77-37, 1977-2
C.B. 568.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(2) Examples of transactions that are
treated as the cessation of a trade or
business. The following is a nonexclusive
list of transactions that are treated as the
cessation of a trade or business:

(a) the trade or business is incorpo-
rated;

(b) the trade or business is purchased
by another taxpayer in a transaction to
which § 1060 applies;

(c) the trade or business is terminated
or transferred pursuant to a taxable liqui-
dation;

(d) a division of a corporation ceases to
operate the trade or business;

(e) the assets of a trade or business are
contributed to a partnership; or

(f) within a 12-month period there is a
sale or exchange of 50 percent or more of
the total interest in a partnership's capital
and profits under § 708(b)(1)(B).

(3) Exception for conversion to or from
S corporation status. A C corporation
electing to be treated as an S corporation
or an S corporation terminating its S elec-
tion that is then treated as a C corporation
is not treated as ceasing to engage in a
trade or business.

(4) Exception for certain transfers to
which § 381 (a) applies. A corporation is
not considered to cease to engage in a
trade or business to the extent (a) the
corporation transfers substantially all the
assets of that trade or business to another
corporation in a transfer to which § 381(a)
applies, and (b) the transferor's method of
accounting for an item for that trade or
business is a tax attribute that the acquir-
ing corporation carries over and uses for
that item immediately after the transfer
pursuant to § 381(c).

(5) Exception for certain transfers
within a consolidated group to which
§ 351 applies. A corporation is not con-
sidered to cease to engage in a trade or
business to the extent (a) the corporation
transfers substantially all the assets of that
trade or business to another member of the
same consolidated group in an exchange
qualifying under § 351, and (b) the trans-
feree member adopts and uses the trans-
feror member's method of accounting for
an item.

.05 Director. The term "director" has
the same meaning as this term has in Rev.
Proc. 2015-1, 2015-1 I.R.B. 1 (or succes-
sor).

.06 Federal income tax return. A "fed-
eral income tax return" includes a return
of tax (for example, Form 1120, U.S. Cor-
poration Income Tax Return, and Form
1120S, U.S. Income Tax Return for an S
Corporation) and, for a taxpayer that is
not required to file a return of tax, the
appropriate information return (for exam-
ple, Form 1065, U.S. Return of Partner-
ship Income, and Form 990, Return of
Organization Exempt From Income Tax)
for federal income tax purposes.

.07 Form 3115.

(1) In general. The term "Form 3115"
means the Form 3115 most recently re-
leased by the IRS or, when permitted in
the applicable section of the List of Auto-
matic Changes, a short Form 3115, as
described in SECTION 3.07(2), and any
attachments to the Form 3115 or short
Form 3115.

(2) Short Form 3115. A "short Form
3115" means:

(a) only the following information
must be completed on Form 3115:

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

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

(iii) Part I, line 1(a); and

(b) any additional information required
in this revenue procedure or the applicable
section of the List of Automatic Changes
to be attached to or included with a Form
3115.

.08 Issue under consideration.

(1) Under examination. A taxpayer's
method of accounting for an item is an
"issue under consideration" for the tax-
able year(s) under examination as of the
date of any written notification to the tax-
payer (for example, draft or final (a) ex-
amination plan, (b) information document
request (IDR), or (c) notification of pro-
posed adjustments or income tax exami-
nation changes) from the examining
agent(s) specifically citing the treatment
of the item as an issue under consider-
ation. If an examining agent does not pro-
pose an adjustment for the item that is an
issue under consideration during the ex-
amination, the item continues to be an
issue under consideration after that exam-
ination ends only if the issue is placed in
suspense. An item is an issue placed in
suspense if, by the date the examination
ends, the examining agent provides the

taxpayer with written notification of the
IRS's intent to examine the issue during
the examination of the subsequent taxable
year(s) to be examined.

An entity (including a limited liability
company) treated as a partnership or an S
corporation for federal income tax pur-
poses also has an issue under consider-
ation for the taxable year(s) under exam-
ination if the same item is an issue under
consideration in an examination of a part-
ner, member, or shareholder's federal in-
come tax return.

A corporation that is (or was formerly)
a member of a consolidated group also has
an issue under consideration for the tax-
able year(s) under examination if the same
item is an issue under consideration in an
examination of any other member of that
consolidated group for one or more of the
taxable year(s) that the corporation was a
member of the consolidated group.

The question of whether a method of
accounting is an issue under consideration
may be referred to the national office as a
request for technical advice under the pro-
visions of Rev. Proc. 2015-2, 2015-1
I.R.B. 105 (or successor).

Example 1. A taxpayer's method of pooling un-
der the dollar-value, last-in first-out (LIFO) inven-
tory method is an issue under consideration 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 inventories as a
matter to be examined.

Example 2. A taxpayer's method of determining
inventoriable costs under § 263A is an issue under
consideration as a result of an IDR that requests
documentation supporting the costs included in in-
ventoriable costs, but it is not an issue under consid-
eration as a result of an IDR that requests documen-
tation supporting the amount of cost of goods sold
reported on the federal income tax return.

(2) Before an Appeals office. A taxpay-
er's method of accounting for an item is
an issue under consideration for the tax-
able year(s) before an Appeals office if the
treatment of the item is included as an
item of adjustment in the examination re-
port referred to Appeals. Further, a tax-
payer's method of accounting for an item
is an issue under consideration as of the
date of Appeals' written notification to
the taxpayer specifically identifying the
method of accounting for the item as an
issue under consideration. If an Appeals
office submits to the Joint Committee on
Taxation pursuant to § 6405 a report of a
refund or credit, the method of accounting

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

continues to be an issue under consider-
ation by the Appeals office while the re-
fund or credit is under review by the Joint
Committee on Taxation.

An entity (including a limited liability
company) treated as a partnership or an S
corporation for federal income tax pur-
poses also has an issue under consider-
ation by an Appeals office if the same
item is an issue under consideration by an
Appeals office with respect to a partner,
member, or shareholder's federal income
tax return.

(3) Before a federal court. A taxpay-
er's method of accounting for an item is
an issue under consideration for the tax-
able year(s) before a federal court if the
treatment of the item is included as an
item of adjustment in the statutory notice
of deficiency, the notice of claim disal-
lowance, the notice of final administrative
adjustment, the pleadings (for example,
the petition, complaint, or answer) or
amendments thereto. Further a taxpayer's
method of accounting for an item is an
issue under consideration as of the date of
the government counsel's written notifica-
tion to the taxpayer specifically identify-
ing the method of accounting for the item
as under consideration. If a settlement
stipulation is submitted to the Joint Com-
mittee on Taxation pursuant to § 6405, the
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.

An entity (including a limited liability
company) treated as a partnership or an S
corporation for federal income tax pur-
poses also has an issue under consider-
ation before a federal court if the same
item is an issue under consideration be-
fore a federal court with respect to a part-
ner, member, or shareholder's federal in-
come tax return.

A corporation that is (or was formerly)
a member of a consolidated group also has
an issue under consideration before a fed-
eral court if the same item is an issue
under consideration before a federal court

for any other member of that consolidated
group for one or more of the taxable
year(s) that the corporation was a member
of the consolidated group.

(4) Certain foreign corporations. In the
case of a CFC or 10/50 corporation, the
foreign corporation's method of account-
ing for an item is an issue under consid-
eration if any of the corporation's control-
ling domestic shareholders (as defined in
§ 1.964-1(c)(5)) receives notification de-
scribed in SECTION 3.08(1), 3.08(2), or
3.08(3) that the treatment of a distribution,
deemed distribution, or inclusion from the
foreign corporation, or the amount of its
earnings and profits or foreign taxes deemed
paid, is an issue under consideration.

.09 List of Automatic Changes. The
List of Automatic Changes refers to Rev.
Proc. 2015-14 (or successor).

.10 Non-automatic change. A “non-
automatic change" is any change in
method of accounting for which the tax-
payer is eligible under SECTION 5.01(2)
to request the Commissioner's consent for
the requested year of change.

.11 Non-automatic change procedures.
The "non-automatic change procedures"
are all of the procedures and provisions in
this revenue procedure applicable to a
non-automatic change.

.12 Present method. The term "present
method" means the established method of
accounting from which the taxpayer is
requesting the Commissioner's consent to
change under this revenue procedure.

.13 Proposed method. The term "pro-
posed method" means the method of ac-
counting to which the taxpayer is request-
ing the Commissioner's consent to change
under this revenue procedure.

.14 SECTION. For purposes of this
revenue procedure, the term "SECTION"
means a section of this revenue procedure.

.15 Section 481(a) adjustment. The
"§ 481(a) adjustment" is the amount nec-
essary to prevent amounts from being du-
plicated or omitted as a result of the tax-
payer computing its taxable income for
the year of change and thereafter using a
different method of accounting as if the

different method of accounting had al-
ways been used. See SECTION 2.06(1).
The § 481(a) adjustment is computed as of
the beginning of the year of change. For a
change in method of accounting that af-
fects multiple accounts, the taxpayer's
§ 481(a) adjustment for that change is a
net § 481(a) adjustment. In computing the
net § 481(a) adjustment for a change, the
taxpayer must take into account all rele-
vant accounts. For example, the net
§ 481(a) adjustment for a change in the
proper time for deducting salary bonuses
under § 461 reflects any necessary adjust-
ments for amounts of salary bonuses cap-
italized to inventory under § 263A. The
term "§ 481(a) adjustment" includes a net
§ 481(a) adjustment.

Example 1. A taxpayer that is not required to use
inventories uses the overall cash receipts and dis-
bursements method of accounting and changes to an
overall accrual method of accounting. The taxpayer
has $120,000 of income earned but not yet received
(accounts receivable) and $100,000 of expenses in-
curred but not yet paid (accounts payable) as of the
end of the taxable year preceding the year of change
in method of accounting. A positive net § 481(a)
adjustment of $20,000 ($120,000 accounts receiv-
able less $100,000 accounts payable) is required as a
result of the change in method of accounting.

Example 2. X Corporation, a calendar year tax-
payer, is a producer and capitalizes costs that are
required to be capitalized into inventory under
§ 263A. Each February, X Corporation pays a salary
bonus to each production employee who remains in
its employment as of January 31 for the employee's
services provided in the prior calendar year. Under
its present method, X Corporation treats these salary
bonuses as incurred in the taxable year the employee
provides the related services. $40,000 of these salary
bonuses were treated as incurred in 2013, $8,000 of
which were capitalized into 2013 ending inventory,
and $32,000 of which were included in cost of goods
sold. For 2014, X Corporation proposes to change its
method of accounting to treat salary bonuses as
incurred in the taxable year in which all events have
occurred that establish the fact of the liability to pay
the salary bonuses and the amount of the liability can
be determined with reasonable accuracy. The com-
putation of X Corporation's net § 481(a) adjustment
for the change in method of accounting for salary
bonuses, which reflects the impact of the change in
method of accounting on the amount of salary bo-
nuses capitalized into beginning inventory for the
year of change, is demonstrated as follows:

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Salary bonuses treated as incurred before January 1, 2014, under the present method of accounting, but not incurred until on or after January 1, 2014, under the proposed method

$40,000

Beginning inventory as of January 1, 2014, with capitalized salary bonuses computed under the present method

$100,000

Beginning inventory as of January 1, 2014, with capitalized salary bonuses, computed under the proposed method

$92,000

Decrease in beginning inventory as of January 1, 2014

($8,000)

Net positive § 481(a) adjustment

$32,000

.16 Section 481(a) adjustment period.
The "§ 481(a) adjustment period" is the
applicable number of taxable years that the
taxpayer takes into account the § 481(a)
adjustment required as a result of the change
in method of accounting, beginning with the
year of change.

.17 Taxpayer.

(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)), and includes, where ap-
propriate, the taxpayer's authorized repre-
sentative, or designated shareholder, or
controlling domestic shareholders (as de-
fined in § 1.964-1(c)(5)).

(2) Consolidated group. Except as oth-
erwise provided (see, for example, SEC-
TION 3.08(1)), in the case of a consoli-
dated group, the term "taxpayer" is the
consolidated group member to which the
request for a change in method of ac-
counting relates. However, for any action
for which the common parent of the con-
solidated group must act as the agent for
that member pursuant to § 1.1502-77, the
taxpayer is the common parent of the con-
solidated group acting on behalf of that
member.

.18 Under examination.

(1) In general.

(a) Except as provided in SECTIONS
3.18(2), 3.18(3), 3.18(4), and 3.18(6), a
taxpayer is "under examination" with re-
spect to a federal income tax return as of
the date the taxpayer is contacted in any
manner by a representative of the IRS for
the purpose of scheduling or conducting
any type of examination of the return.
Except as provided in SECTIONS
3.18(1)(b), 3.18(1)(c), 3.18(2), 3.18(3),
3.18(4), and 3.18(5), an examination ends:

(i) in a case in which the IRS accepts
the federal income tax return as filed, on
the date of the IRS's "no change" final

letter (for example Letter 590, No Change
Final Letter) that is sent to the taxpayer;

(ii) in a fully agreed case, on the earli-
est of the date the taxpayer executes a
waiver of restrictions on assessment or
acceptance of overassessment (for exam-
ple, Form 870, Waiver of Restrictions on
Assessment and Collection of Deficiency
in Tax and Acceptance of Overassess-
ment, Form 4549, Income Tax Examina-
tion Changes, or Form 4605, Examination
Changes - Partnerships, Fiduciaries, S
Corporations, and Interest Charge Domes-
tic International Sales Corporations), the
date the taxpayer makes a payment of tax that
equals or exceeds the proposed deficiency, or
the date of the IRS's final "closing" letter (for
example, Letter 987, Agreed Income Tax
Change) that is sent to the taxpayer; or

(iii) in an unagreed or a partially agreed
case, on the earliest of the date Appeals
notifies the taxpayer that jurisdiction for
the case has been transferred to Appeals
from Examination, 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 final notice of claim disallowance.

(b) An examination does not end as a
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 of the notification to the taxpayer
that Appeals has transferred jurisdiction
of the case to Examination for reconsid-
eration. Further, notwithstanding SEC-
TIONS 3.18(1)(a)(iii) and 8.02(1)(b), if
the taxpayer is within a 120-day window
provided in SECTION 8.02(1)(b), that
120-day window is no longer available
to the taxpayer as of the date the IRS
notifies the taxpayer that jurisdiction for
the case has been transferred to the ex-
amining agent(s) for reconsideration.
The 120-day window provisions in
SECTION 8.02(1)(b) will be available

to the taxpayer when the resumed exam-
ination ends.

(2) Consolidated group member. A
corporation that is (or was formerly) a
member of a consolidated group is under
examination during the period of time the
consolidated group is under examination
for a taxable year(s) that the corporation
was a member of the group.

Example. X Corporation was a member of Y
consolidated group from Year 1 through Year 4. On
January 1, Year 5, Z consolidated group purchased X
Corporation. Thus, X Corporation is a member of Z
consolidated group in Year 5. On July 1, Year 5, a
representative of the IRS contacts the common parent
of Y consolidated group for purposes of scheduling or
conducting an examination of the Y consolidated group
return for year 2. Because X Corporation was a member
of Y consolidated group for the taxable year under
examination, X Corporation is under examination as of
July 1, Year 5, for purposes of this SECTION 3.18
even though it is no longer a member of Y consolidated
group.

(3) Partnerships subject to TEFRA. Ex-
cept as provided in SECTION 3.18(1)(b),
3.18(1)(c), 3.18(5), and 3.18(6), for an entity
(including a limited liability company)
treated as a partnership for federal in-
come tax purposes that is subject to the
TEFRA unified audit and litigation pro-
visions for partnerships, an examination
begins on the date of the notice of the
beginning of an administrative proceed-
ing that is sent to the Tax Matters Part-
ner (TMP) and ends:

(a) in a case in which the IRS accepts
the partnership return as filed, on the date
of the "no adjustments" final letter or the
"no change" notice of final administrative
adjustment that is 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
Collection of Deficiency in Tax for Part-
nership Adjustments, or Form 870-L,
Agreement to Assessment and Collection
of Deficiencies in Tax for Partnership Ad-
justments, Additions to Tax, and Affected
Items; or

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(c) in an unagreed or a partially agreed
case, on the earliest of the date the IRS
notifies the TMP that the examining
agent(s) has transferred jurisdiction for
the case to Appeals (for example, the date
that Appeals issues its uniform acknowl-
edgement letter to the TMP), the date the
TMP (or a partner or member) requests
judicial review, or the date on which the
period for requesting judicial review ex-
pires.

(4) Certain foreign corporations. A
foreign corporation that is not required to
file a federal income tax return is under
examination if any of its controlling domes-
tic shareholders (as defined in § 1.964-
1(c)(5)) is under examination for a taxable
year(s) in which any such shareholder was a
United States shareholder, as defined in
§ 951(b) or § 953(c)(1)(A), of the foreign
corporation. For purposes of this revenue
procedure, a foreign corporation is no lon-
ger under examination when all of its con-
trolling domestic shareholders are no lon-
ger under examination, as defined in this
SECTION 3.18.

(5) Taxpayer before Joint Committee
on Taxation. If a taxpayer is under exam-
ination (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 Taxation
inquiry pursuant to § 6405) then, notwith-
standing the performance of an act de-
scribed in SECTION 3.18(1), 3.18(2),
3.18(3), or 3.18(4), for purposes of this
revenue procedure, the taxpayer continues
to be under examination (for the taxable
year(s) that Examination reported to the
Joint Committee on Taxation) while the
taxpayer has a refund or credit under re-
view by the Joint Committee on Taxation.
A taxpayer that is not otherwise under
examination as of the date of an IRS letter
notifying the taxpayer of the IRS's pro-
posal to the Joint Committee on Taxation
in a report mandated by § 6405 regarding
the taxpayer's federal income tax return(s)
is not under examination solely as a result
of that letter. The examination ends on the
later of (i) the performance of the appli-
cable act described in SECTION 3.18(1),
3.18(2), 3.18(3), or 3.18(4), or (ii) the date
of the Joint Committee Specialist's writ-
ten 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. See Rev. Proc.
2005-32, 2005-1 C.B. 1206.

Example. A taxpayer's 2014 federal income tax
return is under examination. The examination results
in a minimum refund, which is an amount the tax-
payer is due to receive after offsetting any potential
unagreed deficiency, in excess of $2 million. The
taxpayer indicates agreement with the examiner's
findings on the agreed issues resulting in the mini-
mum refund by signing Form 870, Waiver of Re-
strictions on Assessment and Collection of Defi-
ciency in Tax and Acceptance of Overassessment,
and the Joint Committee Specialist Group reports the
refund to the Joint Committee on Taxation before
releasing the unagreed issues to Appeals. The tax-
payer continues to be under examination for 2014
until the later of (i) the performance of the applicable
act described in SECTION 3.18(1), 3.18(2), 3.18(3),
or 3.18(4) for the 2014 return, or (ii) the date of the
Joint Committee Specialist's written notification to
the taxpayer that the Joint Committee on Taxation
has completed its consideration of the minimum
refund for 2014 (for example, Letter 1574 (P)), or
that the 2014 minimum refund case has been with-
drawn from consideration by the Joint Committee on
Taxation.

(6) Taxpayer in Compliance Assurance
Process. For purposes of this revenue pro-
cedure, a taxpayer participating in the
Compliance Assurance Process (CAP) is
under examination as of the date the tax-
payer executes the Memorandum of Un-
derstanding for the CAP.

.19 Year of change. The "year of
change" is the taxable year for which a
change in method of accounting is effec-
tive, that is, the first taxable year the tax-
payer uses the proposed method of ac-
counting, even if no affected items are
taken into account for that year. The year
of change is also the first taxable year the
taxpayer must comply with all the appli-
cable provisions. For an automatic
change, the year of change is the taxable
year designated on the Form 3115 and for
which the Taxpayer timely filed a Form
3115 under SECTION 6.03(1)(a). For a
non-automatic change, except as provided
in SECTION 13 (request to revise the year
of change), SECTION 6.03(4)(b) (other
extensions of time), or other guidance
published in the Internal Revenue Bulletin
(IRB), the year of change is the taxable
year for which the taxpayer timely filed a
Form 3115 under SECTION 6.03(2)(a).

SECTION 4. SCOPE

This revenue procedure applies to a
taxpayer that requests the Commissioner's

consent pursuant to § 446(e) and § 1.446-
1(e)(3) to make a change in method of
accounting:

(1) described in the List of Automatic
Changes, or

(2) not described in the List of Auto-
matic Changes, unless the taxpayer may
obtain the Commissioner's consent to make
the requested change in method of account-
ing under another automatic change request
procedure in the Code or other guidance
published in the IRB (see, for example, sec-
tion 9.22(2) of Rev. Proc. 2015-1 (or suc-
cessor)).

SECTION 5. ELIGIBILITY

.01 In general.

(1) Automatic change. Except as other-
wise provided in the List of Automatic
Changes, a taxpayer within the scope of
this revenue procedure is eligible to re-
quest the Commissioner's consent to
make a change in method of accounting
under the automatic change procedures
only if:

(a) on the date the taxpayer files a Form
3115 (original or Ogden copy under SEC-
TION 6.03(1), whichever is filed earlier),
the change is described in the List of
Automatic Changes;

(b) on the date the taxpayer files a
Form 3115 (original or Ogden copy under
SECTION 6.03(1), whichever is filed ear-
lier), the taxpayer meets all requirements
for the change provided in the applicable
section of the List of Automatic Changes;

(c) within the requested year of change,
the taxpayer does not engage in a liquida-
tion or reorganization transaction to which
§ 381(a) applies as described in SEC-
TION 5.02(1), except as provided in SEC-
TION 5.02(2);

(d) the requested year of change is not
the final year of the trade or business as
described in SECTION 5.03(1), except as
provided in SECTION 5.03(2)(a);

(e) the taxpayer has not made or re-
quested an overall method change during
any of the five taxable years ending with
the year of change as described in SEC-
TION 5.04(1), except as provided in SEC-
TION 5.04(2); and

(f) the taxpayer has not made or re-
quested a change for the same item dur-
ing any of the five taxable years ending
with the year of change as described in

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

SECTION 5.05(1), except as provided
in SECTION 5.05(2).

(2) Non-automatic change. A taxpayer
within the scope of this revenue procedure is
eligible to request the Commissioner's con-
sent to make a change in method of account-
ing under the non-automatic change proce-
dures only if:

(a) on the date the taxpayer files a Form
3115 with the national office, the taxpayer
is not eligible to use the automatic change
procedures to make the change; and

(b) the requested year of change is not
the final year of the trade or business
under SECTION 5.03(1), except as pro-
vided in SECTION 5.03(2).

.02 Liquidations and reorganizations
under § 381(a).

(1) In general. Except as provided in
SECTION 5.02(2), any party that engages
in a liquidation or reorganization transac-
tion to which § 381(a) applies (§ 381(a)
transaction) within the requested year of
change (determined without regard to any po-
tential closing of the year under § 381(b)(1))
may not request the Commissioner's con-
sent to make a change in method of ac-
counting under the automatic change pro-
cedures for the taxable year in which the
§ 381(a) transaction occurs or is expected
to occur.

(2) Exception. SECTION 5.02(1)
does not apply if the taxpayer is request-
ing a change in method of accounting
described in § 1.381(c)(4)-1(a)(4) or (5)
or § 1.381(c)(5)-1(a)(4) or (5) that is not
required to be made under § 1.381(c)(4)-
1(d)(1) or § 1.381(c)(5)-1(d)(1), or a
change in method of computing the depre-
ciation allowance under § 381(c)(6).

.03 Final year of trade or business.

(1) In general. Except as provided in
SECTION 5.03(2), a taxpayer may not
request the Commissioner's consent to
make a change in method of accounting
under this revenue procedure for the tax-
able year the taxpayer ceases to engage in
the trade or business to which the change
in method of accounting would relate (fi-
nal year), as defined in SECTION 3.04.

(2) Exceptions. SECTION 5.03(1) does
not apply to a taxpayer:

(a) requesting consent to change its
method of accounting in the final year of
its trade or business as the result of a
transaction to which § 381(a) applies, or

(b) requesting consent under the non-
automatic change procedures if the tax-
payer demonstrates to the satisfaction of
the national office compelling circum-
stances, or that it is in the interest of sound
tax administration, for the taxpayer to
change the method of accounting pursuant
to SECTION 11.02(1).

.04 Prior five-year overall method
change.

(1) In general. Except as provided in
SECTIONS 5.04(2) and 15.02, if during
any of the five taxable years ending with
the year of change a taxpayer changed, or
applied for consent to change, its overall
method of accounting, regardless of
whether it implemented that change, the
taxpayer may not request the Commis-
sioner's consent to change its overall
method of accounting under the automatic
change procedures. However, a taxpayer
that changed its overall method of ac-
counting during the five taxable years
ending with the year of change may use
the automatic change procedures to re-
quest a change in method of accounting
for a specific item when that change may
otherwise be implemented under the pro-
visions of this revenue procedure. For pur-
poses of this SECTION 5.04(1), a change
in overall method of accounting does not
include the use of an overall method of
accounting when computing taxable in-
come for the taxable year that the taxpayer
first files a federal income tax return
("adopts an overall method of account-
ing") or a change in method of accounting
imposed by the IRS pursuant to Rev. Proc.
2002-18 (or any successor).

(2) Exception. SECTION 5.04(1) does
not apply to a taxpayer if the national
office sent the taxpayer a letter instructing
the taxpayer to file the Form 3115, if
otherwise eligible, that was originally
filed under the non-automatic change pro-
cedures, under the automatic change pro-
cedures and the taxpayer timely files a
Form 3115 for the same change in method
of accounting for the same year of change
under the automatic change procedures.

### (3) Examples.

Example 1. A, an attorney, began business in
2003 and adopted the overall cash method of ac-
counting. For 2010, A changed to an overall accrual
method of accounting using the appropriate admin-
istrative guidance. A may not use the automatic
change procedures for 2014 to change to the overall
cash method because of the five-year change limita-

tion in this SECTION 5.04. However, A may still be
able to use the automatic change procedures to
change the method of accounting the taxpayer will
use to treat advances made on behalf of clients for
2014. See section 3.01 of the List of Automatic
Changes.

Example 2. B, an attorney, began business in
2003 and adopted the overall cash method of ac-
counting. B is a calendar year taxpayer. For the 2011
taxable year, B filed the national office copy of the
Form 3115 on January 31, 2011, requesting to
change its method of accounting to an overall ac-
crual method under section 14.01 of the APPENDIX
of Rev. Proc. 2011-14. B did not implement the
requested change to an overall accrual method of
accounting on its 2011 federal income tax return.
Rather, B timely filed its 2011 federal income tax
return using the overall cash method of accounting,
and did not attach the original Form 3115 to its
return. B may not use the automatic change proce-
dures for 2014 to change to an overall accrual
method because of the five-year change limitation in
this SECTION 5.04. However, B may still be able to
use the automatic change procedures to change the
method of accounting the taxpayer will use to treat
advances made on behalf of clients for 2014. See
section 3.01 of the List of Automatic Changes.

.05 Prior five-year item change.

(1) In general. Except as provided in
SECTIONS 5.05(2) and 15.02, if during
any of the five taxable years ending with
the year of change a taxpayer changed, or
applied for consent to change, its method
of accounting for a specific item, regardless
of whether it implemented that change, the
taxpayer may not request the Commis-
sioner's consent to change its method of
accounting for that same item under the
automatic change procedures. For pur-
poses of this SECTION 5.05(1), a change
in method of accounting for a specific
item does not include the use of a method
of accounting (for example, include in
income, deduct, or capitalize) for the first
taxable year that the taxpayer accounts for
the item or a change in method of ac-
counting imposed by the IRS pursuant to
Rev. Proc. 2002-18 (or any successor).

(2) Exceptions. SECTION 5.05(1) does
not apply to a taxpayer if:

(a) the change in method of accounting
for the specific item is required as part of
another change in method of accounting
that the taxpayer may otherwise request
under the automatic change procedures;

(b) the national office sent the taxpayer
a letter instructing the taxpayer to file the
Form 3115, if otherwise eligible, that was
originally filed under the non-automatic
change procedures, under the automatic
change procedures and the taxpayer timely
files a Form 3115 for the same change in

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

method of accounting for the same year of
change under the automatic change proce-
dures; or

(c) the specific item is an inventory
sub-method within the last-in, first-out
(LIFO) inventory method (for example,
the method of determining current-year
cost or the method of computing a dollar-
value pool index) and during any of the five
taxable years ending with the year of
change, the taxpayer (i) adopted or changed
to the LIFO inventory method, or (ii) did not
change its method of accounting with re-
spect to the same inventory sub-method
within LIFO.

(3) Examples.

Example 1. A uses the LIFO inventory method.
For 2010, A changed a LIFO inventory sub-method.
Specifically, A changed from the average-cost
method of determining the current-year cost of in-
ventories to the earliest-acquisitions cost method.
For 2014, A seeks to change to the IPIC method of
computing the index and value of its dollar-value
pools, a method that A has never used. As part of this
change, A seeks to change its method of determining
the current-year cost of inventories from the earliest-
acquisitions cost method to the most-recent acquisi-
tions cost method. A is eligible to change its method
of computing the index and value of its dollar-value
pools to the IPIC method under this revenue proce-
dure. However, A is not eligible to change its method
of determining the current-year costs of inventories
under the automatic change procedures because A
changed its method of accounting with respect to the
same LIFO inventory sub-method within the pro-
scribed five-year period.

Example 2. B uses the dollar-value LIFO inven-
tory 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 2010,
B terminated its use of the LIFO inventory method
for its used cars and used trucks under Rev. Proc.
2008-52. For 2014, B seeks to terminate its use of
the LIFO inventory method for its new cars and new
trucks. B is eligible to change its method of account-
ing for new cars and new trucks under the automatic
change procedures because it has not changed the
inventory identification method for the pools of new
cars and new trucks within the proscribed five-year
period.

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 2012, C properly elected
the deferral method for advance payments as de-
scribed in Rev. Proc. 2004-34. For 2014, C seeks 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 under the automatic change procedures
for advance payments even though it made a prior
change in its method of accounting for advance
payments within the previous 5 taxable years ending
with 2014 because C is required to change its treat-

ment of advance payments as part of its change to
the overall cash method of accounting.

## SECTION 6. GENERAL APPLICATION PROCEDURES

.01 Requesting consent. Except as oth-
erwise provided in the List of Automatic
Changes, the Code, or other guidance
published in the IRB, a taxpayer requests
the Commissioner's consent to change a
method of accounting under this revenue
procedure by completing and filing a
Form 3115.

.02 Completing Form 3115.

(1) Separate Forms 3115. Ordinarily, a
taxpayer may request only one change in
method of accounting on a Form 3115. If
the taxpayer wants to request a change in
method of accounting for more than one
unrelated item or sub-method of account-
ing, the taxpayer must submit a separate
Form 3115 for each unrelated item or sub-
method, except in certain situations in
which the IRS specifically permits certain
unrelated changes to be included on a
single Form 3115. See, for example, section
14.03 of the List of Automatic Changes. See
section 9.02 of Rev. Proc. 2015-1 (or suc-
cessor).

(2) Form 3115 contents. The taxpayer
must submit a Form 3115 that is accurate
and, except as specifically permitted in the
applicable section of the List of Auto-
matic Changes, complete. The Form 3115
must include all relevant facts, including
all information and representations re-
quired by this revenue procedure, the ap-
plicable provisions of Rev. Proc. 2015-1
(or successor), the current instructions for
Form 3115, and the applicable section of
the List of Automatic Changes (in the case
of an automatic change).

(3) Designated automatic accounting
method change number. In the case of a
Form 3115 filed under the automatic
change procedures, the taxpayer must in-
clude the designated automatic accounting
method change number in the applicable
section of the List of Automatic Changes
on the applicable line of Form 3115. For
example, the designated automatic ac-
counting method change number for the
change in method of accounting identified
in section 1.01 of the List of Automatic
Changes is 91. Therefore, a taxpayer re-
questing consent for the change in method
of accounting identified in section 1.01 of

the List of Automatic Changes for its tax-
able year ending December 31, 2014,
must enter the number "91" on Line 1(a)
of Form 3115.

In general, a taxpayer may enter only one
designated automatic accounting method
change number on a Form 3115. However,
where the List of Automatic Changes or
other guidance published in the IRB spe-
cifically permits or requires a taxpayer to
request two or more particular changes in
method of accounting on a single Form
3115, the taxpayer must enter the desig-
nated automatic accounting method
change number for each such particular
change being requested on the applicable
line of the Form 3115.

(4) Taxpayer with more than one trade
or business. A taxpayer with multiple
trades or businesses filing a Form 3115 for
one or more of those trades or businesses
must identify, by name, the trades or busi-
nesses to which the change relates. The
taxpayer must also identify, by name, all
other trades or businesses and explain the
method of accounting used for each trade
or business for the particular item that is
the subject of the Form 3115. Except as
provided in sections 9.02 and 15.07(4) of
Rev. Proc. 2015-1 (or successor), the tax-
payer must submit a separate Form 3115
and, in the case of a non-automatic
change, user fee for each trade or business
of the taxpayer for which consent for a
change in method of accounting is re-
quested.

(5) Consolidated groups. A common
parent requesting a change in method of
accounting on behalf of a member of the
consolidated group must explain the
method of accounting used by each mem-
ber of the consolidated group for the par-
ticular item that is the subject of the Form
3115. Except as provided in sections 9.02
and 15.07(4) of Rev. Proc. 2015-1 (or
successor), the common parent must sub-
mit a separate Form 3115 and, in the case
of a non-automatic change, user fee for
each member of the consolidated group
(and for each trade or business of each
member) for which consent for a change
in method of accounting is requested.

(6) Certain foreign corporations. In the
case of a CFC or a 10/50 corporation that
is not required to file a federal income tax
return, the controlling domestic share-
holders (as defined in § 1.964-1(c)(5))

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

that want to change the foreign corpora-
tion's method of accounting must satisfy
the requirements set forth in § 1.964-
1(c)(3). The designated shareholder that
retains the jointly executed consent de-
scribed in § 1.964-1(c)(3)(ii) must com-
plete and file a Form 3115 on behalf of the
foreign corporation, the applicant. Except
as provided in sections 9.02 and 15.07(4)
of Rev. Proc. 2015-1 (or successor), the
designated shareholder must submit a sep-
arate Form 3115 and, in the case of a
non-automatic change, user fee for each
CFC or 10/50 corporation for which con-
sent for a change in method of accounting
is requested.

(7) Certain foreign partnerships. In the
case of a foreign partnership that is not
required to file a federal income tax re-
turn, the partners or partner described in
§ 1.6031(a)-1(b)(5)(i) or (ii), respectively,
may file a Form 3115 on behalf of the
foreign partnership, the applicant.

(8) Signature requirements. The Form
3115 must be signed by, or on behalf of,
the taxpayer requesting the change in
method of accounting by an individual
who has personal knowledge of the facts
of, and authority to bind the taxpayer in,
such matters. For example, if the taxpayer
is a member of a consolidated group, the
Form 3115 submitted on behalf of the
taxpayer must be signed by a duly autho-
rized officer of the common parent with
personal knowledge of the facts of, and
authority to bind the taxpayer in, such
matters. Further, if the individual who, for
compensation, prepared the Form 3115 is
not the taxpayer or an individual with
authority to sign the Form 3115 on behalf
of the taxpayer, the preparer must also
sign the Form 3115. See the additional
signature requirements in the current In-
structions for Form 3115 regarding those
who are permitted and required to sign.

.03 Filing Form 3115. A Form 3115 is
filed under this revenue procedure if the
taxpayer complies with all applicable pro-
visions of this SECTION 6.03.

(1) Automatic change.

(a) When and where to file Form 3115.
The requirement in § 1.446-1(e)(3)(i) to
file a Form 3115 within the requested year
of change is waived for any Form 3115
filed under the automatic change proce-
dures. See § 1.446-1(e)(3)(ii).

(i) In general. Except as otherwise pro-
vided in this revenue procedure or in the
List of Automatic Changes, a taxpayer
requesting to change a method of account-
ing under the automatic change proce-
dures must complete a Form 3115 as re-
quired by SECTION 6.02 and file that
Form 3115 in duplicate, as follows:

(A) Original Form 3115. The original
completed Form 3115 (or an electronic
version of the Form 3115) must be at-
tached to the taxpayer's timely filed (includ-
ing any extension) original federal income
tax return implementing the requested auto-
matic change for the requested year of
change; and

(B) Ogden copy of Form 3115. A
signed copy of the original Form 3115
must be filed with the IRS in Ogden, UT
(Ogden copy) at the applicable address in
section 9.05 of Rev. Proc. 2015-1 (or
successor) no earlier than the first day of
the requested year of change and no later
than the date the taxpayer files the original
Form 3115 with the federal income tax
return for the requested year of change.

(ii) Certain foreign corporations. If
SECTION 6.02(6) applies, the original
Form 3115 must be attached to the desig-
nated shareholder's (or, if a member of a
consolidated group, 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 signed copy of the original Form
3115 must be filed with the IRS in Ogden,
UT (see the applicable address in section
9.05 of Rev. Proc. 2015-1 (or successor))
no earlier than the first day of the year of
change and no later than the date the des-
ignated shareholder (or its common par-
ent) files the original Form 3115 with the
designated shareholder'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.

(iii) Certain foreign partnerships. If
SECTION 6.02(7) applies, the original
Form 3115 must be attached to the return
on the form prescribed for the partnership
return that must be filed for the partner-
ship as described in § 1.6031(a)-1(b)(5)
(for example, Form 1065, U.S. Return of
Partnership Income) and a signed copy of
the original Form 3115 must be filed with
the IRS in Ogden, UT (see the applicable

address in section 9.05 of Rev. Proc.
2015-1 (or successor)) no earlier than the
first day of the requested year of change
and no later than the date the partnership
files the original Form 3115.

(b) Certain concurrent changes in
method of accounting. Ordinarily, a tax-
payer must submit a separate Form 3115
for each automatic change. See SECTION
6.02(1). In some cases, however, the List
of Automatic Changes describes particu-
lar changes in method of accounting that a
taxpayer is required or permitted to re-
quest on a single Form 3115 (concurrent
changes). See, for example, section 14.03
of the List of Automatic Changes. When
the taxpayer is required or permitted to
file a single Form 3115 for two or more
concurrent changes, the taxpayer must
provide all of the information required for
each change separately. For example, the
single Form 3115 filed for the taxable year
ending December 31, 2014, must include
the information required by Part II, line
12, Part IV (including the amount of any
§ 481(a) adjustment), and any other line(s)
on Form 3115 for each change in method
of accounting included on that Form 3115.

(c) No user fee. A user fee is not re-
quired for a Form 3115 filed under the
automatic change procedures.

(d) No acknowledgement of receipt.
The IRS does not send an acknowledge-
ment of receipt for a Form 3115 (original
or copy) filed under the automatic change
procedures.

(e) Correspondence regarding a previ-
ously filed Form 3115. If a taxpayer sub-
mits additional correspondence regarding
its Form 3115 filed under the automatic
change procedures (for example, a revised
§ 481(a) adjustment or power of attorney),
it must attach a copy of the additional
correspondence behind a copy of page 1
of the previously filed Form 3115 and
submit it to the IRS in Ogden, UT (see the
applicable address in section 9.05 of Rev.
Proc. 2015-1 (or successor)). Further, if
the taxpayer is under examination, before
an Appeals office, or before a federal
court with respect to any income tax issue,
the taxpayer must provide a copy of any
additional correspondence it submits re-
garding its Form 3115 to the examining
agent(s), Appeals officer(s), and all coun-
sel to the government, as applicable, no
later than the date the taxpayer submits

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the additional correspondence to the IRS
in Ogden, UT.

(2) Non-automatic change.

(a) When to file Form 3115.

(i) In general. A taxpayer requesting to
change a method of accounting under the
non-automatic change procedures must
complete a Form 3115 as required by
SECTION 6.02 and, except as specifically
provided in this revenue procedure or
other guidance published in the IRB, file
that Form 3115 during the requested year of
change. See § 1.446-1(e)(3)(i). However,
see, for example, SECTIONS 6.03(2)(a)(ii),
6.03(2)(a)(iii), and 6.03(4)(b), which allow
a taxpayer in certain limited circumstances
additional time to file a Form 3115 after the
year of change.

(ii) New member of a consolidated
group in CAP. A taxpayer requesting a
change in method of accounting to which
SECTION 8.02(1)(d) (new member of a
consolidated group in CAP) applies must
file the Form 3115 on behalf of a new
member by the earlier of:

(A) 90 calendar days after the date the
new member becomes a member of the
consolidated group, or

(B) 30 calendar days after the end of
the taxable year in which the new member
becomes a member of the consolidated
group.

(iii) Certain transactions to which
§ 381(a) applies. A party to a transaction
to which § 381(a) applies requesting con-
sent to make a non-automatic change de-
scribed in § 1.381(c)(4)-1(a)(4) or (5), or
in § 1.381(c)(5)-1(a)(4) or (5) must file
the Form 3115 on or before the later of:

(A) the due date for filling a Form 3115
as specified in § 1.446-1(e), or

(B) the earlier of:

(1) the day that is 180 calendar days
after the date of distribution or transfer, or

(2) the day on which the acquiring cor-
poration files its federal income tax return
for the taxable year in which the distribution
or transfer occurred. See §§ 1.381(c)(4)-
1(d)(2)(iii) and 1.381(c)(5)-1(d)(2)(iii).

(b) Where to file Form 3115. A tax-
payer requesting consent to change a
method of accounting under the non-
automatic change procedures must file its
completed Form 3115, together with the
appropriate user fee, with the national of-
fice at the applicable address in section
9.05 of Rev. Proc. 2015-1 (or successor).

(c) User fee. A taxpayer requesting to
change a method of accounting under the
non-automatic change procedures must
submit the required user fee(s) for its
Form 3115. Rev. Proc. 2015-1 (or succes-
sor) contains the schedule of user fees and
provides guidance regarding the user fee
requirements.

(3) Additional required copies of Form
3115 and Consent Agreement.

(a) Taxpayer under examination, be-
fore an Appeals office, or before a federal
court. If the taxpayer is under examina-
tion, before an Appeals office, or before a
federal court with respect to any income
tax issue, the taxpayer must provide an
additional signed copy of the original
Form 3115 to the examining agent(s), Ap-
peals officer(s), and all counsel to the gov-
ernment, as applicable, no later than the
date the taxpayer timely files the Form
3115 (original or Ogden copy, whichever
is filed earlier, in the case of an automatic
change).

(b) Certain foreign corporations. If
SECTION 6.02(6) applies, each control-
ling domestic shareholder (or, if a member
of a consolidated group, its common par-
ent), other than the designated share-
holder, must attach a signed copy of the
Form 3115 (in the case of an automatic
change) or a copy of the jointly executed
Consent Agreement (in the case of a non-
automatic change) (see further, SECTION
11.03(2)(a)) to its federal income tax
return filed for its taxable year with or
within which ends such year of change.
Further, SECTION 6.03(3)(a) applies to
each controlling domestic shareholder
that is under examination, before an Ap-
peals office, or before a federal court
with respect to any income tax issue.

(c) Certain foreign partnerships. If
SECTION 6.02(7) applies, each partner
that is required to file a Form 8865, Return
of U.S. Persons With Respect to Certain
Foreign Partnerships, as a Category 1 or
Category 2 filer must attach a signed copy
of the Form 3115 (in the case of an auto-
matic change) or a copy of the jointly
executed Consent Agreement (in the case
of a non-automatic change) (see further,
SECTION 11.03(2)(a)) to its federal in-
come tax return filed for its taxable year
with or within which ends such year of
change. Further, SECTION 6.03(3)(a) ap-
plies to each partner that is required to file

a Form 8865, Return of U.S. Persons With
Respect to Certain Foreign Partnerships,
as a Category 1 or Category 2 filer that is
under examination, before an Appeals of-
fice, or before a federal court with respect
to any income tax issue.

(4) Extensions of time to file.

(a) Automatic extension for Form
3115. An automatic extension of 6
months from the due date (excluding
any extension) of the federal income tax
return for the year of change requested on
the Form 3115 is granted to file a Form 3115
under the automatic change procedures pro-
vided the taxpayer:

(i) timely filed (including any exten-
sion) its original federal income tax return
for the year of change;

(ii) files an amended return within the
6-month extension period implementing
the requested change in method of ac-
counting for the year of change;

(iii) attaches the original Form 3115 to
the amended return;

(iv) files a signed copy of the original
Form 3115 with the IRS in Ogden, UT
(see the applicable address in section 9.05
of Rev. Proc. 2015-1 (or successor) no
later than the date the original is filed with
the amended return;

(v) provides a signed copy of the orig-
inal Form 3115 to the examining agent,
Appeals officer(s) or all counsel to the
government, as applicable, as required by
SECTION 6.03(3); and

(vi) attaches a statement to the Form
3115 (original, Ogden, and any other copy
required by SECTION 6.03(3)) that the
Form 3115 is being filed pursuant to
§ 301.9100-2(b) of the Procedure and
Administration Regulations.

(b) Other extensions of time. Except in
unusual and compelling circumstances or
as provided in SECTION 6.03(4)(a), a
taxpayer is not eligible for an extension of
time to file a Form 3115 and is not eligible
to make a late election under SECTION
7.03(3)(d) under §§ 301.9100-1 and
301.9100-3. See § 301.9100-3(c)(2) and
Rev. Proc. 2015-1 (or successor).

## SECTION 7 . TERMS AND CONDITIONS OF CHANGE

.01 In general. A change in method of
accounting requested under this revenue
procedure for which consent is granted
must be implemented pursuant to both the

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

terms and conditions provided in this rev-
enue procedure and either the List of Au-
tomatic Changes (in the case of an auto-
matic change) or the letter ruling for the
change (in the case of a non-automatic
change). Notwithstanding the terms and
conditions in this revenue procedure,
based on the unique facts of a particular
case and in the interest of sound tax ad-
ministration, the national office may pre-
scribe in the letter ruling for a non-
automatic change terms and conditions for
the requested change in method of ac-
counting that differ from and override
those provided in this revenue procedure.

.02 Section 481(a) adjustment. Except
as otherwise provided in this revenue pro-
cedure, the List of Automatic Changes (in
the case of an automatic change), a letter
ruling to the taxpayer (in the case of a
non-automatic change), or other guidance
published in the IRB, a taxpayer making a
change in method of accounting under this
revenue procedure must apply § 481(a)
and take into account the § 481(a) adjust-
ment in the manner provided in SECTION
7.03. See SECTION 2.06(1); but see SEC-
TION 13.01(3).

.03 Section 481(a) adjustment period.

(1) In general. Except as otherwise
provided in this revenue procedure, the
List of Automatic Changes (in the case of
an automatic change), a letter ruling to the
taxpayer (in the case of a non-automatic
change), or other guidance published in
the IRB, the § 481(a) adjustment period is
one taxable year (year of change) for a
negative § 481(a) adjustment and four tax-
able years (year of change and next three
taxable years) for a positive § 481(a) ad-
justment. Except as otherwise provided in
this revenue procedure, the List of Auto-
matic Changes (in the case of an auto-
matic change), or other guidance pub-
lished in the IRB, a taxpayer must take a
positive § 481(a) adjustment into account
ratably over the § 481(a) adjustment pe-
riod. Where multiple eligible taxpayers or
trades or businesses request an identical
change in method of accounting for the
same item on a single Form 3115 pursuant
to section 15.07(4) of Rev. Proc. 2015-1
(or successor), each taxpayer or trade or
business has its own § 481(a) adjustment
period, applied to its own § 481(a) adjust-
ment.

(2) Short period as a separate taxable
year.

(a) In general. If the year of change or
any other taxable year during the § 481(a)
adjustment period for a positive § 481(a)
adjustment is a short taxable year, the
taxpayer must take the § 481(a) adjust-
ment into account as if that short taxable
year were a full 12-month taxable year.
See Rev. Rul. 78-165, 1978-1 C.B. 276.

### (b) Examples.

Example 1. A calendar year taxpayer receives
permission to change its method of accounting be-
ginning with the 2014 calendar year in a situation not
described in SECTION 7.03(3) or 7.03(4). The
§ 481(a) adjustment for this change in method of
accounting is a positive adjustment of $60,000 and
the adjustment period is four taxable years. The
taxpayer subsequently receives permission to change
its annual accounting period to September 30, effec-
tive for the taxable year ending September 30, 2015.
The taxpayer must include $15,000 of the § 481(a)
adjustment in gross income for the short period from
January 1, 2015, through September 30, 2015.

Example 2. Corporation X, a calendar year tax-
payer, received permission to change its method of
accounting beginning with the 2014 calendar year.
The § 481(a) adjustment for this method of account-
ing change is a positive adjustment of $60,000 and
the adjustment period is four taxable years. On July
1, 2015, Corporation Z acquires Corporation X in a
transaction to which § 381(a) applies. Corporation Z
is a calendar year taxpayer that uses the same
method of accounting to which Corporation X
changed in 2014. Corporation X must include
$15,000 of the § 481(a) adjustment in gross in-
come for its short period for January 1, 2015,
through June 30, 2015. In addition, Corporation Z
must include $15,000 of the § 481(a) adjustment in
gross income for calendar year 2015.

(c) Certain transfers to which § 381(a)
applies. For a § 381 transaction that is
described in SECTION 3.04(4) and that
occurs between members of a consoli-
dated group, for purposes of this revenue
procedure, the portion of the § 481(a)
adjustment attributable to the short tax-
able year of the transferor ending on the
date of the § 381(a) transaction must be
treated as an intercompany item as defined
in § 1.1502-13(b)(2) and taken into ac-
count under the rules of § 1.1502-13. The
acquiring corporation is subject to any
terms and conditions imposed on the
transferor (or any predecessor of the trans-
feror) as a result of its change in method
of accounting.

(3) Shortened adjustment periods. The
four-year § 481(a) adjustment period pro-
vided in SECTION 7.03(1) for a positive
§ 481(a) adjustment does not apply in the
following situations:

(a) Cooperatives. For a cooperative
within the meaning of § 1381(a), the
§ 481(a) adjustment period for a positive
§ 481(a) adjustment generally is one tax-
able year (year of change). See Rev. Rul.
79-45, 1979-1 C.B. 284.

(b) Taxpayers under examination with
positive § 481(a) adjustments. The
§ 481(a) adjustment period is two taxable
years (year of change and next taxable
year) for a positive § 481(a) adjustment
for a change in method of accounting
requested when a taxpayer is under ex-
amination, unless SECTION 8.02(1)(a)
(change filed in a three-month window),
8.02(1)(b) (change filed in a 120-day
window), 8.02(1)(c) (present method
not before the director) or 8.02(1)(d)
(new member of a consolidated group in
CAP) applies.

(c) De minimis election. A taxpayer
may elect a one-year § 481(a) adjustment
period (year of change) for a positive
§ 481(a) adjustment that is less than
$50,000. To make this election, the tax-
payer must complete the appropriate line
on the Form 3115 and take the entire
§ 481(a) adjustment into account in the
year of change when it implements the
change in method of accounting.

(d) Eligible acquisition transaction
election.

(i) In general. A taxpayer may elect a
one-year § 481(a) adjustment period (year
of change) for all (but not some) positive
§ 481(a) adjustments for the year of change
if an eligible acquisition transaction, as de-
fined in SECTION 7.03(3)(d)(iii), occurs
during the year of change or in the subse-
quent taxable year on or before the due
date (including any extension) for filing
the taxpayer's federal income tax return
for the year of change. The election, once
made, is irrevocable and applies to all
changes in method of accounting the tax-
payer makes pursuant to this revenue pro-
cedure for the year of change. A taxpayer
may make this election even if the tax-
payer executes a Consent Agreement that
contains a longer § 481(a) adjustment pe-
riod in the case of a Form 3115 filed under
the non-automatic change procedures. To
make this election, a taxpayer must file, in
duplicate, the election statement that con-
tains the required information in SEC-
TION 7.03(3)(d)(ii). The taxpayer must
attach the original election statement to

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the taxpayer's timely filed (including any
extension) original federal income tax re-
turn for the year of change (even if a
non-automatic change is pending with the
national office) and file the copy, which
must be signed by the Form(s) 3115 filer,
with the IRS, no later than the date the
taxpayer files the original election state-
ment with its original federal income tax
return for the year of change. See also
SECTION 6.03(4)(b). The taxpayer must
submit the signed copy to the following
address: Internal Revenue Service; Attn:
Eligible Acquisition Transaction Office,
CC:ITA; 1111 Constitution Ave., N.W .;
Washington DC 20224. Further, a pass-
through entity must retain in its books
and records for the year of change each
owner or beneficiary's agreement to not
apply § 481(b) and § 1.481-2 to support
the statement required by SECTION
7.03(3)(d)(ii)(G).

(ii) Election Statement. The eligible ac-
quisition transaction election statement
must include:

(A) the name and taxpayer identifica-
tion number of the Form(s) 3115 filer;

(B) the name of the applicant (taxpayer
making the change in method of account-
ing) on the Form(s) 3115;

(C) the year of change (including the
beginning and ending dates);

(D) the date of the eligible acquisition
transaction;

(E) the Form(s) 3115 filer's signature
and date;

(F) the following statement:

"The Form(s) 3115 filer elects a
one-year adjustment period pursu-
ant to SECTION 7.03(3)(d) of Rev.
Proc. 2015-13 for all changes in
method of accounting made by the
applicant (the taxpayer) pursuant to
Rev. Proc. 2015-13 for the year of
change. The filer agrees that the
limitation on tax in § 481(b) and
§ 1.481-2 will not be applied for
any § 481(a) adjustment for all
changes in method of accounting
made by the taxpayer."; and

(G) if the taxpayer is a pass-through
entity, such as a partnership, S corpora-
tion, or trust, the following representation:

"The taxpayer represents that it has
obtained (either directly or by dele-
gation) from each owner or benefi-
ciary, as applicable, who was an
owner or beneficiary during the year

of change a written agreement that
the owner or beneficiary agrees to
not apply the limitation on tax in
§ 481(b) and § 1.481-2 for any
§ 481(a) adjustment for all changes
in method of accounting made by
the taxpayer pursuant to Rev. Proc.
2015-13 for the year of change."

(iii) Eligible acquisition transaction.
An eligible acquisition transaction means:

(A) For a CFC or a corporation that is
not an S corporation, (1) an acquisition of
stock ownership interest in the taxpayer
by another party that either results in the
acquisition of control of the taxpayer or
causes the taxpayer's taxable year to end,
or (2) an acquisition of assets in a trans-
action to which § 381(a) applies, and

(B) For all other taxpayers, an acquisi-
tion of an ownership interest in the tax-
payer by another party that does not cause
the taxpayer to cease to exist for federal
income tax purposes (for example, the
sale or exchange of a partnership interest
that does not cause a technical termination
of the partner under § 708(b)(1)(B)).

(iv) Examples.

Example 1. X Corporation enters into an agree-
ment to sell all of X Corporation's stock ownership
interest in T Corporation, a wholly-owned subsidiary
of X, to Z Corporation. T Corporation is a calendar
year taxpayer. In the course of Z Corporation's due
diligence review of T Corporation, Z Corporation
discovers that T Corporation improperly defers ad-
vance payments for services. Z Corporation requests
that prior to its acquisition of T Corporation's stock,
T Corporation change its method of accounting for
advance payments for services to a proper deferral
method for 2014. On February 28, 2015, Z Corpo-
ration acquires X Corporation's stock ownership in-
terest in T Corporation. On March 14, 2015, T Cor-
poration files for an extension of time to file its 2014
federal income tax return. On September 15, 2015, T
Corporation files the original and Ogden copy of a
Form 3115 under the automatic change procedures
to change its method of accounting for advance
payments for services for 2014 (year of change),
which results in a positive § 481(a) adjustment of
$1,000,000. T Corporation follows the procedures in
SECTION 7.03(3)(d) to elect a one-year adjustment
period for all changes in method of accounting that it
makes pursuant to this revenue procedure for 2014
(year of change). Pursuant to this election, T Corpo-
ration must take into account the entire $1,000,000
§ 481(a) adjustment for its change in method of
accounting for advance payments for services in
determining its taxable income for 2014 (year of
change).

Example 2. On December 31, 2014, X Corpora-
tion, the common parent of an affiliated group of
corporations (X Group) that file a consolidated re-
turn, owns 65% of the stock of T Corporation. On
June 30, 2015, X Corporation purchases additional
shares of T Corporation's stock sufficient to include

T Corporation in the consolidated return of the X
Group. T Corporation is a calendar year taxpayer. X
Corporation's acquisition of additional shares of T
Corporation stock causes T Corporation's taxable
year to end under § 1.1502-76(b). On August 1,
2015, T Corporation files the original and Ogden
copy of a Form 3115 under the automatic change
procedures to change its method of accounting for T
Corporation's short taxable year ending June 30,
2015 (year of change), which results in a positive
§ 481(a) adjustment of $1,000,000. T Corporation
follows the procedures in SECTION 7.03(3)(d) to
elect a one-year adjustment period for all changes in
method of accounting made by T Corporation pur-
suant to this revenue procedure for its short taxable
year ending June 30, 2015 (year of change). Pursuant
to this election, T Corporation must take into account
the entire $1,000,000 § 481(a) adjustment for this
change in method of accounting in determining T
Corporation's taxable income for its short taxable
year ending June 30, 2015 (year of change).

Example 3. During 2014, P Partnership, a calen-
dar year taxpayer consisting of Partners A, B, C, and
D, files a Form 3115 under the non-automatic change
procedures for a change in method of accounting for
2014 (year of change) that results in a positive
§ 481(a) adjustment of $1,200,000. P Partnership
receives consent for that change in method of ac-
counting in a letter ruling dated February 12, 2015.
On February 26, 2015, Partner A, who already owns
10% interest in P Partnership purchases all of Part-
ner B's 20% interest in P Partnership. P Partnership
is a calendar year taxpayer. On April 15, 2015, P
Partnership files the original and Ogden copy of a
Form 3115 under the automatic change procedures
for 2014 (year of change), which results in a positive
§ 481(a) adjustment of $1,000,000. P Partnership
obtains from each of Partners A, B, C, and D a
written agreement that each partner agrees to not
apply the limitation on tax in § 481(b) and § 1.481-2
for any § 481(a) adjustment for all changes in
method of accounting made by P Partnership pursu-
ant to Rev. Proc. 2015-13 for P Partnership's 2014
year of change, and otherwise follows the procedures
in SECTION 7.03(3)(d) to elect a one-year adjust-
ment period for all changes in method of accounting
made by P Partnership pursuant to this revenue pro-
cedure for 2014 (year of change). Pursuant to this
election, P Partnership must take into account both
the entire $1,200,000 § 481(a) adjustment for the
non-automatic change in method of accounting and
the entire $1,000,000 § 481(a) adjustment for the
automatic change in method of accounting in deter-
mining P Partnership's business income (or loss) for
2014 (year of change).

(4) Accelerated adjustment periods.
The four-year § 481(a) adjustment period
for a positive § 481(a) adjustment pro-
vided in SECTION 7.03(1) is accelerated
in the following situations:

(a) Ceasing to engage in the trade or
business. A taxpayer that ceases to engage
in a trade or business, as defined in SEC-
TION 3.04, must take the remaining bal-
ance of any § 481(a) adjustment relating
to that trade or business into account in

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

computing taxable income in the taxable
year of the cessation.

(b) 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 of account-
ing, § 1363(d) requires an increase in the
taxpayer's gross income for the LIFO recap-
ture amount (as defined in § 1363(d)(3)) for
the taxable year preceding the year of
change (the taxpayer's last taxable year as a
C corporation), and a corresponding ad-
justment to the basis of the taxpayer's
inventory as of the end of the taxable year
preceding the year of change. Any in-
crease in income tax as a result of the
inclusion of the LIFO recapture amount is
payable in four equal installments, begin-
ning with the taxpayer's last taxable year
as a C corporation as provided in
§ 1363(d)(2). The corporation must take
into account any corresponding basis ad-
justment in computing the § 481(a) adjust-
ment (if any) that results from discontin-
uing the LIFO method of accounting.

(c) S election effective for a year after
LIFO discontinuance. If a C corporation
elects to be treated as an S corporation for
a taxable year after the taxable year in
which it discontinued use of the LIFO
inventory method of accounting, the cor-
poration must include the remaining bal-
ance of any positive § 481(a) adjustment
in its gross income in its last taxable year
as a C corporation. If this inclusion results
in an increase in tax for its last taxable
year as a C corporation, this increase in
tax is payable in four equal installments,
beginning with the taxpayer's last taxable
year as a C corporation as provided in
§ 1363(d)(2), unless the taxpayer is re-
quired to take the remaining balance of
the § 481(a) adjustment into account in
the last taxable year as a C corporation
under another acceleration provision in
SECTION 7.03(4).

(d) Certain transfers pursuant to a
§ 351 transaction within a consolidated
group.

(i) In general. For a transfer within a
consolidated group to which § 351 applies
that is described in SECTION 3.04(5), the
transferor member must continue to take
the § 481(a) adjustment (arising from a
method of accounting of the transferor
that the transferee adopts and uses) into

account pursuant to the applicable terms
and conditions. 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) adjust-
ment relates. The § 481(a) adjustment is
not accelerated when the transferee
member engages in a transaction de-
scribed in the first sentence of this SEC-
TION 7.03(4)(d)(i) or in SECTION
3.04(4).

(ii) Exception. The provisions of SEC-
TION 7.03(4)(d)(i) cease to apply and the
transferor member must take any remain-
ing balance of the § 481(a) adjustment
into account in the earliest of the follow-
ing taxable years:

(A) if the transferor ceases to be a
member of the consolidated group, in the
last consolidated return year in which the
transferor member is included in the con-
solidated group;

(B) if any transferee member owning
substantially all the assets of the trade or
business that gave rise to the § 481(a)
adjustment ceases to be a member of the
consolidated group, in the last consoli-
dated return year in which that transferee
member is a member of the consolidated
group; or

(C) if the consolidated group termi-
nates, in the last consolidated return year
of that consolidated group.

In applying the preceding sentence, the
rules in § 1.1502-13(j)(2), (j)(5), and
(j)(6) apply, but only if the method of
accounting to which the transferor mem-
ber 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 busi-
ness that gave rise to the § 481(a) adjust-
ment immediately after acquisition of
such assets. For example, the transferor
member is not required to accelerate the
§ 481(a) adjustment if a transferee mem-
ber ceases to be a member of a consoli-
dated group by reason of 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 reg-
ulations thereunder, to use the same
method of accounting as that used by the
transferor member with respect to the as-
sets of the trade or business to which the
§ 481(a) adjustment relates.

.04 Changes within the LIFO method
of accounting. Except as specifically pro-
vided in the Code or other guidance pub-
lished in the IRB, a taxpayer must imple-
ment a change within the LIFO inventory
method of accounting using a cut-off ba-
sis. Announcement 91-173, 1991-47
I.R.B. 29 (regarding LIFO taxpayers
changing their method of accounting for
certain bulk bargain purchases of inven-
tory to comply with Hamilton Industries,
Inc. v. Commissioner, 97 T.C. 120
(1991)), is an example of other guidance
that requires a § 481(a) adjustment. A
change within the LIFO inventory method
of accounting is a change from one LIFO
inventory method or sub-method to an-
other LIFO inventory method or sub-
method. A change within the LIFO inven-
tory method does not include a change in
method of accounting that a taxpayer not
using the LIFO inventory method of ac-
counting could make (for example, a
method of accounting governed by § 471
or § 263A).

.05 NOL 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
subject of any pending or future criminal
investigation or proceeding concerning
(1) directly or indirectly, any issue relat-
ing to the taxpayer's federal tax liability,
or (2) the possibility of false or fraudulent
statements made by the taxpayer with re-
spect to any issue relating to its federal tax
liability. For purposes of this SECTION
7.05, if the taxpayer is a member of a
consolidated group, the taxpayer is the
consolidated group.

.06 Maintenance of adequate records.
The taxpayer must maintain accounting
records for the year of change and subse-
quent taxable years to support the method
of accounting for which consent is granted
to the taxpayer. Accounting records in-
clude the taxpayer's regular books of ac-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

count and such other records and data as
may be necessary to support the entries on
its books of account and on its return,
including for example, a reconciliation of
any differences between the method of
accounting used in its accounting records
and the method of accounting used for
federal income tax purposes.

.07 Certain foreign corporations. If the
change in method of accounting is on be-
half of a CFC or a 10/50 corporation, the
following additional terms and conditions
apply:

(1) If the functional currency of the
foreign corporation is not the U.S. dollar,
the § 481(a) adjustment must be stated in
the functional currency of the foreign cor-
poration and not in U.S. dollars;

(2) A positive § 481(a) adjustment (or
any positive component of a § 481 adjust-
ment) necessary to prevent the duplication
of an expense item must take the same
source, separate limitation classification,
character, and treatment for purposes of
subpart F as the foreign corporation's
gross income that was offset by the ex-
pense in the prior year or years. A positive
§ 481(a) adjustment (or any positive com-
ponent of a § 481 adjustment) necessary
to prevent the omission of amounts of an
income item must take the same source,
separate limitation classification, charac-
ter, and treatment for purposes of subpart
F as the foreign corporation's income
would have had in the prior year or years.
A negative § 481(a) adjustment (or any
negative component of a § 481 adjust-
ment) 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 classifi-
cation, character, and treatment for pur-
poses of subpart F as the foreign corpora-
tion's income that would have been offset
by the expense in the prior year or years.
A negative § 481(a) adjustment (or any
negative component of a § 481 adjust-
ment) necessary to prevent the duplication
of amounts of an income item offsets
gross income that has the same source,
separate limitation classification, charac-
ter, 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 adjust-
ment period beginning with the year of
change, the appropriate amount of the

§ 481(a) adjustment must be taken into
account in computing the foreign corpo-
ration'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 federal
income tax return for its taxable year with
or within which ends the foreign corpora-
tion'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 satisfied if the sharehold-
er(s) of the foreign corporation recon-
cile(s) the results obtained under the
method used in keeping the foreign cor-
poration's books and records and the
method used for federal income tax pur-
poses and maintain(s) sufficient records to
support such reconciliation;

(6) If a foreign corporation loses its
status as a CFC or 10/50 corporation at
any time prior to the expiration of the
adjustment period, the foreign corporation
must take into account in computing its
subpart F income under § 952 (if applica-
ble) and earnings and profits under §§ 964
and 986(b), on the final day on which it is
a CFC or 10/50 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, Infor-
mation Return of U.S. Persons With Re-
spect 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 meeting
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 dispo-
sition, the remaining balance of the
§ 481(a) adjustment in computing its sub-

part F income under § 952 and earnings
and profits under §§ 964 and 986(b). This
condition also applies if the foreign cor-
poration issues stock so that either of the
situations applies to the United States per-
son. This condition does not apply to any
change in ownership of the foreign corpo-
ration if the stock disposed of continues to
be owned, directly or indirectly, by a
member of the U.S. consolidated group of
which the former shareholder is a mem-
ber.

.08 Trade or business of a domestic
corporation, domestic partnership, or
other United States person that affects the
amount of foreign source taxable income.
If the change in method of accounting is
on behalf of a trade or business of a do-
mestic corporation, domestic partnership,
or other United States person that affects
the amount of foreign source taxable in-
come, the following additional terms and
conditions apply:

(1) If the functional currency of the
trade or business is not the U.S. dollar, the
§ 481(a) adjustment must be stated in the
functional currency of the trade or busi-
ness and not in U.S. dollars;

(2) A positive § 481(a) adjustment (or
any positive component of a § 481 adjust-
ment) necessary to prevent the duplication
of an expense item must take the same
source, separate limitation classification,
and character as the gross income that was
offset by the expense in the prior year or
years. A positive § 481(a) adjustment (or
any positive component of a § 481 adjust-
ment) necessary to prevent the omission
of amounts of an income item must take
the same source, separate limitation clas-
sification, and character as the income
would have had in the prior year or years.
A negative § 481(a) adjustment (or any
negative component of a § 481 adjust-
ment) 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 classifi-
cation, and character as the income that
would have been offset by the expense in

the prior year or years. A negative
§ 481(a) adjustment (or any negative com-
ponent of a § 481 adjustment) necessary
to prevent the duplication of amounts of
an income item offsets gross income that
has the same source, separate limitation

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

classification, and character as the income
had in the prior year or years;

(3) For each taxable year of the adjust-
ment period beginning with the year of
change, the appropriate amount of the
§ 481(a) adjustment must be taken into
account in computing the taxable income
of the United States person;

(4) The United States person must
maintain records and accounts of the trade
or business for the year of change and for
subsequent taxable years, in conformity
with the method of accounting granted to
the United States person. This condition is
satisfied if the United States person rec-
onciles the results obtained under the
method used in keeping the trade or busi-
ness' books and records and the method
used for federal income tax purposes and
maintains sufficient records to support
such reconciliation; and

(5) The United States person complies
with its obligation to file Form 926, Re-
turn by a U.S. Transferor of Property to a
Foreign Corporation, with respect to a
transfer of assets of the trade or business
to a foreign corporation during the adjust-
ment period.

.09 Foreign partnerships. If the change
in method of accounting is made by a
foreign partnership, the following addi-
tional terms and conditions apply:

(1) If the functional currency of the
foreign partnership is not the U.S. dollar,
the § 481(a) adjustment must be stated in
the functional currency of the foreign
partnership and not in U.S. dollars;

(2) A positive § 481(a) adjustment (or
any positive component of a § 481 adjust-
ment) necessary to prevent the duplication
of an expense item must take the same
source, separate limitation classification,
and character as the gross income that was
offset by the expense in the prior year or
years. A positive § 481(a) adjustment (or
any positive component of a § 481 adjust-
ment) necessary to prevent the omission
of amounts of an income item must take
the same source, separate limitation clas-
sification, and character as the income
would have had in the prior year or years.
A negative § 481(a) adjustment (or any
negative component of a § 481 adjust-
ment) 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 classifi-

cation, and character as the income that
would have been offset by the expense in
the prior year or years. A negative
§ 481(a) adjustment (or any negative com-
ponent of a § 481 adjustment) 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 income
had in the prior year or years;

(3) For each taxable year of the adjust-
ment period beginning with the year of
change, the appropriate amount of the
§ 481(a) adjustment must be taken into
account in computing the 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 satisfied if the foreign
partnership reconciles the results obtained
under the method used in keeping its
books and records and the method used
for federal income tax purposes and main-
tains sufficient records to support such
reconciliation;

(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 partner-
ship to a foreign corporation during the
adjustment 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
Certain Foreign Partnerships, during the
adjustment period.

## SECTION 8. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE

.01 In general. Except as provided in
SECTION 8.02 or under any other guid-
ance published in the IRB, when a tax-
payer timely files a Form 3115 under this
revenue procedure, the IRS will not re-
quire the taxpayer to change its method of
accounting for the same item for a taxable
year prior to the requested year of change.

.02 Exceptions. SECTION 8.01 does
not apply if any exception in SECTIONS
8.02(1) through 8.02(7) applies.

(1) No audit protection for taxpayers
under examination. Except as provided in
SECTIONS 8.02(1)(a) through (f), the
IRS may require the taxpayer to change its
method of accounting for the same item
that is the subject of a Form 3115 filed
under this revenue procedure for taxable
years prior to the requested year of change
if the taxpayer is under examination as of
the date the taxpayer files the Form 3115.
(a) Change filed in a three-month win-
dow.

(i) In general. Except as provided in
SECTION 8.02(1)(a)(iii), SECTION
8.02(1) (no audit protection for taxpayers
under examination) does not apply to a
request for a change in method of ac-
counting for an item filed in a three-month
window if (1) the taxpayer has been under
examination for at least 12 consecutive
months as of the first day of the three-
month window, and (2) the method of
accounting for the same item the taxpayer
is requesting to change is not an issue
under consideration as described in SEC-
TION 3.08 as of the date the taxpayer files
the Form 3115.

(ii) Three-month window. A "three-
month window" is the period beginning
on the fifteenth day of the seventh month
of the taxpayer's taxable year and ending
on the fifteenth day of the tenth month of
the taxpayer's taxable year. However, if
the taxable year is a short taxable year that
ends before the fifteenth day of the tenth
month after the short taxable year begins,
the "three-month window" is the period
beginning on the first day of the second
month preceding the month in which the
short taxable year ends and ending on the
last day of the short taxable year.

(iii) Certain foreign corporations. In
the case of a taxpayer that is a CFC or
10/50 corporation, a three-month window
is determined with reference to the CFC
or 10/50 corporation's taxable year and is
only available if:

(A) all of the controlling domestic
shareholders that are under examination
have been under examination for at least
24 consecutive months as of the first day
of the three-month window,

(B) as of the date the designated share-
holder files the Form 3115, the CFC or
10/50 corporation's method of accounting
for the item to be changed is not an issue
under consideration within the meaning of

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

SECTION 3.08(4) or has been an issue
under consideration within the meaning of
SECTION 3.08(4) for at least 24 consec-
utive months; and

(C) the CFC or 10/50 corporation's
method of accounting for the item to be
changed is not an issue under consider-
ation within the meaning of SECTION
3.08(1), 3.08(2), or 3.08(3) as of the date
the designated shareholder files the Form
3115.

(iv) Statement required. The Form
3115 must include a statement that the
Form 3115 is filed under a three-month
window in SECTION 8.02(1)(a) of Rev.
Proc. 2015-13.

(b) Change filed in a 120-day window.

(i) In general. Except as provided in
SECTION 8.02(1)(b)(iii), SECTION
8.02(1) (no audit protection for taxpayers
under examination) does not apply to a
request for a change in method of ac-
counting for an item filed in a 120-day
window if the method of accounting for
the same item the taxpayer is requesting to
change is not an issue under consideration
as described in SECTION 3.08 as of the
date the taxpayer files the Form 3115.
However, the 120-day window ends on
the date the IRS notifies the taxpayer that
jurisdiction for the case has been trans-
ferred from Appeals to the examining
agent(s) for reconsideration. See SEC-
TION 3.18(1)(c).

(ii) 120-day window. A "120-day win-
dow" is the 120-day period following the
date an examination of the taxpayer ends,
regardless of whether a subsequent exam-
ination has commenced.

(iii) Certain foreign corporations. The
120-day window provisions in SECTION
8.02(1)(b)(i) are not available for a CFC
or 10/50 corporation.

(c) Present method not before the di-
rector.

(i) In general. SECTION 8.02(1) (no
audit protection for taxpayers under ex-
amination) does not apply to a change in
method of accounting for an item when
the present method is not before the direc-
tor. The present method is not before the
director when it is:

(A) a change from a clearly permissible
method of accounting; or

(B) a change from an impermissible
method of accounting and the impermis-
sible method was adopted subsequent to

the taxable year(s) under examination on
the date the taxpayer files the Form 3115.

The question of whether the present
method of accounting is a clearly permis-
sible method of accounting or was ad-
opted subsequent to the taxable year(s)
under examination may be referred to the
national office as a request for technical
advice under the provisions of Rev. Proc.
2015-2 (or successor).

(ii) Statement required. The Form 3115
must include a statement that the Form
3115 is filed under SECTION 8.02(1)(c)
of Rev. Proc. 2015-13.

(d) New member of a consolidated
group in CAP.

(i) In general. SECTION 8.02(1) (no
audit protection for taxpayers under ex-
amination) does not apply to a change in
method of accounting for an item re-
quested by the common parent of a con-
solidated group that is participating in the
Compliance Assurance Process (CAP) on
behalf of a new member of the consoli-
dated group for the taxable year the new
member became a member of the consol-
idated group, if, as of the date the com-
mon parent of the consolidated group files
the Form 3115:

(A) the new member is under exami-
nation solely because it became a member
of the consolidated group during a taxable
year in which the consolidated group par-
ticipates in the CAP, and

(B) if the method of accounting for the
item the new member is requesting to
change is not an issue under consideration
as described in SECTION 3.08 as of the
date the taxpayer files the Form 3115.

(ii) Statement required. The Form 3115
must include: (A) a statement that the
Form 3115 is filed under the provisions of
SECTION 8.02(1)(d) of Rev. Proc. 2015-
13, and (B) a statement providing the date
that the new member became a member of
the consolidated group.

(e) Change resulting in a negative
§ 481 (a) adjustment.

(i) In general. SECTION 8.02(1) (no
audit protection for taxpayers under ex-
amination) does not apply to a change in
method of accounting for an item that:

(A) results in a negative § 481(a) ad-
justment for that item for the year of
change; and

(B) would have resulted in a negative
§ 481(a) adjustment in each taxable year

under examination if the change in
method of accounting for that item had
been made in the taxable year(s) under
examination.

(ii) Example. A taxpayer placed Properties A and
B in service in its 2010 taxable year. In its 2010
through 2013 taxable years, the taxpayer depreciated
Property A using a 7-year recovery period instead of
its correct 5-year recovery period and depreciated
Property B using a 5-year recovery period instead of
its correct 7-year recovery period. The taxpayer is
under examination for its 2012 taxable year. The
taxpayer filed a Form 3115 under this revenue pro-
cedure to request a change in method of accounting
for its 2014 taxable year to change its methods of
accounting for depreciation for Properties A and B.
Under SECTION 8.02(1), the taxpayer generally
does not receive audit protection for a change in
method of accounting filed for its 2014 taxable year.
However, under this SECTION 8.02(1)(e), the tax-
payer may receive audit protection for the change in
method of accounting for depreciation for Property A
because the § 481(a) adjustment for that item re-
quired in its 2014 taxable year, and that would have
been required in its 2012 taxable year, is negative.
However, the taxpayer does not receive audit pro-
tection for the change in method of accounting for
depreciation for Property B because the § 481(a)
adjustment for that item required in its 2014 taxable
year, and that would have been required in its 2012
taxable year, is positive.

(iii) Statement required. The Form
3115 must include a statement that the
Form 3115 is filed under the provisions
of SECTION 8.02(1)(e) of Rev. Proc.
2015-13.

(f) No examination-imposed change
and item not under consideration.

(i) In general. Except as provided in
SECTION 8.02(1)(f)(ii), for a taxpayer
that is under examination for one or more
taxable years on the date the taxpayer files
a Form 3115, SECTION 8.02(1) (no audit
protection for taxpayers under examina-
tion) ceases to apply to the change in
method of accounting for that item as of
the date immediately following the earli-
est date that any of those examinations
ends for the taxable year(s) subsequent to
that taxable year and prior to the year of
change to which the Form 3115 applies, if
by the earliest date that any of those ex-
aminations ends:

(A) the examining agent(s) does not
propose an adjustment for the same item
that is the subject of the Form 3115 for the
taxable year(s) under examination; and

(B) the method of accounting for that
same item is not an issue under consider-
ation within the meaning of SECTION
3.08.

(ii) Certain foreign corporations.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(A) In general. For a taxpayer that is a
CFC or 10/50 corporation that is under
examination for one or more taxable years
on the date the CFC or 10/50 corporation
files a Form 3115, SECTION 8.02(1) (no
audit protection for taxpayers under ex-
amination) ceases to apply to the change
in method of accounting for that item as of
the date after the earliest date that any of
those examinations ends (the first ending
examination) if all of the conditions in
SECTION 8.02(1)(f)(ii)(B) are met, in
which case this SECTION 8.02(1)(f)(ii)
applies for the taxable year(s) subsequent
to that taxable year and prior to the year of
change to which the Form 3115 applies.

(B) Conditions for SECTION
8.02(1)(f)(ii)(A) to apply. SECTION
8.02(1)(f)(ii)(A) applies as of the date all
of the following conditions are met:

(1) after the date that the first ending
examination ends, all controlling domes-
tic shareholders that are under examina-
tion for one or more taxable years on the
date the first ending examination ends
submit to their examining agents a signed
copy of the Form 3115 to which this SEC-
TION 8.02(1)(f) applies on which "90-day
notice under SECTION 8.02(1)(f) of Rev.
Proc. 2015-13" is typed or written on the
top of the first page; and

(2) as of the 90th calendar day after all
controlling domestic shareholders submitted
the signed copy of the Form 3115 as re-
quired by SECTION 8.02(1)(f)(ii)(B)(1):

(a) the examining agent(s) does not
propose an adjustment for the same item
that is the subject of the Form 3115 for the
taxable year(s) currently under examina-
tion; or

(b) the method of accounting for that
same item is not an issue under consider-
ation within the meaning of SECTION
3.08(1), 3.08(2), or 3.08(3).

(iii) Examples.

Example 1. A taxpayer is under examination for
2011 and 2012 as of December 19, 2014, the date the
taxpayer files a Form 3115 to request a change in
method of accounting for 2014 to change its method
of accounting for costs subject to § 263A under this
revenue procedure. Under SECTION 8.02(1), the
taxpayer generally does not receive audit protection
for a change in method of accounting for which
consent is requested while under examination. The
2011 examination ends July 1, 2015, while the 2012
examination is still ongoing. Under SECTION
8.02(1)(f), the taxpayer receives audit protection for
the change in method of accounting for costs subject
to § 263A as of July 2, 2015, the day immediately

following the date the 2011 examination ends, if by
that date the examining agents do not propose an
adjustment for costs subject to § 263A and the
method of accounting for costs subject to § 263A is
not an issue under consideration as described in
SECTION 3.08, as long as no other provision of
SECTIONS 8.02(2) through 8.02(7) applies to the
taxpayer.

Example 2. A taxpayer that is a CFC has two
controlling domestic shareholders (Shareholder A
and Shareholder B) under examination for 2011 as of
December 19, 2014, the date the taxpayer files a
Form 3115 for 2014 to request a change in its
method of accounting under this revenue procedure
for costs subject to § 263A for purposes of deter-
mining its earnings and profits. Under SECTION
8.02(1), the taxpayer generally does not receive audit
protection for a change in method of accounting for
which consent is requested while under examination.
The 2011 examination of Shareholder A ends July 1,
2015, while the 2011 examination of Shareholder B
is still ongoing. On August 1, 2015, Shareholder B
submits to its examining agent a signed copy of the
Form 3115 with "90-day notice under SECTION
8.02(1)(f) of Rev. Proc. 2015-13" written on top of
the first page. Under SECTION 8.02(1)(f)(ii), the
taxpayer receives audit protection for the change in
method of accounting for costs subject to § 263A for
purposes of determining its earnings and profits as of
October 30, 2015, 90 calendar days after Share-
holder B submitted a signed copy of the Form 3115
to its examining agent, if by that date the examining
agents do not propose an adjustment for costs
subject to § 263A and the method of accounting
for costs subject to § 263A is not an issue under
consideration as described in SECTION 3.08(1),
3.08(2), or 3.08(3), as long as no other provision
of SECTIONS 8.02(2) through 8.02(7) applies to
the taxpayer.

(2) Change lacking audit protection.
The IRS may change a taxpayer's method
of accounting for the same item that is the
subject of a Form 3115 filed under this
revenue procedure for taxable years prior
to the requested year of change if the
description of the change in the List of
Automatic Changes, or other guidance
published in the IRB, provides that the
change is not subject to the audit protec-
tion provisions of SECTION 8.01.

(3) Change not made or made improp-
erly. The IRS may change a taxpayer's
method of accounting for the same item
that is the subject of a Form 3115 filed
under this revenue procedure for taxable
years prior to the requested year of change
if: (a) the taxpayer withdraws or does not
perfect its request (for example, by not
providing requested supplemental infor-
mation), (b) the national office denies the
taxpayer's request for consent to make a
change in method of accounting, (c) the
taxpayer does not timely implement the
change in method of accounting consis-

tent with all the applicable provisions, (d)
the taxpayer timely implements the
change but does not otherwise comply
with all the applicable provisions, or (e)
the national office modifies or revokes the
Commissioner's consent for the change in
method of accounting retroactively be-
cause the taxpayer misstated or omitted
material facts. See SECTION 10.03.

(4) Change in sub-method of account-
ing. The IRS may change a taxpayer's
method of accounting for the same item
that is the subject of a Form 3115 filed
under this revenue procedure for taxable
years prior to the requested year of change
if the taxpayer is changing a sub-method
of accounting within the method of ac-
counting. For example, an examining
agent may propose to terminate the tax-
payer's use of the LIFO inventory method
of accounting during a prior taxable year
even though the taxpayer changes its
method of valuing increments in the cur-
rent year. In addition, a taxpayer that
changes a LIFO inventory sub-method
within five years of adopting or changing
to the LIFO inventory method does not
receive audit protection under this SEC-
TION 8.01.

(5) CFC or 10/50 corporation. In the
case of a change in method of accounting
made on behalf of a CFC or 10/50 corpo-
ration, the IRS may change the method of
accounting for the same item that is the
subject of a Form 3115 filed under this
revenue procedure for taxable years prior
to the requested year of change in which
any of the CFC or 10/50 corporation's
domestic corporate shareholders com-
puted an amount of foreign taxes deemed
paid under §§ 902 and 960 with respect to
the CFC or 10/50 corporation that exceeds
150 percent of the average amount of for-
eign taxes deemed paid under §§ 902 and
960 by the domestic corporate shareholder
with respect to the CFC or 10/50 corpo-
ration in the shareholder's three prior tax-
able years.

(6) Criminal investigation. The IRS
may change a taxpayer's method of ac-
counting for the same item that is the
subject of a Form 3115 filed under this
revenue procedure for taxable years prior
to the requested year of change if there is
any pending or future criminal investiga-
tion or proceeding concerning (i) directly
or indirectly, any issue relating to the tax-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

payer's federal tax liability for any taxable
year prior to the year of change, or (ii) the
possibility of false or fraudulent state-
ments made by the taxpayer with respect
to any issue relating to its federal tax
liability for any taxable year prior to the
year of change.

(7) Issue under consideration. The IRS
may change a taxpayer's method of ac-
counting for the same item that is the
subject of a Form 3115 filed under this
revenue procedure for taxable years prior
to the requested year of change if the
taxpayer's method of accounting for the
same item is an issue under consideration
pursuant to SECTION 3.08 as of the date
the taxpayer filed the Form 3115. How-
ever, for a CFC or 10/50 corporation, the
preceding sentence does not apply to an
item to which SECTION 8.02(1) (no audit
protection for taxpayers under examina-
tion) ceases to apply pursuant to SECTION
8.02(1)(f)(ii) or that is the subject of a Form
3115 filed in a three-month window pursu-
ant to SECTION 8.02(1)(a)(iii).

(8) Prior year IRS-initiated change.
The IRS 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 change in method of
accounting imposed by the IRS for a prior
taxable year pursuant to Rev. Proc.
2002-18 (or successor).

## SECTION 9. GRANT OF CONSENT FOR AN AUTOMATIC CHANGE

Pursuant to § 1.446-1(e)(2)(i), the
consent of the Commissioner is hereby
granted to any taxpayer that is eligible to
make an automatic change. This consent
is granted only for the change(s) in
method of accounting and the affected
item(s) that are clearly and expressly iden-
tified in the taxpayer's Form 3115. See
SECTION 6.02(2). Further, such consent
is granted only if the taxpayer complies
with all the applicable provisions and im-
plements the change in method of ac-
counting on its federal income tax return
for the requested year of change to which
the original Form 3115 is attached pursu-
ant to SECTION 6.03. In the case of an
entity that is not required to file a federal
income tax return (for example, a CFC or
10/50 corporation), consent is granted
only if the entity complies with all the
applicable provisions and the change in

method of accounting is reflected on the
timely filed (including any extension) fed-
eral income tax return(s) on which the
entity's affected item(s) is included for the
year with or within which ends the enti-
ty's requested year of change.

## SECTION 10. EFFECT OF CONSENT

.01 In general. A taxpayer ordinarily
may rely on the grant of consent in SEC-
TION 9 (in the case of an automatic
change) or in a letter ruling issued to the
taxpayer (in the case of a non-automatic
change) subject to the provisions of SEC-
TIONS 7, 8, 10, 11, and 12 and section 11
of Rev. Proc. 2015-1 (or successor).

.02 Required change or modification of
method of accounting. A taxpayer that
changes to a method of accounting under
this revenue procedure may be required to
change or modify that method of account-
ing for any of the following reasons:

(1) the enactment of legislation;

(2) a decision of the United States Su-
preme Court;

(3) the issuance of temporary or final
regulations;

(4) the issuance of a revenue ruling,
revenue procedure, notice, or other guid-
ance published in the IRB;

(5) the issuance of written notice to the
taxpayer that the change in method of
accounting was granted in error or is not
in accord with the current views of the
IRS; or

(6) a change in the material facts on
which the consent was based.

.03 Revoked or modified if found to be
in error. The national office may revoke
or modify a letter ruling issued under the
non-automatic change procedures or the
grant of consent in SECTION 9 for an
automatic change by letter to the taxpayer
giving notice of revocation or modifica-
tion, if the national office determines, as a
result of the director's review under SEC-
TION 12 or otherwise, that the letter rul-
ing or grant of consent was issued in error
or is not in accord with the current views
of the IRS.

Except in rare or unusual circum-
stances, if a taxpayer that changes its
method of accounting under this revenue
procedure is subsequently required under
this SECTION 10.03 to change (in the
case of a revocation) or modify that
method of accounting, the required

change or modification will not be applied
retroactively, provided that:

(1) the taxpayer complied with all the
applicable provisions;

(2) the taxpayer neither misstated nor
omitted any material facts;

(3) the material facts on which the con-
sent was based have not changed;

(4) the applicable law has not changed;
and

(5) the taxpayer to whom consent was
granted acted in good faith in relying on
the consent, and applying the change in
method of accounting or modification ret-
roactively would be to the taxpayer's det-
riment.

.04 Change 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 11. REVIEW BY
NATIONAL OFFICE

.01 Incomplete Form 3115.

(1) Requests for additional informa-
tion. If the national office determines that
a Form 3115 filed under this revenue pro-
cedure is not properly completed (see
SECTION 6.02), or if supplemental infor-
mation is needed, the national office will
notify the taxpayer. The notification will
specify the information that the taxpayer
needs to provide and permit the taxpayer
21 calendar days (in the case of a non-
automatic change) or 30 calendar days (in
the case of an automatic change) from the
date of the notification to furnish the in-
formation. The national office may im-
pose shorter reply periods for any subse-
quent requests for additional information.
See also section 9.08 of Rev. Proc.
2015-1 (or successor).

(2) Extension of time to provide addi-
tional information. The national office
may grant a taxpayer an extension of the
21-day or 30-day reply period to furnish
information, not to exceed 15 calendar
days (in the case of a non-automatic
change) or 30 calendar days (in the case of
an automatic change). A taxpayer must
request any extension of the reply period
in writing and submit it to the national
office person who requested the additional
information within the initial reply period.
If the national office denies an extension
request, there is no right of appeal. See

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

section 9.08(2) of Rev. Proc. 2015-1 (or
successor).

(3) Failure to provide additional infor-
mation. If the national office determines
that the taxpayer failed to provide addi-
tional information on a timely basis, the
national office will notify the taxpayer
that the Form 3115 will no longer be
considered (in the case of a non-automatic
change) or consent to make the change in
method of accounting is not granted (in
the case of an automatic change).

.02 National office discretion to deny a
request. The national office will deny any
Form 3115 requesting consent to make a
change in method of accounting in any
situation in which the national office de-
termines that permitting the requested
change in method of accounting would
not clearly reflect income or would other-
wise not be in the interest of sound tax
administration. As part of this determina-
tion, the national office will consider
whether the change in method of account-
ing would clearly and directly frustrate
compliance efforts of the IRS in adminis-
tering the income tax laws. The national
office will consider all the facts and cir-
cumstances and exercise discretion under
§§ 446(e) and 481(c) in a manner that
generally minimizes distortions of income
across taxable years, as well as on an
annual basis.

(1) Final year of a trade or business.
The national office will not grant consent
to a taxpayer to change its method of
accounting or the method of accounting
for a trade or business under the non-
automatic change procedures for the tax-
able year the taxpayer ceases to engage in
that trade or business unless the taxpayer
demonstrates compelling circumstances
for the need to change its method of ac-
counting or that the change in method of
accounting is in the interest of sound tax
administration. A change in method of
accounting to facilitate a planned or pend-
ing business acquisition or other change in
ownership in the year of change where the
acquiring taxpayer or new owner(s) is not
required to use the taxpayer's method of
accounting, other than as described in
SECTION 3.04(3), 3.04(4), or 3.04(5), is
an example of circumstances that the na-
tional office ordinarily will not consider
compelling.

(2) National office consideration of
prior (requested) changes for the same
item.

(a) Prior change in method of account-
ing implemented.

(i) In general. If within the five taxable
years ending with the requested year of
change, the taxpayer changed its method
of accounting for the same item, the na-
tional office will consider the taxpayer's
explanation for requesting consent to
again change its method of accounting for
that same item in determining whether to
grant consent for the current request to
change the taxpayer's method of account-
ing.

(ii) Limitation on LIFO inventory
method of accounting change. If within
the five taxable years ending with the re-
quested year of change, the taxpayer pre-
viously changed from the LIFO inventory
method of accounting, the national office
will not consent to the taxpayer readopt-
ing the LIFO inventory method of ac-
counting unless the taxpayer demonstrates
unusual and compelling circumstances as
part of its Form 3115 requesting a change
to the LIFO inventory method of account-
ing.

(b) Prior method of accounting re-
quests. If within the five taxable years
ending with the requested year of change,
the taxpayer withdrew or failed to perfect,
or the Commissioner denied, a prior re-
quest for consent for a change in method
of accounting, the taxpayer did not return
a signed Consent Agreement copy of a
letter ruling, or the taxpayer did not im-
plement a change in method of accounting
for which the Commissioner granted con-
sent, and the taxpayer files a Form 3115
under the non-automatic change proce-
dures requesting consent to change the
same item, the national office will con-
sider the taxpayer's explanation for with-
drawing or not perfecting the previous
request(s), not returning the Consent
Agreement, or not implementing the ap-
proved change in determining whether to
grant consent for the current request for
consent to change the taxpayer's method
of accounting.

### .03 National office determination.

(1) Conference in the national office. If
the national office tentatively determines
that the taxpayer's request for change in
method of accounting filed under the au-

tomatic change procedure does not com-
ply with all the applicable provisions for
an automatic change (for example, the
taxpayer changed to a method of account-
ing that varies from the applicable ac-
counting method described in the List of
Automatic Changes or the taxpayer is not
eligible to use the automatic change pro-
cedures for the requested change) or that a
request to change a method of accounting
filed under the non-automatic change pro-
cedures may be denied, the national office
will notify the taxpayer of its tentative
adverse determination and will offer the
taxpayer a conference if the taxpayer re-
quested one. For conference procedures
for a taxpayer other than an exempt orga-
nization, see section 10 of Rev. Proc.
2015-1 (or successor). For conference
procedures for an exempt organization,
see section 12 of Rev. Proc. 2015-4,
2015-1 I.R.B. 144 (or successor).

(2) Letter ruling and Consent Agree-
ment.

(a) In general. Unless otherwise spe-
cifically provided, for a Form 3115 filed
under the non-automatic change proce-
dures, the national office will set forth the
Commissioner's grant or denial of the tax-
payer's request for the Commissioner's
consent in a letter ruling. If the letter rul-
ing grants the Commissioner's consent, it
will identify the item or items being
changed, the terms and conditions under
which the taxpayer must implement the
change, and the § 481(a) adjustment (if
any). See §§ 1.446-1(e)(3) and 1.481-4.
If the taxpayer agrees to the terms and
conditions in the letter ruling, the taxpayer
must sign and date a copy of the letter
ruling (Consent Agreement copy). The
signed Consent Agreement copy is an
agreement (Consent Agreement) within
the meaning of § 1.481-4(b). The tax-
payer must return the Consent Agreement
to the address provided in the letter ruling
within 45 calendar days of the date of the
letter ruling. In addition, the taxpayer
must attach a copy of the Consent Agree-
ment to the taxpayer's federal income tax
return for the year of change, unless SEC-
TION 11.03(2)(e) (letter ruling received
after implementing change) applies. If
SECTION 11.03(2)(e) applies, the tax-
payer must comply with section 7.04(2) of
Rev. Proc. 2015-1 (or successor) and at-
tach a copy of the pending Form 3115 or

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

permitted statement to the taxpayer's fed-
eral income tax return for the year of
change. See also, SECTIONS 6.03(3)(b)
and 6.03(3)(c) for certain foreign corpo-
rations and foreign partnerships. See gen-
erally section 9.17 of Rev. Proc. 2015-1
(or successor).

(b) Signature requirements. The Con-
sent Agreement must be signed by, or on
behalf of, the taxpayer making the re-
quest. The individual(s) signing the Con-
sent Agreement must have the authority to
bind the taxpayer in such matters and the
Consent Agreement may not be signed by
the taxpayer's representative.

(c) Consent Agreement copy not signed
or change not timely or properly imple-
mented. The letter ruling granting consent
to the taxpayer for a change in method of
accounting is null and void without IRS
notification to the taxpayer, except where
notification is specifically provided in this
SECTION 11.03(2)(c), if:

(i) The taxpayer does not sign and re-
turn the Consent Agreement copy within
45 calendar days of the date of the letter
ruling (or other date as extended in SEC-
TION 11.03(2)(d) or by the national of-
fice). In this situation, the national office
will notify the taxpayer that the letter rul-
ing granting consent to the taxpayer to
change its method of accounting is null
and void; or

(ii) The taxpayer timely returns the
Consent Agreement but does not imple-
ment the change in method of accounting
for which consent is granted in the letter
ruling for the year of change specified in
the letter ruling on the taxpayer's timely
filed (including any extension) original
federal income tax return for the year of
change specified in the letter ruling, or on
the taxpayer's amended federal income
tax return for the year of change specified
in the letter ruling by the later of:

(A) the due date of the taxpayer's
timely filed (including any extension)
original federal income tax return for the
taxable year succeeding the year of
change specified in the letter ruling; or

(B) one year from the date of the letter
ruling granting consent for the change.
However, when the period of limitations
on the assessment of tax under § 6501
(statute of limitations under § 6501) for
the year of change specified in the letter
ruling will expire within one year of the

date of issuance of the letter ruling, the
applicable date for this SECTION
11.03(2)(c)(ii)(B) is the date that the stat-
ute of limitations under § 6501 for the
specified year of change expires.

The national office will grant addi-
tional time to implement the change in
method of accounting for the year of
change only if, and to the extent, the tax-
payer demonstrates, in writing, that addi-
tional time is necessary, as long as the
national office does not determine that
granting additional time would be con-
trary to the interest of sound tax adminis-
tration.

(d) Disagreement with terms and con-
ditions. If the taxpayer disagrees with the
terms and conditions in the letter ruling,
within 45 calendar days from the date of
the letter ruling, the taxpayer must notify
the national office, in writing to the ad-
dress in the letter ruling, of the disagree-
ment and include an explanation of the
reason(s). The national office will con-
sider the reason(s) for the disagreement
and notify the taxpayer whether the orig-
inal letter ruling will be modified. If the
national office does not modify the letter
ruling, it will so notify the taxpayer and
give the taxpayer 15 calendar days from
the date of the notification to accept the
original letter ruling by signing and re-
turning the Consent Agreement copy. In
applying the preceding sentence, the pro-
visions of SECTIONS 11.03(2)(a)
through (c) apply, except 15 calendar days
is substituted for 45 calendar days in SEC-
TIONS 11.03(2)(a) and 11.03(2)(c)(i).

(e) Letter ruling received after imple-
menting change. A taxpayer that timely
files a Form 3115 under the non-automatic
change procedures and takes the requested
change in method of accounting into ac-
count in its federal income tax return for
the year of change (and any subsequent
taxable year) prior to receiving a letter
ruling granting consent for that change
has made a change in method of account-
ing without obtaining the consent of the
Commissioner as required by § 446(e) (an
"unauthorized change"). As provided in
SECTION 12.02, the Director may deter-
mine when a change is not made in com-
pliance with all the applicable provisions
and may deny the unauthorized change.
However, the Commissioner's consent, is-
sued subsequent to the requested year of

change, applies back to the year of change
(and any subsequent taxable year) as of
the date of a letter ruling granting consent
for that change if the taxpayer timely
signs and returns the Consent Agreement
copy and implements the change in accor-
dance with all the applicable provisions
and section 11 of Rev. Proc. 2015-1 (or
successor). If the Commissioner does not
grant consent under this revenue proce-
dure for the change in method of account-
ing taken into account by the taxpayer, the
taxpayer is subject to any interest, penal-
ties, or other adjustments resulting from
improper implementation of the change.
See § 446(f).

(3) Consent not granted for an auto-
matic change.

(a) In general. Except as provided in
SECTIONS 11.03(1) and 11.03(3)(b), if
the national office determines that a tax-
payer filed a Form 3115 requesting con-
sent to make an automatic change without
complying with all the applicable provi-
sions for an automatic change, the na-
tional office will notify the taxpayer that
consent to make the change in method of
accounting is not granted. In no event will
a Form 3115 filed under the automatic
change procedures be treated as a Form
3115 filed under the non-automatic
change procedures.

(b) Exception. If the national office de-
termines that a taxpayer filed a Form 3115
requesting consent to make an automatic
change without complying with all the
applicable provisions for an automatic
change, the national office, in its discre-
tion, may allow the taxpayer to (a) make
appropriate adjustments to conform its
Form 3115 to comply with all the appli-
cable provisions, and (b) make conform-
ing amendments to any federal income tax
returns filed for the year of change and
subsequent taxable years. Any Form 3115
changed under this SECTION 11.03(3)(b)
is subject to review by the director as
provided in SECTION 12.

## SECTION 12. REVIEW BY DIRECTOR

.01 In general. The director may deter-
mine whether the taxpayer complied with
all the applicable provisions for the
change in method of accounting, includ-
ing, but not limited to:

(1) the facts and representations pro-
vided by the taxpayer on which the con-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

sent for the change in method of account-
ing is based reflect a complete and
accurate statement of the material facts;

(2) the taxpayer properly determined
the amount of the § 481(a) adjustment;

(3) the taxpayer implemented the
change in method of accounting in com-
pliance with all the applicable provisions;

(4) whether, during the period the tax-
payer used the method of accounting for
which consent was granted, there has been
any change in the material facts on which
consent for the change was based; and

(5) whether, during the period the tax-
payer used the method of accounting for
which consent was granted, there has been
any change in the applicable law affecting
the propriety of the taxpayer's use of the
method of accounting for which consent
was granted.

Except as provided in SECTION
12.02, the director must apply a change
made in compliance with all the applica-
ble provisions in determining the taxpay-
er's federal income tax liability, unless the
director recommends that the change
should be modified or revoked (see SEC-
TION 10.03).

.02 Change not made in compliance
with all applicable provisions.

(1) In general. If the director deter-
mines that the taxpayer did not comply
with all the applicable provisions for the
change in method of accounting, including
the requirement to timely return the Consent
Agreement (see SECTION 11.03(2)), or did
not implement the change in method of ac-
counting in compliance with all the applica-
ble provisions, the director may:

(a) make any adjustments (including
the amount of any § 481(a) adjustment)
that are necessary to bring the change in
method of accounting into compliance
with all the applicable provisions;

(b) deny the change in method of ac-
counting and place the taxpayer on a
proper method of accounting (see Rev.
Proc. 2002-18 (or any successor)); or

(c) deny the change in method of ac-
counting and require the taxpayer to con-
tinue to use the prior method of account-
ing (see Rev. Proc. 2002-18 (or any
successor)).

(2) Improperly determined § 481(a)
adjustment. Notwithstanding SECTIONS
12.01 and 12.02(1), the director may make
any necessary correction to the amount of

any § 481(a) adjustment pursuant to SEC-
TION 12.02(1)(a) and may make any
other adjustment(s) that are necessary to
properly implement the change in method
of accounting for which consent is
granted. If the director makes such a nec-
essary correction to the amount of the
§ 481(a) adjustment, the director may take
the entire amount necessary to correct the
§ 481(a) adjustment into account in com-
puting the taxpayer's taxable income for
the earliest taxable year in the § 481(a)
adjustment period that is under examina-
tion, regardless of whether the statute of
limitations under § 6501 has expired for
one or more taxable years in the § 481(a)
adjustment period.

Example. A taxpayer obtained consent to change
its method of accounting under this revenue proce-
dure with a Year 1 year of change. The taxpayer
determined that the § 481(a) adjustment for this
change in method of accounting is a positive adjust-
ment of $75,000, to be taken into account ratably
over four taxable years, pursuant to SECTION
7.03(1). The taxpayer is under examination for Year
2. The statute of limitations under § 6501 has expired
for Year 1. As part of the examination of Year 2, the
examining agent determines that the correct
§ 481(a) adjustment for this change in method of
accounting is a positive adjustment of $100,000.
The examining agent may take the entire amount
of the $25,000 correction to the § 481(a) adjust-
ment into account in the taxpayer's taxable income
for Year 2.

(3) Penalties and additions to tax. If
the director denies the change in method
of accounting pursuant to SECTION
12.02(1) or corrects the § 481(a) adjust-
ment under SECTIONS 12.02(1)(a) and
12.02(2), the director may impose any
otherwise applicable penalty, addition to
tax, or additional amount on the under-
statement of tax attributable to the denial
of the change in method of accounting or
the net amount of any necessary correc-
tion(s) to the § 481(a) adjustment.

(4) Referral to the national office. If the
director recommends that a change made
in compliance with all the applicable pro-
visions should be modified or revoked, the
director will forward the matter to the
national office for consideration before
taking any further action, unless the mod-
ification relates solely to the amount of the
§ 481(a) adjustment. The referral to the
national office is a request for technical
advice and the provisions of Rev. Proc.
2015-2 (or successor) apply.

## SECTION 13. REQUEST TO REVISE THE YEAR OF CHANGE FOR A NON-AUTOMATIC CHANGE

.01 In general. The taxpayer may re-
quest, and the national office ordinarily
will allow, the taxpayer to revise the year
of change for a Form 3115 for a non-
automatic change to a subsequent taxable
year, but no later than the taxpayer's cur-
rent taxable year (with no additional user
fee), in lieu of submitting a new Form
3115 for the subsequent taxable year, un-
der the following conditions:

(1) Timely written request.

(a) In general. The taxpayer must sub-
mit a written request pursuant to SECTION
13.03 to revise the year of change for a
Form 3115 on or after, but not before, the
first day of the fourth month following the
month in which the taxpayer's federal in-
come tax return is due (excluding any ex-
tension) for the original year of change re-
quested on the Form 3115. For example, a
calendar year corporation that files a Form
3115 on December 16, 2014, for a 2014
year of change may submit a written request
to revise the year of change to 2015 on or
after, but not before, July 1, 2015.

(b) Form 3115 filed on or before the
last day of the sixth month of the year of
change. If the taxpayer filed its Form 3115
on or before the last day of the sixth month
of the year of change, the taxpayer may
submit a written request pursuant to SEC-
TION 13.03 to revise the year of change on
or after, but not before, the first day of the
taxable year following the original year of
change requested on the Form 3115. For
example, a calendar year taxpayer that files
a Form 3115 on June 28, 2014, for a 2014
year of change may submit a written request
to revise the year of change to 2015 on or
after, but not before, January 1, 2015. This
SECTION 13.01(1)(b) does not apply to a
taxpayer filing a Form 3115 for a year of
change that is a short taxable year.

(2) Pending Form 3115. The Form
3115 is pending in the national office (for
example, the national office has not issued
a letter ruling) on the date of the request.

(3) Acceleration and revision of
§ 481 (a) adjustment. Unless the Commis-
sioner has determined that the requested
change in method of accounting will be
made using a cut-off method or a modified
cut-off method:

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(a) The taxpayer must agree, in writ-
ing, to accelerate into the revised year of
change the percentage of any positive
§ 481(a) adjustment the taxpayer would
have taken into account for each prior
taxable year under SECTION 7.03(1) had
the taxpayer not revised the year of
change, in an amount limited to seventy-
five percent of the § 481(a) adjustment.
However, the seventy-five percent limita-
tion in this SECTION 13.01(3)(a) for the
revised year of change will not apply if the
taxpayer requests to revise the year of
change to a taxable year for which a provi-
sion of this revenue procedure, the Code, or
other guidance published in the IRB, re-
quires a § 481(a) adjustment period of two
years or less (see, for example, SECTIONS
7.03(3)(b) and 7.03(4)(a)); and

(b) The taxpayer must agree to provide,
in a submission of additional information,
the § 481(a) adjustment (positive or negative)
for the revised year of change within 21 cal-
endar days (or a longer period if agreed to by
the national office) after the national office
first notifies the taxpayer that its request to
revise the year of change is approved.

(4) Examples.

Example 1. A taxpayer requested to revise the
year of change for a Form 3115 for a non-automatic
change that is pending in the national office to the
first succeeding taxable year. The taxpayer must
agree to take into account one-half of any positive
§ 481(a) adjustment in the revised year of change
and one-fourth in each of its next two taxable years.

Example 2. A taxpayer requested to revise the year
of change for a Form 3115 for a non-automatic change
that is pending in the national office to the third suc-
ceeding taxable year. The taxpayer must agree to take
into account three-fourths of any positive § 481(a)
adjustment in the revised year of change and the re-
maining one-fourth in the next taxable year.

(5) Multiple applicants on one Form
3115. If the Form 3115 is for an identical
change in method of accounting for more
than one applicant, the taxpayer must re-
quest to revise the year of change for all
applicants to which the Form 3115 relates.

.02 Compelling circumstances. In the
case of a taxpayer that does not meet
the applicable condition in SECTION
13.01(1)(a), a taxpayer with compelling
circumstances may request to revise the
year of change for the Form 3115, in lieu
of submitting a new Form 3115 for the
proposed revised year of change. The tax-
payer must demonstrate those compelling
circumstances in its written request.

Example. On October 31, 2014, a calendar year
partnership with 50 individual partners timely files a

Form 3115 for a non-automatic change under this
revenue procedure for its 2014 taxable year. The
partnership's Form 1065, U.S. Return of Partnership
Income, and Schedules K-1, Partner's Share of In-
come, Deductions, Credits etc., and the partners'
Forms 1040, U.S. Individual Income Tax Return, for
the requested year of change are all due April 15,
2015. The partnership is not extending this due date.
On March 17, 2015, the partnership submits a re-
quest to revise the year of change for its pending
Form 3115 to its 2015 taxable year. Because the
Form 3115 is pending in the national office 30 cal-
endar days prior to the due date of the partners'
Forms 1040, the partnership will be unable to pro-
vide timely Schedules K-1 that take into account the
proposed accounting method change before the part-
ners prepare and file their 2014 Forms 1040 to take
into account the partnership's requested change in
method of accounting for the 2014 taxable year.
Under these compelling circumstances, the national
office will ordinarily allow the partnership to revise
the year of change for its Form 3115 to its 2015
taxable year. If the accounting method change is
approved for the partnership's 2015 taxable year, in
lieu of taking into account any positive § 481(a)
adjustment over four taxable years, the partnership
must take into account one-half of any positive
§ 481(a) adjustment in its 2015 taxable year and
one-fourth in each of its next two taxable years.

.03 Submitting a request for a revised
year of change. A request to revise the
year of change for a Form 3115 pending
in the national office must include:

(1) The name of the Form 3115 filer
and, if applicable, each applicant, on the
Form 3115;

(2) The national office reference num-
ber (for example, CAM-123456-14);

(3) The name of the national office con-
tact person for the Form 3115 (if known);

(4) The due date (excluding any exten-
sion) for the Form 3115 filer's federal
income tax return for the year of change;

(5) Whether in the proposed revised
year of change the taxpayer will cease to
engage in the trade or business to which
the change in method of accounting re-
lates (see SECTION 3.04);

(6) A statement agreeing to the appli-
cable conditions in SECTION 13.01(3);

(7) If the request is being submitted pur-
suant to SECTION 13.02, the compelling
circumstances on which the request is based;

(8) The information required in section
9.09 of Rev. Proc. 2015-1 (or successor),
as applicable;

(9) The penalties of perjury statement
in section 9.08(3) of Rev. Proc. 2015-1
(or successor); and

(10) If applicable, a completed Form
2848, Power of Attorney and Declaration of
Representative, for the revised year of change.

The request must be either submitted to
the applicable address in section 9.08(6) of
Rev. Proc. 2015-1 (or successor) or faxed to
a fax number provided by the national office
contact person for the pending Form 3115.
If faxed, a copy of the request and an orig-
inal signed penalties of perjury statement
must also be mailed or delivered to the ap-
plicable address in section 9.08(6) of Rev.
Proc. 2015-1 (or successor).

.04 Notification of approval or denial.
The national office will notify the tax-
payer of the approval or denial of the
taxpayer's request to revise the year of
change for a pending 3115.

.05 National office's discretion to deny
a request. The national office may deny a
taxpayer's request for a revised year of
change for a pending Form 3115 if the
national office determines it would not be
in the interest of sound tax administration
to allow the taxpayer to revise the year of
change. A taxpayer is not entitled to a
conference with the national office if the
request to revise the year of change for a
pending Form 3115 is denied.

SECTION 14. APPLICABILITY OF
REV. PROC. 2015-1 and REV. PROC.
2015-4

Rev. Proc. 2015-1 and Rev. Proc.
2015-4 (or successors) apply to a Form 3115
filed under this revenue procedure, except as
specifically provided by this revenue proce-
dure or other guidance published in the IRB.

SECTION 15. EFFECTIVE DATE

.01 In general. Except as provided in
SECTION 15.02, this revenue procedure
is effective for Forms 3115 filed on or
after January 16, 2015, for a year of
change ending on or after May 31, 2014.

.02 Transition rules.

(1) Additional time to file Forms 3115
under Rev. Proc. 97-27, Rev. Proc. 2011-14,
or this revenue procedure for taxable years
ending on or before January 31, 2015.

(a) Notwithstanding § 1.446-1(e)(3)(i),
a taxpayer may file a Form 3115 to request
the Commissioner's consent to change a
method of accounting for a taxable year --

(i) ending on or after November 30,
2014, and on or before January 31, 2015,
until March 2, 2015, for a non-automatic
change under the procedures of Rev. Proc.
97-27 or this revenue procedure,

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(ii) ending on or after May 31, 2014, and
on or before January 31, 2015, ("applicable
taxable year"), until the due date of the
taxpayer's timely filed (including any exten-
sion) original federal income tax return for
the requested year of change for an auto-
matic change under the procedures of Rev.
Proc. 2011-14 or this revenue procedure.

(b) A taxpayer applying this transition
rule in SECTION 15.02(1) should indicate
on the Form 3115 or any attachment that
the Form 3115 is filed under the proce-
dures of Rev. Proc. 97-27 or Rev. Proc.
2011-14, as applicable.

(c) After March 2, 2015, a taxpayer
may not request the Commissioner's con-
sent to change a method of accounting
under the procedures of Rev. Proc. 97-27.
After the due date of the taxpayer's timely
filed (including any extension) original
federal income tax return for an applicable
taxable year a taxpayer may not request
the Commissioner's consent to change a
method of accounting under the proce-
dures of Rev. Proc. 2011-14 for such ap-
plicable taxable year.

(2) Limited time to convert a Form
3115 filed under Rev. Proc. 97-27. Unless
the national office determines that it
would not be in the interest of sound tax
administration, a taxpayer may convert a
Form 3115 filed under Rev. Proc. 97-27
to a request for consent under this revenue
procedure for the same requested change
in method of accounting and year of
change if the taxpayer is otherwise eligi-
ble to use this revenue procedure and:

(a) the Form 3115 was filed before January
16, 2015, and the Form 3115 is pending with
the national office on January 16, 2015, or

(b) the Form 3115 was filed on or after
January 16, 2015, and on or before March 2,
2015.

A taxpayer may convert a Form 3115
under this SECTION 15.02(2) to the non-
automatic change procedures, if eligible,
by notifying the national office contact per-
son (if unknown, see section 9.08(6) of Rev.
Proc. 2015-1 (or successor)) before the later
of (a) March 31, 2015, or (b) the issuance of
a letter ruling granting or denying consent
for the change. The notification should in-
dicate that the taxpayer chooses to convert
the Form 3115 to conform to the non-
automatic change procedures.

A taxpayer may convert a Form 3115
under this SECTION 15.02(2) to the

automatic change procedures, if eligi-
ble, by notifying the national office con-
tact person (if unknown, see section
9.08(6) of Rev. Proc. 2015-1 (or suc-
cessor)) before the later of (a) March 31,
2015, or (b) the issuance of a letter
ruling granting or denying consent for the
change. The notification should indicate that
the taxpayer chooses to convert the Form
3115 to conform to the automatic change
procedures. If the taxpayer timely notifies
the national office that it chooses to convert
the Form 3115 under this SECTION
15.02(2) to the automatic change proce-
dures, the national office will send a letter to
the taxpayer acknowledging its request and
will return the user fee submitted with the
Form 3115.

A taxpayer converting a Form 3115
under this SECTION 15.02(2) to the au-
tomatic change procedures must resubmit
a Form 3115 that conforms to the auto-
matic change procedures, with a copy of
the national office letter sent acknowledg-
ing the taxpayer's request under this SEC-
TION 15.02(2) attached, to the IRS in
Ogden, UT by the earlier of (a) the 30th
calendar day after the date of the na-
tional office's letter acknowledging the
taxpayer's request under this SECTION
15.02(2), or (b) the date the taxpayer is
required to file the Ogden copy of the Form
3115 under SECTION 6.03(1)(a)(i)(B). See
SECTION 6.03(3) regarding additional re-
quired copies of Form 3115.

For purposes of the eligibility rules in
SECTION 5, the Ogden copy of the timely
resubmitted Form 3115 under this SEC-
TION 15.02(2) will be considered filed as of
the date the taxpayer originally filed the
converted Form 3115 under Rev. Proc. 97-
27. This SECTION 15.02(2) does not ex-
tend the date the taxpayer must file the orig-
inal (converted) Form 3115 under
SECTION 6.03(1)(a)(i)(A).

A Form 3115 filed under Rev. Proc.
97-27 or Rev. Proc. 2011-14 before Jan-
uary 16, 2015, will be disregarded for
purposes of the prior five year change
rules in SECTIONS 5.04 and 5.05 if the
taxpayer converts the Form 3115 pursuant
to this SECTION 15.02(2).

(3) Early election of one-year § 481(a)
adjustment period for certain Forms 3115
filed under Rev. Proc. 97-27 and Rev.
Proc. 2011-14. If a taxpayer filed a Form
3115 under Rev. Proc. 97-27 or the na-

tional office or Ogden copy of a Form
3115 filed under Rev. Proc. 2011-14 for a
taxable year ending on or after May 31,
2014, and has not filed its original federal
income tax return for the year of change
implementing the change in method of
accounting, the taxpayer may:

(a) apply the de minimis election in
SECTION 7.03(3)(c), which permits a
one-year § 481(a) adjustment period (year
of change) for a positive § 481(a) ad-
justment that is less than $50,000 to that
Form 3115. A taxpayer applying this
SECTION 15.02(3)(a) must include a
statement with its federal income tax
return for the year of change indicating
that the Form 3115 is filed under the
provisions of SECTION 15.02(3)(a) of
Rev. Proc. 2015-13.

(b) apply the eligible acquisition trans-
action election in SECTION 7.03(3)(d),
which permits a one-year § 481(a) adjust-
ment period (year of change) for a posi-
tive § 481(a) adjustment if, during the
year of change or in the subsequent tax-
able year on or before the due date (in-
cluding any extension), for filing the tax-
payer's federal income tax return for the
year of change, an eligible acquisition
transaction, as defined in SECTION
7.03(3)(d)(iii), occurs. A taxpayer apply-
ing this SECTION 15.02(3)(b) must in-
clude a statement with its federal income
tax return for the year of change indicat-
ing that the Form 3115 is filed under the
provisions of SECTION 15.02(3)(b) of
Rev. Proc. 2015-13.

(4) Request to revise the year of
change for a Form 3115 filed under Rev.
Proc. 97-27 on or before the last day of
the 6th month of the year of change. A
taxpayer with a Form 3115 filed under
Rev. Proc. 97-27 pending with the na-
tional office on January 16, 2015, may
request to revise the year of change un-
der SECTION 13.01(1)(b), subject to
the taxpayer satisfying the other condi-
tions of SECTION 13.

(5) Open 90-day window period. If, on
January 16, 2015, a taxpayer is within the
90-day window period provided in section
6.01(2) of Rev. Proc. 97-27 or section
6.03(2) of Rev. Proc. 2011-14, the tax-
payer may file a Form 3115 under this
revenue procedure during the remainder
of that 90-day window period, if the tax-
payer is otherwise eligible to file under

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

both (a) section 6.01(2) of Rev. Proc.
97-27 or section 6.03(2) of Rev. Proc.
2011-14 and (b) this revenue procedure
on the date the taxpayer files the Form
3115. All provisions of this revenue pro-
cedure, including the terms and condi-
tions, will apply to a Form 3115 filed
pursuant to this SECTION 15.02(5) on or
after January 16, 2015, except as provided
in SECTIONS 15.02(1) and 15.02(2). If
the taxpayer files a Form 3115 during the
remainder of an open 90-day window pe-
riod pursuant to this SECTION 15.02(5),
the taxpayer should include a statement
with its Form 3115 indicating that it is
filed under the provisions of SECTION
15.02(5) of Rev. Proc. 2015-13.

## SECTION 16. EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure in conjunc-
tion with Rev. Proc. 2015-14 amplifies,
clarifies, and modifies Rev. Proc. 2011-14.
Rev. Proc. 2011-14 as amplified, clarified,
and modified is superseded in part. The sec-
ond sentences of sections 14.01 and 14.02,
and sections 14.04, 14.05, 14.06, and 14.07
remain in effect. All other sections of Rev.
Proc. 2011-14 are superseded.

.02 Rev. Proc. 97-27 is clarified and
modified and, as clarified and modified, is
superseded.

## SECTION 17. PAPERWORK REDUCTION ACT

The collections of information con-
tained in this revenue procedure have been
reviewed and approved by the Office of
Management and Budget in accordance with
the Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545-1541.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond 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, 7,
8, 11, 13, and 15. This information is
required to determine whether the taxpay-
er's proposed method of accounting is
permissible. This information will be used
by the national office to determine
whether to consent to a change in account-
ing method and the appropriate terms and
conditions for the change. The collections

of information are required to obtain con-
sent to the accounting method change.
The likely respondents are the following:
individuals, farms, business or other for-
profit organizations, non-profit institu-
tions, and small businesses or organiza-
tions.

The estimated total annual reporting
burden is 18,554 hours.

The estimated annual burden per re-
spondent varies from 1/4 of an hour to 5
hours, depending on individual circum-
stances, with an estimated average of ap-
proximately 1 2/3 hours. The estimated
number of respondents is 11,443.5.

The estimated annual frequency of re-
sponses is occasional.

Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally tax returns and tax
return information are confidential, as re-
quired by § 6103.

## SECTION 18. SIGNIFICANT CHANGES

.01 Changes affecting both Rev. Proc.
2011-14 and Rev. Proc. 97-27.

(1) SECTION 3.04(2)(f) clarifies that a
sale or exchange of 50 percent or more of
the total interest in partnership capital and
profits under § 708(b)(1)(B) is a transac-
tion that constitutes the cessation of a
partnership's trade or business for pur-
poses of this revenue procedure.

(2) SECTION 3.08 clarifies and modi-
fies the rules for when a method of ac-
counting for an item is under consider-
ation to provide that an issue is under
consideration as of the date of the opera-
tive written notification to the taxpayer.

(3) SECTION 3.08(1) clarifies that an
item ceases to be an issue under consid-
eration after an examination ends unless
the examining agent provides the taxpayer
with written notification that the item is an
issue placed in suspense. SECTION
3.08(1) also clarifies that a corporation
that is or was formerly a member of a
consolidated group has an issue under
consideration before Examination if the
same item is an issue under consideration
before Examination for any member of
that consolidated group for the taxable
year(s) that the corporation was a member
of the consolidated group. SECTION
3.08(1) also clarifies that an entity (includ-

ing a limited liability company) treated as
a partnership or an S corporation for fed-
eral income tax purposes also has an issue
under consideration before Examination if
the same item is an issue under consider-
ation in an examination of a partner, mem-
ber, or shareholder's federal income tax
return.

(4) SECTIONS 3.08(2) and 3.08(3)
clarify that, for an entity treated as a part-
nership or S corporation, a method of ac-
counting is an issue under consideration
before an Appeals office or a federal court
if it is an issue under consideration by an
Appeals office or a federal court for a
partner, member, or shareholder's federal
income tax return.

(5) SECTION 3.08(3) also clarifies that
a corporation that is or was formerly a
member of a consolidated group is before
a federal court during the period of time
the consolidated group is before a federal
court for the taxable year(s) it was a mem-
ber of the consolidated group.

(6) SECTION 3.17(2) clarifies the term
"taxpayer" in the context of a member of
a consolidated group. In the case of a
consolidated group, except as otherwise
provided in this revenue procedure, "tax-
payer" refers to the individual member of
the consolidated group for which the
change in method of accounting is re-
quested or the common parent of the
group acting on behalf of that member.
For example, to determine eligibility for a
window period in SECTION 8.02(1)(a) or
8.02(1)(b) the length of time a member of
a consolidated group has been under ex-
amination is calculated at the member
level, which may be different from the
length of time, if any, the member's cur-
rent common parent has been under ex-
amination.

(7) SECTION 3.18(5) clarifies the rule
that a taxpayer continues to be under ex-
amination when Examination reports the
taxable year(s) under examination to the
Joint Committee on Taxation.

(8) SECTION 5.01 modifies the rules
for when a taxpayer under examination
may file a Form 3115 by replacing "issue
pending" and "consent of director" in
Rev. Proc. 97-27 and Rev. Proc. 2011-14
with broad eligibility rules that allow tax-
payers under examination to request
changes in method of accounting. How-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ever, see SECTIONS 7.03(3)(b) and
8.02(1).

(9) SECTIONS 6.03(1)(a)(ii),
6.03(1)(a)(iii), 6.03(3)(b), and 6.03(3)(c)
clarify the rules for how foreign corpora-
tions and foreign partnerships that are not
required to file a federal income tax return
file a Form 3115 and their controlling
domestic shareholders and partners com-
ply with the filing and other requirements
regarding Forms 3115 and Consent
Agreements.

(10) SECTION 7.03(2)(c) modifies the
rules for the treatment of a § 481(a) ad-
justment regarding a § 381(a) transaction
within a consolidated group in which the
method of accounting that gave rise to a
§ 481(a) adjustment is carried over and
used by the acquiring corporation. In that
case, the portion of the § 481(a) adjust-
ment attributable to the short taxable year
of the transferor ending on the date of the
§ 381(a) transaction is treated as an inter-
company item as defined in § 1.1502-
13(b)(2) and taken into account under the
§ 1.1502-13 rules.

(11) SECTION 7.03(3)(b) modifies the
§ 481(a) adjustment period for taxpayers
under examination with positive § 481(a)
adjustments. In that case, the § 481(a)
adjustment period is two taxable years,
unless the Form 3115 is filed in a three-
month or 120-day window, the present
method is not before the director, or the
applicant is a new member of a consoli-
dated group in CAP.

(12) SECTION 7.03(3)(c) modifies the
de minimis election for a one-year adjust-
ment period for a positive § 481(a) adjust-
ment to make it available for a positive
§ 481(a) adjustment that is less than
$50,000.

(13) SECTION 7.03(3)(d) provides an
optional election for a one-year adjust-
ment period for a positive § 481(a) adjust-
ment for taxpayers with an eligible acquisi-
tion transaction. Also, SECTION 6.03(4)(b)
provides that a taxpayer is not eligible to
make a late election except in unusual and
compelling circumstances.

(14) SECTION 7.06 provides, consis-
tent with existing practice, a term and
condition that requires a taxpayer to main-
tain accounting records for the year of
change and subsequent taxable years to
support the method of accounting for
which consent is granted to the taxpayer.

(15) SECTIONS 7.07, 7.08, and 7.09
provide, consistent with existing practice,
additional terms and conditions specific to
(a) certain foreign corporations, (b) trades
or businesses of a domestic corporation,
domestic partnership, or other United
States person that affect the amount of
foreign source taxable income, and (c)
foreign partnerships.

(16) SECTION 8.02(1)(a) modifies the
rules for when a taxpayer under examina-
tion filing a Form 3115 may receive audit
protection by replacing the 90-day win-
dow that began on the first day of the
taxpayer's taxable year in Rev. Proc.
97-27 and Rev. Proc. 2011-14 with a
three-month window that applies to tax-
payers that have been under examination
for at least 12 consecutive months as of
the first day of the three-month window.
In general, the three-month window be-
gins on the fifteenth day of the seventh
month of the taxable year and ends on the
fifteenth day of the tenth month of the
taxable year, to correspond to the ex-
tended due date of a taxpayer's federal
income tax return. In addition, a CFC or
10/50 corporation that has had an issue
under consideration within the meaning of
SECTION 3.08(4) for at least 24 consec-
utive months and all of its controlling
domestic shareholders that are under ex-
amination have been under examination
for at least 24 consecutive months is eli-
gible to change its method of accounting
during the three-month window if the
method of accounting is not an issue un-
der consideration within the meaning of
SECTION 3.08(1) or an item placed in
suspense.

(17) SECTION 8.02(1)(b) is modified
to make a CFC or 10/50 corporation inel-
igible for the 120-day window.

(18) SECTIONS 8.02(1)(c), 8.02(1)(e),
and 8.02(1)(f) modify the rules for when a
taxpayer under examination filing a Form
3115 may receive audit protection outside
of a window period. These rules replace
the previous requirement that the taxpayer
acquire the director's statement consent-
ing to the filing of the Form 3115 prior to
filing the Form 3115.

(19) SECTION 8.02(1)(d) modifies the
rules for when a taxpayer under examina-
tion filing a Form 3115 may receive audit
protection by permitting the parent of a
consolidated group to request a change in

method of accounting on behalf of a con-
solidated group member that is under ex-
amination solely because it joined the
consolidated group in a taxable year for
which the group is participating in the
CAP. However, the member's method of
accounting to be changed must not be an
issue under consideration. SECTION
6.03(2)(a)(ii) provides a limited time
frame after the member joins the consol-
idated group for the parent to file the Form
3115 for a year of change that is the
taxable year the corporation became a
member of the consolidated group, which
in some cases permits the common parent
of the consolidated group to file the Form
3115 up to 30 calendar days after the end
of the taxable year.

(20) SECTION 8.02(5) modifies the
rules for audit protection to provide that
the IRS may require a CFC or 10/50 cor-
poration to change its method of account-
ing for a taxable year preceding the re-
quested year of change if any of the
controlling domestic shareholders com-
puted an amount of foreign taxes deemed
paid with respect to the CFC or 10/50
corporation that exceeds 150 percent of
the average amount of foreign taxes
deemed paid by the shareholder with re-
spect to the CFC or 10/50 corporation for
the three preceding taxable years.

(21) SECTION 12.02(2) clarifies the
rules for a § 481(a) adjustment to provide
that if the director makes a correction to
the amount of the § 481(a) adjustment,
ordinarily the director will take the entire
amount of the correction into account for
the earliest taxable year in the § 481(a)
adjustment period that is under examina-
tion, regardless of whether the statute of
limitations on the assessment of tax under
§ 6501 has not expired for one or more
taxable years in the adjustment period.

.02 Other changes affecting Rev. Proc.
2011-14.

(1) SECTIONS 5.01 and 8.02(1) clar-
ify, consistent with the IRS's longstand-
ing interpretation of Rev. Proc. 2011-14,
that waiver of a scope limitation under
Rev. Proc. 2011-14 or an eligibility re-
quirement under this revenue procedure
does not affect whether the taxpayer re-
ceives audit protection for the change in
method of accounting.

(2) SECTIONS 5.04(2) and 5.05(2)
clarify that a taxpayer may file a Form

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

3115 under the automatic change proce-
dures notwithstanding the fact that the
taxpayer previously filed a Form 3115 un-
der the non-automatic change procedures
for the same change in method of account-
ing and for the same year of change, in
limited specified circumstances.

(3) SECTION 6.01 modifies section
6.02(1) of Rev. Proc. 2011-14 to require
taxpayers to file a Form 3115 in all cases
when requesting consent under the auto-
matic change procedures. However, when
permitted in the applicable section of the
List of Automatic Changes, a taxpayer
may file a short Form 3115. See SEC-
TION 3.07(2).

(4) SECTION 6.03(1)(a)(i)(B) modi-
fies section 6.02(3)(a)(ii) of Rev. Proc.
2011-14 to require taxpayers to file a
copy of the Form 3115 with the IRS in
Ogden, UT for all changes in method of
accounting requested under the automatic
change procedures.

(5) SECTION 6.03(1)(e) clarifies how
taxpayers submit additional correspon-
dence regarding a Form 3115 filed under

the automatic change procedures to
Ogden, UT.

(6) The list of automatic changes in
method of accounting, formerly in the AP-
PENDIX of Rev. Proc. 2011-14, is now in
Rev. Proc. 2015-14 (List of Automatic
Changes).

.03 Other changes affecting Rev. Proc.
97-27.

(1) SECTIONS 5.03 and 11.02(1) pro-
vide, consistent with the IRS's longstand-
ing practice, that ordinarily the IRS will
not consent to a taxpayer changing a
method of accounting in the year it ceases
to engage in a trade or business to which
the change would relate.

(2) SECTION 11.03(2)(c) modifies
section 8.11 of Rev. Proc. 97-27 to gen-
erally invalidate a Consent Agreement if
the taxpayer does not implement the
change in method of accounting by the
later of either the due date of the taxpay-
er's federal income tax return for the tax-
able year succeeding the year of change or
one year from the date of issuance of the
letter ruling.

(3) SECTION 13.01(1)(b) modifies the
rules for revising the year of change to
provide that, if a taxpayer files its Form
3115 on or before the last day of the sixth
month of the year of change, it may sub-
mit a written request to revise the year of
change on or after, but not before, the first
day of the taxable year following the orig-
inal year of change.

(4) SECTION 13.01(3) modifies the
§ 481(a) acceleration requirement for a
revised year of change to generally re-
quire that no more than seventy-five per-
cent of a positive § 481(a) adjustment be
taken into account in the revised year of
change.

## DRAFTING INFORMATION

The principal author of this revenue
procedure is Christopher W. Call of the
Office of Associate Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Call at (202) 317-7007
(not a toll-free number).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

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

(Also Part I, §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 197, 263, 2634, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467, 471,
472, 475, 481, 585, 816, 832, 833, 846, 8604-860G, 861, 904, 953, 985, 1272, 1273, 1278, 1281, 1363, 14001, 1400L, 1400N; 1.61-1, 1.61-4, 1.61-8, 1.77-1,
1.77-2, 1.118-2, 1.162-1, 1.162-3, 1.162-4, 1.162-11, 1.162-12, 1.166-1, 1.166-2, 1.166-4, 1.167(a)-2, 1.167(a)-3(b), 1.167(a)-4, 1.167(a)-7, 1.167(a)-8,
1.167(a)-11, 1.167(a)-14, 1.167(e)-1, 1.168(d)-1, 1.168(i)-1, 1.168(i)-4, 1.168(i)-6, 1.168(i)-7, 1.168(i)-8, 1.168(k)-1, 1.171-4, 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)-3, 1.263(a)-4, 1.263(a)-5, 1.2634-1, 1.2634-2, 1.263A-3, 1.263A-4, 1.263A-7, 1.267(a)-1,
1.280F-6, 1.404(b)-IT, 1.446-1, 1.446-1T, 1.446-2, 1.446-5, 1.446-6, 1.448-1T, 1.448-2, 1.451-1, 1.451-5, 1.454-1, 1.455-6, 1.460-1, 1.460-4, 1.461-1,
1.461-4, 1.461-5, 1.467-1, 1.471-1, 1.471-2, 1.471-3, 1.471-4, 1.471-5, 1.471-8, 1.472-1, 1.472-2, 1.472-6, 1.472-8, 1.481-1, 1.481-4, 1.832-4, 1.832-5,
1.8604-6, 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. 2015-14

LIST OF AUTOMATIC CHANGES

455

SECTION 1. GROSS INCOME (§ 61)

455

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

455

.02 Reserved

455

SECTION 2. COMMODITY CREDIT LOANS (§ 77)

455

.01 Treating amounts received as loans

455

.02 Reserved

456

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)

456

.01 Advances made by a lawyer on behalf of clients

456

.02 ISO 9000 Costs.

456

.03 Restaurant or tavern smallwares packages

456

.04 Timber grower fertilization costs

456

.05 Materials and supplies

456

.06 Repair and maintenance costs

456

.07 Wireline network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-27

456

.08 Wireless network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-28

456

.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business of transporting, delivering, or selling electricity

457

.10 Reserved

457

.11 Reserved

457

.12 Reserved

457

.13 Reserved

457

.14 Reserved

457

.15 Reserved

457

.16 Reserved

457

.17 Reserved

457

.18 Reserved

457

.19 Reserved

457

.20 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business of generating steam or electric power.

457

.21 Cable network asset capitalization methods of accounting under Rev. Proc. 2015-12

457

SECTION 4. BAD DEBTS (§ 166)

458

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

458

.02 Conformity election by bank after previous election automatically revoked

458

SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM (§ 171)

458

.01 Revocation of § 171(c) election

458

.02 Change to comply with § 163(e)(3)

458

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

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)

459

.01 Impermissible to permissible method of accounting for depreciation or amortization

459

.02 Permissible to permissible method of accounting for depreciation

463

.03 Sale, lease, or financing transactions

465

.04 Reserved

466

.05 Reserved

466

.06 Reserved

466

.07 Reserved

466

.08 Depreciation of cable TV fiber optics

466

.09 Change in general asset account treatment due to a change in the use of MACRS property

466

.10 Change in method of accounting for depreciation due to a change in the use of MACRS property

466

.11 Depreciation of qualified non-personal use vans and light trucks

467

.12 Reserved

467

.13 Reserved

467

.14 Reserved

467

.15 Reserved

467

.16 Reserved

467

.17 Impermissible to permissible method of accounting for depreciation or amortization for disposed depreciable or amortizable property

467

.18 Reserved

468

.19 Reserved

468

.20 Reserved

468

.21 Reserved

468

.22 Reserved

468

.23 Tenant construction allowances

468

.24 Reserved

469

.25 Reserved

469

.26 Safe harbor method of accounting for determining the depreciation of certain tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-22

469

.27 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-4T)

470

.28 Permissible to permissible method of accounting for depreciation of MACRS property

(§ 168; §§1.168(i)-1T, 1.168(i)-7T, and 1.168(i)-8T, Prop. Reg. §§1.168(i)-1, 1.168(i)-7, and 1.168(i)-8)

470

.29 Disposition of a building or structural component (§ 168; § 1.168(i)-8T, and Prop. Reg. § 1.168(i)-8).

474

.30 Dispositions of tangible depreciable assets (other than a building or its structural components) (§ 168; § 1.168(i)-8T and Prop. Reg. § 1.168(i)-8).

477

.31 Dispositions of tangible depreciable assets in a general asset account (§ 168(i)(4); § 1.168(i)-1T and Prop. Reg. § 1.168(i)-1)

479

.32 General asset account elections (§ 168(i)(4); § 1.168(i)-1; §1.168(i)-1T, and Prop. Reg. § 1.168(i)-1)

481

.33 Late partial disposition election (§ 168; § 1.168(i)-8 and Prop. Reg. § 1.168(i)-8).

483

.34 Revocation of a general asset account election (§ 168; § 1.168(i)-1, § 1.168(i)-1T and Prop. Reg. § 1.168(i)-1)

485

.35 Partial dispositions of tangible depreciable assets to which the IRS's adjustment pertains (§ 168; § 1.168(i)-8 and Prop. Reg. § 1.168(i)-8)

487

.36 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-4)

488

.37 Permissible to permissible method of accounting for depreciation of MACRS property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8)

489

.38 Disposition of a building or structural component (§ 168; § 1.168(i)-8)

492

.39 Dispositions of tangible depreciable assets (other than a building or its structural components) (§ 168; § 1.168(i)-8)

495

.40 Dispositions of tangible depreciable assets in a general asset account (§ 168(i)(4); § 1.168(i)-1)

497

.41 SUMMARY OF CERTAIN CHANGES IN METHODS OF ACCOUNTING RELATED TO DISPOSITIONS OF MACRS PROPERTY

499

.42 Depreciation of fiber optic transfer node and fiber optic cable used by a cable system operator (§§ 167 and 168)

503

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)

504

.01 Changes to a different method or different amortization period

504

.02 Reserved

505

SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)

505

.01 Reserved

505

.02 Reserved

505

.03 Reserved

505

.04 Deduction for Energy Efficient Commercial Buildings (§ 179D)

505

SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197)

505

.01 Computer software expenditures

505

.02 Reserved

505

SECTION 10. CAPITAL EXPENDITURES (§ 263)

505

.01 Package design costs

505

.02 Line pack gas or cushion gas

506

.03 Removal costs

506

.04 Distributor commissions

506

.05 Intangibles

506

.06 Rotable spare parts safe harbor method.

507

.07 Repairable and reusable spare parts

507

.08 Reserved

508

.09 Reserved

508

.10 Reserved

508

.11 Tangible property

508

.12 Railroad track structure expenditures

508

SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)

512

.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers

512

.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers.

515

.03 Reserved

515

.04 Impact fees

515

.05 Change to capitalizing environmental remediation costs under § 263A

515

.06 Change in allocating environmental remediation costs under § 263A

516

.07 Safe harbor methods under § 263A for certain dealerships of motor vehicles

516

.08 Change to not apply § 263A to one or more plants removed from the list of plants that have a preproductive period in excess of 2 years.

516

.09 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for self-constructed assets

517

.10 Real property acquired through foreclosure

517

.11 Sales-Based Royalties.

517

.12 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method

518

.13 U.S. ratio method

518

.14 Depletion

520

SECTION 12. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)

520

.01 Change to comply with § 267

520

.02 Reserved

520

SECTION 13. DEFERRED COMPENSATION (§ 404)

520

.01 Reserved

520

.02 Deferred compensation

520

.03 Grace period contributions

521

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

SECTION 14. METHODS OF ACCOUNTING (§ 446)

521

.01 Change in overall method from the cash method to an accrual method

521

.02 Multi-year insurance policies for multi-year service warranty contracts

523

.03 Taxpayers changing to overall cash method

523

.04 Nonaccrual-experience method

524

.05 Interest accruals on short-term consumer loans-Rule of 78's method

525

.06 Film producer's treatment of certain creative property costs

525

.07 Deduction of incentive payments to health care providers

525

.08 Change by bank for uncollected interest.

526

.09 Change from the cash method to an accrual method for specific items

526

.10 Multi-year service warranty contracts

527

.11 Overall cash method for specified transportation industry taxpayers

527

.12 Change to overall cash/hybrid method for certain banks

528

.13 Change to overall cash method for farmers

529

.14 Nonshareholder contributions to capital under § 118

529

.15 Debt issuance costs.

530

SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451)

530

.01 Accrual of interest on nonperforming loans

530

.02 Advance rentals

530

.03 State or local income or franchise tax refunds

530

.04 Capital Cost Reduction Payments

531

.05 Credit card annual fees

531

.06 Credit card late fees

531

.07 Advance payments

531

.08 Credit card cash advance fees

532

.09 Reserved

532

.10 Retainages

532

.11 Advance payments - change in applicable financial statements (AFS)

532

SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)

533

.01 Series E, EE or I U.S. savings bonds

533

.02 Reserved

534

SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455)

534

.01 Prepaid subscription income

534

.02 Reserved

534

SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

534

.01 Change to percentage-of-completion method (PCM)

534

.02 Reserved

535

SECTION 19. TAXABLE YEAR INCURRED (§ 461)

535

.01 Timing of incurring liabilities for employee compensation

535

(1) Self-insured employee medical benefits

535

(2) Bonuses

535

(3) Vacation pay, sick pay, and severance pay

536

.02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes, and state franchise taxes

536

.03 Timing of incurring liabilities under a workers' compensation act, tort, breach of contract, or violation of law.

536

.04 Timing of incurring certain liabilities for payroll taxes

537

.05 Cooperative advertising

538

.06 Timing of incurring certain liabilities for services or insurance

538

.07 Rebates and allowances

538

.08 Ratable accrual of real property taxes

538

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

.09

California Franchise Taxes

538

.10 Gift cards issued as a refund for returned goods

539

.11 Timing of incurring liabilities under the recurring item exception to the economic performance rules

539

SECTION 20. RENT (§ 467)

539

.01 Change from an improper method of inclusion of rental income or expense to inclusion in accordance with the rent allocation

539

.02 Reserved

539

SECTION 21. INVENTORIES (§ 471)

539

.01 Cash discounts

539

.02 Estimating inventory "shrinkage"

540

.03

Small taxpayer exception from requirement to account for inventories under § 471

540

.04 Qualifying volume-related trade discounts

541

.05 Impermissible methods of identification and valuation

541

.06 Core Alternative Valuation Method

541

.07 Replacement cost for automobile dealers' parts inventory

542

.08 Replacement cost for heavy equipment dealers' parts inventory

542

.09 Rotable spare parts

542

.10 Advance Trade Discount Method

542

.11 Permissible methods of identification and valuation

542

.12 Change in the official used vehicle guide utilized in valuing used vehicles

543

.13 Invoiced advertising association costs for new vehicle retail dealerships

543

.14 Rolling-average method of accounting for inventories

543

.15 Sales-Based Vendor Chargebacks

543

.16 Retail inventory method

543

SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)

544

.01 Change from the LIFO inventory method

544

.02 Determining current-year cost under the LIFO inventory method

545

.03 Alternative LIFO inventory method for retail automobile dealers

545

.04 Used vehicle alternative LIFO method

546

.05 Determining the cost of used vehicles purchased or taken as a trade-in

546

.06 Change to the inventory price index computation (IPIC) method

547

.07 Changes within the inventory price index computation (IPIC) method.

547

.08 Changes to the Vehicle-Pool Method

548

.09 Changes within the used vehicle alternative LIFO method.

548

.10 Changes to dollar-value pools of manufacturers

549

SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD (§ 475)

549

.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f)

549

.02 Taxpayers requesting to change their method of accounting from the mark-to-market method of accounting described in § 475 to a realization method

549

SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585)

551

.01 Changing from the § 585 reserve method to the § 166 specific charge-off method

551

.02 Reserved

552

SECTION 25. INSURANCE COMPANIES (§§ 816, 832, 833)

552

.01 Safe harbor method of accounting for premium acquisition expenses

552

.02 Certain changes in method of accounting for organizations to which § 833 applies

552

.03 Change in qualification as life/nonlife insurance company under § 816(a)

552

SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846)

553

.01 Composite method for discounting unpaid losses

553

.02 Reserved

553

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A-860G)

553

.01 REMIC Inducement Fees

553

.02 Reserved

553

SECTION 28. RESERVED

553

SECTION 29. FUNCTIONAL CURRENCY (§ 985)

553

.01 Change in functional currency

553

.02 Reserved

553

SECTION 30. RESERVED

554

SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)

554

.01 De minimis original issue discount (OID)

554

.02. Proportional method of accounting for OID on a pool of credit card receivables

554

SECTION 32. MARKET DISCOUNT BONDS (§ 1278)

554

.01 Revocation of § 1278(b) election

554

.02 Reserved

555

SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281)

555

.01 Interest income on short obligations

555

.02 Stated interest on short-term loans of cash method banks

555

EFFECTIVE DATE

555

EFFECT ON OTHER DOCUMENTS

555

PAPERWORK REDUCTION ACT

557

SIGNIFICANT CHANGES

557

DRAFTING INFORMATION

559

LIST OF AUTOMATIC CHANGES CONTACT LIST

559

This revenue procedure provides the List
of Automatic Changes to which the automatic
change procedures in Rev. Proc. 2015-13,
2015-5 I.R.B. 419, (or successor) apply. The
definitions in section 3 of Rev. Proc.
2015-13 apply to this revenue procedure.

## LIST OF AUTOMATIC CHANGES

### SECTION 1. GROSS INCOME (§ 61)

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

(1) Description of change. This change
applies to a Utility that wants to change its
method of accounting for Up-front Pay-
ments to the safe harbor method described
in Rev. Proc. 2005-35, 2005-2 C.B. 76. In
general, this change applies to a Utility that
receives an Up-front Payment from a Gen-
erator to finance Network Upgrades to the
Utility's Transmission System. For federal
income tax purposes, if an Up-front Pay-
ment is made pursuant to an Interconnection
Agreement that satisfies all of the conditions

of section 5.02 of Rev. Proc. 2005-35, a
Utility may treat that Up-front Payment as not
being taxable income under § 61 when re-
ceived (the safe harbor method). In addition, a
Utility that uses the safe harbor method is not
entitled to any deduction for its reimburse-
ments of the Up-front Payment. To the extent
that Federal Energy Regulatory Commission
(FERC) interest is deductible, it must be prop-
erly allocated to the periods in which it ac-
crues. A Utility using the safe harbor method
must comply with all other applicable provi-
sions of Rev. Proc. 2005-35. See Rev. Proc.
2005-35 for the definitions of certain terms for
purposes of this change.

(2) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 1.01 is "91."

(3) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).
.02 Reserved.

## SECTION 2. COMMODITY CREDIT LOANS (§ 77)

.01 Treating amounts received as loans.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for loans re-
ceived from the Commodity Credit Cor-
poration from including the loan amount
in gross income for the taxable year in
which each loan is received to treating
each loan amount as a loan.

(2) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(3) Manner of making change. This
change is made on a cut-off basis and
applies only to loans received from the
Commodity Credit Corporation on or after
the beginning of the year of change. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(4) Designated automatic accounting
method change number. The designated

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

automatic accounting method change
number for a change under this section
2.01 is "1."

(5) Contact information. For further in-
formation regarding a change under this
section, contact William Ruane at (202)
317-4718 (not a toll-free number).

.02 Reserved.

## SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)

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

(1) Description of change. This change
applies to a lawyer who advances money
to pay for costs of litigation or for other
expenses on behalf of clients, and who
wants to change the method of accounting
for such advances from treating them as
deductible business expenses to treating
them as loans. This change applies to
cases handled either on a non-contingent
or a contingent fee basis. See Pelton &
Gunther, P.C. v. Commissioner, T.C.
Memo. 1999-339 (non-contingent fee);
Canelo v. Commissioner, 53 T.C. 217
(1969), aff'd per curiam, 447 F.2d 484
(9th Cir. 1971) (contingent fee).

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.01 is "2."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 prior to November 1, 2015, or
Martin Osborne after October 31, 2015, at
(202) 317-7011 (not a toll-free number).
.02 ISO 9000 costs.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for costs in-
curred to obtain, maintain, and renew ISO
9000 certification to conform with Rev.
Rul. 2000-4, 2000-1 C.B. 331, as mod-
ified by this revenue procedure.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.02 is "3."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 prior to November 1, 2015, or

Martin Osborne after October 31, 2015, at
(202) 317-7011 (not a toll-free number).

.03 Restaurant or tavern smallwares
packages.

(1) Description of change. This change
applies to a taxpayer engaged in the trade
or business of operating a restaurant or
tavern (within the meaning of section 4.01
of Rev. Proc. 2002-12, 2002-1 C.B. 374)
that wants to change its method of ac-
counting for the costs of smallwares to the
smallwares method described in Rev.
Proc. 2002-12, as modified by this reve-
nue procedure.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.03 is "4."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 prior to November 1, 2015, or
Martin Osborne after October 31, 2015, at
(202) 317-7011 (not a toll-free number).

.04 Timber grower fertilization costs.

(1) Description of change. This change
applies to a timber grower that wants to
change its method of accounting to treat
post-establishment fertilization costs of an
established timber stand as ordinary and
necessary business expenses deductible
under § 162. See Rev. Rul. 2004-62,
2004-1 C.B. 1072, as modified by this
revenue procedure.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.04 is "86."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 prior to November 1, 2015, or
Martin Osborne after October 31, 2015, at
(202) 317-7011 (not a toll-free number).
05 Materials and supplies. See section
10.11 of this revenue procedure.

.06 Repair and maintenance costs. See
section 10.11 of this revenue procedure.

.07 Wireline network asset maintenance
allowance and units of property methods of
accounting under Rev. Proc. 2011-27.

(1) Description of change. This change
applies to a wireline telecommunications
carrier that is within the scope of Rev.
Proc. 2011-27, 2011-18 I.R.B. 740, and

wants to change its treatment of wireline
network asset expenditures to use either
(a) the wireline network asset mainte-
nance allowance method of accounting, or
(b) all or some of the units of property
described in Rev. Proc. 2011-27.

(2) Section 481(a) adjustment. In gen-
eral, a change to the wireline network
asset maintenance allowance method of
accounting or to use all or some of the
units of property specified in Rev. Proc.
2011-27 requires an adjustment under
§ 481(a). The § 481(a) adjustment shall
not include any amount attributable to
property for which the taxpayer elected to
apply the repair allowance under
§ 1.167(a)-11(d)(2).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.07 is "158."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free number).

.08 Wireless network asset maintenance
allowance and units of property methods of
accounting under Rev. Proc. 2011-28.

(1) Description of change. This change
applies to a wireless telecommunications
carrier that is within the scope of Rev.
Proc. 2011-28, 2011-18 I.R.B. 743, and
wants to change its treatment of wireless
network asset expenditures to use either
(a) the wireless network asset mainte-
nance allowance method of accounting, or
(b) all or some of the units of property
described in Rev. Proc. 2011-28.

(2) Section 481(a) adjustment. In gen-
eral, a change to the wireless network
asset maintenance allowance method of
accounting or to use all or some of the
units of property specified in Rev. Proc.
2011-28 requires an adjustment under
§ 481(a). The § 481(a) adjustment does
not include any amount attributable to
property for which the taxpayer elected to
apply the repair allowance under
§ 1.167(a)-11(d)(2).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.08 is "159."

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

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

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

.09 Method of accounting under Rev.
Proc. 2011-43 for taxpayers in the busi-
ness of transporting, delivering, or selling
electricity.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011-43, 2011-37
I.R.B. 326, and wants to change its treat-
ment of transmission and distribution
property expenditures to use the method
of accounting described in Rev. Proc.
2011-43.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to an electric transmission or distribution
company that changes to the method of
accounting provided in Rev. Proc. 2011-
43, for its first, second, third, or fourth
taxable year ending after December 30,
2010.

(3) Section 481(a) adjustment. A tax-
payer must take the entire net § 481(a)
adjustment into account (whether positive
or negative) in computing taxable income
for the year of change. The § 481(a) ad-
justment does not include any amount at-
tributable to property for which the tax-
payer elected to apply the repair
allowance under § 1.167(a)-11 (d)(2) for
any taxable year in which the election was
made. For guidance regarding permissible
§ 481(a) calculation methodologies, see
section 7.02 and Appendix A of Rev.
Proc. 2011-43.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.09 is "160."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free number).

.10 Reserved.

.11 Reserved.

.12 Reserved.

.13 Reserved.

.14 Reserved.

.15 Reserved.

.16 Reserved.

.17 Reserved.

.18 Reserved.

.19 Reserved.

.20 Method of accounting under Rev.
Proc. 2013-24 for taxpayers in the busi-
ness of generating steam or electric
power.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2013-24, 2013-22
I.R.B. 1142, and wants to change its treat-
ment of generation property expenditures
to use all or some of the unit of property
definitions and the corresponding major
component definitions described in Rev.
Proc. 2013-24.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to an eligible taxpayer that changes to the
method of accounting provided in Rev.
Proc. 2013-24 for its first, second, or third
taxable year ending after December 30,
2012.

(3) Section 481(a) adjustment.

(a) A taxpayer must take the entire net
§ 481(a) adjustment into account (whether
positive or negative) in computing taxable
income for the year of change. For guid-
ance regarding the use of extrapolation in
computing a § 481(a) adjustment, see sec-
tions 6.02 and Appendix B of Rev. Proc.
2013-24.

(b) A taxpayer changing to this method
of accounting must not include in the
§ 481(a) adjustment any amount attribut-
able to property for which the taxpayer
elected to apply the repair allowance un-
der § 1.167(a)-11(d)(2) for any taxable
year in which the repair allowance elec-
tion was made.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.20 is "182."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll free number).

.21Cable network asset capitalization
methods of accounting under Rev. Proc.
2015-12.

(1) Description of change. This change
applies to a cable system operator that is
within the scope of Rev. Proc. 2015-12,
2015-2 I.R.B. 266, and wants to make one
or more of the of the following changes in
method of accounting:

(a) Change its treatment of cable net-
work asset expenditures to the cable net-
work asset maintenance allowance
method of accounting provided in section
5 of Rev. Proc. 2015-12;

(b) Change to use any of the unit of
property definitions provided in section 6
of Rev. Proc. 2015-12;

(c) Change to use the specific identifi-
cation method for installations and cus-
tomer drop costs described in section
7.01(1) of Rev. Proc. 2015-12;

(d) Change to use the safe harbor allo-
cation method for installations and cus-
tomer drop costs described in section
7.01(2) of Rev. Proc. 2015-12; or

(e) Change to deduct the labor costs
associated with installing customer prem-
ises equipment under section 7.02 of Rev.
Proc. 2015-12.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tion 5.01(1)(d) and (f) of Rev. Proc. 2015-
13, 2015-5 I.R.B. 419, do not apply to a
cable system operator that changes to a
method of accounting provided in section
5, section 6, or section 7 of Rev. Proc.
2015-12 for its first or second taxable
year ending after December 31, 2013.

(3) Concurrent automatic change. A
taxpayer that wants to make both one or
more changes in method of accounting
pursuant to this section 3.21 and a change
to a UNICAP method under section 11 of
this revenue procedure for the same year
of change should file a single Form 3115
that includes all of these changes and must
enter the designated automatic accounting
method change numbers for all of these
changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes.

(4) Section 481 (a) adjustment.

(a) In general, a change to one or more
of the of the changes in method of ac-
counting described in section 3.21(1) of
this revenue procedure requires an adjust-
ment under § 481(a). The § 481(a) adjust-
ment shall not include any amount attrib-
utable to property for which the taxpayer
elected to apply the repair allowance un-
der § 1.167(a)-11(d)(2).

(b) Itemized listing on Form 3115. The
taxpayer must include on Form 3115, Part
IV, line 25, the total § 481(a) adjustment
for all changes in methods of accounting

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

being made. If the taxpayer is making
more than one change in method of ac-
counting under Rev. Proc. 2015-12, the
taxpayer must include on an attachment to
Form 3115:

(i) the information required by Part IV,
line 25 for each change in method of
accounting (including the amount of the
§ 481(a) adjustment for each change in
method of accounting, which includes the
portion of the § 481(a) adjustment attrib-
utable to UNICAP);

(ii) the information required by Part II,
line 12 of Form 3115 that is associated
with each change; and

(iii) the citation to the paragraph of
Rev. Proc. 2015-12 that provides for each
proposed method of accounting.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of ac-
counting provided in section 5 or 6 of
Rev. Proc. 2015-12 is "208." The desig-
nated automatic accounting method
change number for a change to a method
of accounting provided in section 7 of
Rev. Proc. 2015-12 is "209."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Merrill Feldstein at (202)
317-5100.

## SECTION 4. BAD DEBTS (§ 166)

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

(1) Description of change. This change
applies to a taxpayer (other than a bank as
defined in § 585(a)(2)) that wants to
change its method of accounting for bad
debts from a reserve method (or other
improper method) to a specific charge-off
method that complies with § 166. For
procedures applicable to banks, see
§ 585(c) and the regulations thereunder
and section 24 of this revenue procedure.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
4.01 is "5."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Renay France at (202)
317-7003 (not a toll-free number).

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

(1) Description of change. This change
applies to a bank that wants to change its
method of accounting for bad debts by
making the conformity election under
§ 1.166-2(d)(3)(iii)(C)(3).

(2) Applicability. This change only ap-
plies to a bank (as defined in § 1.166-
2(d)(4)(i)) that:

(a) is subject to supervision by Federal
authorities, or by state authorities main-
taining substantially equivalent standards;

(b) has previously adopted or elected to
change to the method of accounting for
bad debts described in § 1.166-2(d)(3);

(c) has had that previous election auto-
matically revoked under § 1.166-
2(d)(3)(iv)(C);

(d) meets the express determination re-
quirement of § 1.166-2(d)(3)(iii)(D) for
the year of change; and

(e) now seeks the consent of the Com-
missioner to make an election under
§ 1.166-2(d)(3)(iii)(C)(3).

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
4.02 is "211."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Timothy Sebastian at
(202) 317-6945 (not a toll-free number).

SECTION 5. INTEREST EXPENSE
(§163) AND AMORTIZABLE BOND
PREMIUM (§ 171)

.01 Revocation of § 171(c) election.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for amortizable
bond premium by revoking its § 171(c)
election. Under § 171(c), a taxpayer that
holds certain taxable bonds may elect to
amortize any bond premium on the bonds
in accordance with regulations prescribed
by the Secretary. Sections 1.171-1
through 1.171-5 provide rules relating to
the amortization of bond premium by a
taxpayer. Section 1.171-4 provides the
procedures to make a § 171(c) election to
amortize bond premium.

(2) Revocation of election. The revoca-
tion of a § 171(c) election applies to all

taxable bonds that are held by the tax-
payer 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 tax-
payer.

(3) Manner of making change. This
change is made using a cut-off basis and
applies only to taxable bonds held on or
after the beginning of the year of change.
Accordingly, a § 481(a) adjustment is nei-
ther 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 pre-
scribed for this change, the basis of any
bond, adjusted for amounts previously
amortized during the period of the elec-
tion, is not affected by the revocation.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
5.01 is "16."

(5) Additional requirements. On a
statement attached to the Form 3115, the
taxpayer 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 tax-
payer made the § 171(c) election that is
proposed to be revoked.

(6) Audit protection. Any audit protec-
tion applicable to this change under sec-
tion 8 of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not preclude the Com-
missioner from examining the method
used by the taxpayer to determine the
amount of amortizable bond premium un-
der § 171(b) for a taxable year prior to the
year of change.

(7) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

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

(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of
§ 163(e)(3), which defers certain deduc-
tions attributable to original issue discount
debt instruments held by related foreign
persons. Any portion of the original issue

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

discount will not be allowable as a deduc-
tion to the U.S. person issuer until paid.

(2) Accelerated § 481(a) adjustment
period in certain situations. In addition to
the circumstances set forth in section
7.03(4) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, the § 481 adjustment period
provided in section 7.03 of Rev. Proc.
2015-13 will be accelerated for a U.S.
person with a remaining balance of a
§ 481(a) adjustment that arose by reason
of a change in method of accounting de-
scribed in this section 5.02 if a debt in-
strument subject to the change is paid off,
retired, or significantly modified within
the meaning of § 1.1001-3 prior to the end
of the § 481(a) adjustment period. The
portion of the remaining § 481(a) adjust-
ment attributable to the debt instrument
must be taken into account in the taxable
year the debt instrument is paid off, re-
tired, or significantly modified within the
meaning of § 1.1001-3.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
5.02 is "212."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Joseph Vetting at (202)
317-4960 (not a toll-free number).

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)

.01 Impermissible to permissible
method of accounting for depreciation or
amortization.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change from an
impermissible to a permissible method of
accounting for depreciation or amortiza-
tion (depreciation) for any item of depre-
ciable or amortizable property under the
taxpayer's present or proposed method of
accounting:

(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 revenue procedure for
property placed in service in the taxable

year immediately preceding the year of
change);

(ii) for which the taxpayer is making a
change in method of accounting under
§ 1.446-1(e)(2)(ii)(d);

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

(iv) that is owned by the taxpayer at the
beginning of the year of change (but see
section 6.17 of this revenue procedure for
property disposed of before the year of
change).

(b) Taxpayer has not adopted a method
of accounting for the item of property. If a
taxpayer does not satisfy section
6.01(1)(a)(i) of this revenue procedure for
an item of depreciable or amortizable
property because this item of property is
placed in service by the taxpayer in the
taxable year immediately preceding the
year of change ("1-year depreciable prop-
erty"), the taxpayer may change from the
impermissible 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 includes the amount of any adjust-
ment that is attributable to all property
(including the 1-year depreciable prop-
erty) subject to the Form 3115. Alterna-
tively, the taxpayer may change from the
impermissible method of determining de-
preciation to the permissible method of
determining depreciation for a 1-year de-
preciable 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 if the
taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in con-
junction with a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable);

(iii) any property for which a taxpayer
is making a change in depreciation under
§ 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);

(iv) any property subject to § 167(g)
regarding property depreciated under the
income forecast method;

(v) any § 1250 property that a taxpayer
is reclassifying to an asset class of Rev.
Proc. 87-56, 1987-2 C.B. 674 (as 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 taxpayer
is revoking a timely valid election, or
making a late election, under § 167, § 168,
§ 179, §1400I, § 1400L(c), former § 168,
§ 13261(g)(2) or (3) of the Revenue Rec-
onciliation Act of 1993 (1993 Act),
1993-3 C.B. 1, 128 (relating to amortiz-
able § 197 intangibles), or any additional
first year depreciation deduction provision
of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)). A
taxpayer may request consent to revoke or
make the election by submitting a request
for a letter ruling under Rev. Proc.
2015-1, 2015-1 I.R.B. 1 (or successor).
However, if a taxpayer is revoking or
making an election under § 179, see
§ 179(c) and § 1.179-5. See § 1.446-
1(e)(2)(ii)(d)(3)(iii);

(vii) any property for which deprecia-
tion is determined under § 56(g)(4)(A) or
§ 167 (other than under § 168, § 1400I,
§ 1400L(c), former § 168, or any addi-
tional first year depreciation deduction
provision of the Code (for example,
§ 168(k), § 168(l), § 1400L(b), or
§ 1400N(d))) and a taxpayer is changing
the useful life of the property. A change in
the useful life of property is corrected by
adjustments in the applicable taxable year
provided under § 1.446-1(e)(2)(ii)(d)(5)(iv).
However, this section 6.01(1)(c)(vii) does
not apply if the taxpayer is changing to or

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

from a useful life, recovery period, or
amortization period that is specifically as-
signed by the Code (for example,
§ 167(f)(1), § 168(c)), the regulations
thereunder, or other guidance published in
the Internal Revenue Bulletin and, there-
fore, this change is a change in method of
accounting (unless section 6.01(1)(c)(xv)
of this revenue procedure applies). See
§ 1.446-1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable property for which
the use changes in the hands of the same
taxpayer. See § 1.446-1(e)(2)(ii)(d)(3)(ii);

(ix) any property for which deprecia-
tion 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
expense to capitalizing and depreciating
the cost or other basis, or vice versa;

(xi) any change in method of account-
ing involving a change from one permis-
sible method of accounting for the prop-
erty to another permissible method of
accounting for the property. For example:

(A) a change from the straight-line
method of depreciation to the income
forecast method of depreciating for video-
cassettes. See Rev. 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
salvage proceeds to deducting costs of
removal as an expense (provided the costs
of removal are not required to be capital-
ized under any provision of the Code,
such as § 263(a)) and including salvage
proceeds in taxable income (see section
6.02 of this revenue procedure for making
this change for property for which depre-
ciation is determined under § 167);

(xii) any change in method of account-
ing involving both a change from treating
the cost or other basis of the property as
nondepreciable or nonamortizable prop-
erty 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 de-

duction provision of the Code (for exam-
ple, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)) (for example, a change in the
treatment of the space consumed in land-
fills placed in service in 2006 from non-
depreciable to depreciable property (as-
suming section 6.01(1)(c)(xiii) of this
revenue procedure does not apply) and the
making of an election under §168(f)(1) to
depreciate this property under the unit of
production method of depreciation under
§ 167);

(xiii) any change in method of account-
ing for any item of income or deduction
other than depreciation, even if the change
results in a change in computing depreci-
ation under § 1.446-1(e)(2)(ii)(d)(2)(i),
(ii), (iii), (iv), (v), (vi), (vii), or (viii). For
example, a change in method of account-
ing involving:

(A) a change in inventory costs (for
example, when property is reclassified
from inventory property to depreciable
property, or vice versa) (but see section
10.02 of this revenue procedure for mak-
ing a change in method of accounting
from inventory property to depreciable
property for unrecoverable line pack gas
or unrecoverable cushion gas, and section
10.06 of this revenue procedure for mak-
ing 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, or vice versa
(but see section 6.03 of this revenue pro-
cedure for making this change);

(xiv) a change from determining depre-
ciation under § 168 to determining depre-
ciation under former § 168 for any prop-
erty 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 than real property with a
class life of more than 12.5 years).

(2) Certain eligibility rules inapplica-
ble. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.
If during any of the five taxable years
ending with the year of change, a taxpayer
requested or made a change in method of
accounting from expensing to capitaliz-
ing, or vice versa, the cost or other basis
of an asset, the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 is not
applicable to a change under this section
6.01 for that same asset.

(3) Additional requirements. A tax-
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
section 6.01(7) of this revenue procedure).

(b) Statements required. A taxpayer
(including a qualified small taxpayer as
defined in section 6.01(4)(b) of this reve-
nue procedure) must provide the follow-
ing statements, if applicable, and attach
them to the completed Form 3115:

(i) a detailed description of the present
and proposed methods of accounting. A
general description of these methods of
accounting is unacceptable (for example,
MACRS to MACRS, erroneous method to
proper method, claiming less than the de-
preciation allowable to claiming the de-
preciation allowable);

(ii) to the extent not provided else-
where on the Form 3115, a statement de-
scribing the taxpayer's business or
income-producing activities. Also, if the
taxpayer has more than one business or
income-producing activity, a statement
describing the taxpayer's business or
income-producing activity in which the
item of property at issue is primarily used
by the taxpayer;

(iii) to the extent not provided else-
where on the Form 3115, a statement of
the facts and law supporting the proposed
method of accounting, new classification
of the item of property, and new asset
class in, as appropriate, Rev. Proc. 87-56
or Rev. Proc. 83-35. If the taxpayer is the
owner and lessor of the item of property at

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

issue, the statement of the facts and law
supporting the new asset class also must
describe the business or income-
producing activity in which that item of
property is primarily used by the lessee;

(iv) to the extent not provided else-
where on the Form 3115, 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 addi-
tional 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
Form 3115;

(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
deferral of federal income tax liability as-
sociated with the § 481(a) adjustment ap-
plicable to the public utility property sub-
ject to the Form 3115; and

(C) within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115;

(vi) if the taxpayer is changing the clas-
sification of an item of § 1250 property
placed in service after August 19, 1996, to
a retail motor fuels outlet under
§ 168(e)(3)(E)(iii), a statement containing
the following representation: "For 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 is devoted to the sale of petro-
leum products (not including floor space

devoted to related services, such as oil
changes and floor space devoted to non-
petroleum products such as tires and oil
filters), or (C) the item of § 1250 property
is 1,400 square feet or less."; and

(vii) if the taxpayer is changing the
classification of an item of property from
§ 1250 property to § 1245 property under
§ 168 or former § 168, a statement of the
facts and law supporting the new § 1245
property classification, and a statement
containing the following representation:
"Each item of depreciable property that is
the subject of the Form 3115 filed under
section 6.01 of Rev. Proc. 2015-14 for the
year of change beginning [Insert the
date], and that is reclassified from [Insert,
as appropriate: nonresidential real prop-
erty, residential rental property, qualified
leasehold improvement property, quali-
fied restaurant property, qualified retail
improvement property, 19-year real prop-
erty, 18-year real property, or 15-year
real property] to an asset class of [Insert,
as appropriate, either: Rev. Proc. 87-56,
1987-2 C.B. 674, or Rev. Proc. 83-35,
1983-1 C.B. 745] that does not explicitly
include § 1250 property, is § 1245 prop-
erty for depreciation purposes."

(4) Reduced filing requirement for
qualified small taxpayers.

(a) In general. A qualified small tax-
payer, as defined in section 6.01(4)(b) of
this revenue procedure, is required to
complete only the following information
on Form 3115 to make this change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, all lines except line 24; and
(f) Schedule E.

(b) Definition of qualified small tax-
payer. A "qualified small taxpayer" is a
taxpayer whose average annual gross re-
ceipts, as determined under § 1.263(a)-
3(h)(3), for the three preceding taxable
years is less than or equal to $10,000,000.

(5) Section 481 (a) adjustment. Because
the adjusted basis of the property is
changed as a result of a method change
made under this section 6.01 (see section
6.01(5) of this revenue procedure), items
are duplicated or omitted. Accordingly,

this change is made with a § 481(a) ad-
justment. This adjustment may result in
either a negative § 481(a) adjustment (a
decrease in taxable income) or a positive
§ 481(a) adjustment (an increase in tax-
able income) and may be a different
amount for regular tax, alternative mini-
mum tax, and adjusted current earnings
purposes. This § 481(a) adjustment equals
the difference between the total amount of
depreciation taken into account in com-
puting taxable income for the property
under the taxpayer's present method of
accounting (including the amount attribut-
able to any property described in section
6.01(1)(b) of this revenue procedure that
is included in the taxpayer's Form 3115),
and the total amount of depreciation al-
lowable for the property under the taxpay-
er's proposed method of accounting (as
determined under section 6.01(6) of this
revenue procedure, and including the
amount attributable to any property de-
scribed in section 6.01(1)(b) of this reve-
nue procedure that is included in the tax-
payer's Form 3115), for open and closed
years prior to the year of change. How-
ever, the amount of the § 481(a) adjust-
ment must be adjusted to account for the
proper amount of the depreciation allow-
able that is required to be capitalized un-
der any provision of the Code (for exam-
ple, § 263A) at the beginning of the year
of change.

(6) Basis adjustment. As of the begin-
ning of the year of change, the basis of
depreciable property to which this section
6.01 applies must reflect the reductions
required by § 1016(a)(2) for the depreci-
ation allowable for the property (as deter-
mined under section 6.01(7) of this reve-
nue procedure).

(7) Meaning of depreciation allowable.
(a) In general. Section 6.01(7) of this
revenue procedure provides the amount of
the depreciation allowable determined un-
der § 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, recov-
ery period, and convention provided for

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

under § 56(a)(1) that applies for the prop-
erty'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 applica-
ble, and convention provided for under
§ 56(g)(4)(A) that applies for the proper-
ty's placed-in-service date.

(d) Section 167 property. Generally,
for any taxable year, the depreciation al-
lowable for property for which deprecia-
tion is determined under § 167, is deter-
mined either:

(i) under the depreciation method ad-
opted by the taxpayer for the property; or

(ii) if that depreciation method does
not result in a reasonable allowance for
depreciation or the taxpayer has not ad-
opted a depreciation method for the prop-
erty, under the straight-line depreciation
method.

For determining the estimated useful
life and salvage value of the property, see
§ 1.167(a)-1(b) and (c), respectively.

The depreciation allowable for any tax-
able year for property subject to § 167(f)
(regarding certain property excluded from
§ 197) is determined by using the depre-
ciation method and useful life prescribed
in § 167(f). If computer software is depre-
ciated under § 167(f)(1) and is qualified
property (as defined in § 168(k)(2) and
§ 1.168(k)-1), 50-percent bonus depreci-
ation property (as defined in § 168(k)(4)
and § 1.168(k)-1), qualified disaster assis-
tance property (as defined in § 168(n)(2)),
qualified New York Liberty Zone (Liberty
Zone) property (as defined in § 1400L(b)(2)
and § 1.1400L(b)-1), qualified Gulf Op-
portunity 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 am-
plified by Notice 2007-36, 2007-1 C.B.
1000), specified Gulf Opportunity Zone
extension property (GO Zone extension
property) (as defined in § 1400N(d)(6)
and section 4 of Notice 2007-36), or qual-
ified Recovery Assistance (RA) property
(as defined in sections 2.02 and 2.03 of
Notice 2008-67, 2008-32 I.R.B. 307),
the depreciation allowable for that com-
puter software under § 167(f)(1) is also
determined by taking into account the ad-

ditional 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,
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 depre-
ciation for the computer software.

(e) Section 168 property. The depreci-
ation 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 depreci-
ation system pursuant to § 168(g)(1) or
other provisions of the Code (for example,
property described in § 263A(e)(2)(A) or
§ 280F(b)(1)). Property required to be de-
preciated under the alternative deprecia-
tion 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 En-
ergy Act of 2008, as applicable, unless the
taxpayer made a timely valid election not
to deduct the additional first year depreci-
ation (or made a deemed election not to
deduct the additional first year deprecia-
tion; for further 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
included;

(iii) if the property is qualified second
generation biofuel plant property (as de-
fined in § 168(l)(2)) or qualified cellulosic
biofuel plant property (as defined in for-

mer § 168(l)(2)), by also taking into ac-
count the additional first year depreciation
deduction provided by § 168(l)(1), unless
the taxpayer made a timely valid election
not to deduct the additional first year de-
preciation 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 amorti-
zation 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-
mined by using either:

(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 applicable
to the property if the property is required
to be depreciated under the straight-line
method (for example, property described
in former § 168(f)(2) or former § 280F(b)(2)
or if the taxpayer elected to determine the
depreciation allowance under the optional
straight-line percentage (for example, the
straight-line method in former § 168(b)(3)).

(h) Qualified revitalization building.
The depreciation allowable for any 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 deter-
mined as follows:

(i) if the taxpayer elected to deduct
one-half of any qualified revitalization ex-
penditures (as defined in § 1400I(b)(2)
and as limited by § 1400I(c)) chargeable
to a capital account with respect to the
qualified revitalization building for the
taxable year in which the building is
placed in service by the taxpayer, the de-
preciation allowable for the qualified re-
vitalization building's placed-in-service
year is equal to one-half of the qualified
revitalization expenditures for the build-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

ing and the depreciation allowable for the
remaining depreciable basis of the quali-
fied revitalization building for its placed-
in-service year and subsequent taxable
years is determined using the general de-
preciation system of § 168(a) or the alter-
native depreciation system of § 168(g), as
applicable; or

(ii) if the taxpayer elected to amortize
all of the qualified revitalization expendi-
tures 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 re-
vitalization expenditures is determined in
accordance with this election and the de-
preciation allowable for the remaining de-
preciable basis of the qualified revitaliza-
tion 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 de-
preciation 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.

(8) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment. For 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 reclassification

of two computers from nonresidential real
property to 5-year property, one office
desk from nonresidential real property to
7-year property, and two office desks from
5-year property to 7-year property. On
that Form 3115, the taxpayer must provide
either (i) a single net § 481(a) adjustment
that covers all the changes resulting from
all of these reclassifications, or (ii) a sin-
gle negative § 481(a) adjustment that cov-
ers the changes resulting from the reclas-
sifications of the two computers and one
office desk from nonresidential real prop-
erty to 5-year property and 7-year prop-
erty, respectively, and a single positive
§ 481(a) adjustment that covers the
changes resulting from the reclassifica-
tions of the two office desks from 5-year
property to 7-year property.

(b) A taxpayer making both this
change and a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required by
section 6.01(4)(a) of this revenue proce-
dure for this change and the information
required by the lines on Form 3115 appli-
cable to the UNICAP method change, in-
cluding Part II line 12 and 13, Part IV, and
Schedule D, and must include a separate
response to each line on Form 3115 that is
applicable to both changes (such as Part II
lines 4b, 5c, 12, and, as applicable for this
change, Part IV) for which the taxpayer's
response is different for this change and
the change to a UNICAP method.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.01 is "7."

(10) Contact information. For further
information regarding a change under this
section, contact Douglas Kim at (202)
317-7005 (not a toll-free number).

.02 Permissible 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) Applicability.

(a) In general. This change applies to
any taxpayer wanting to make a change in
method of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure for the property in an account:

(i) for which the present and proposed
methods of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure are permissible methods for the
property under § 56(g)(4)(A)(iv) or § 167;
and

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

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

(i) a taxpayer that is required under
§ 263A and the regulations thereunder to
capitalize the costs with respect to which
the taxpayer wants to change its method
of accounting under this section 6.02 if the
taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in con-
junction with a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable);

(ii) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;

(iii) any property described in § 167(f)
(regarding certain property excluded from
§ 197);

(iv) any property subject to § 167(g)
(regarding property depreciated under the
income forecast method);

(v) any property for which depreciation
is determined under § 56(a)(1),
§ 56(g)(4)(A)(i), (ii), (iii), or (v), § 168,
§ 1400I, § 1400L(c), § 168 prior to its
amendment in 1986 (former § 168), or any
additional first year depreciation deduc-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

tion provision of the Code (for example,
§ 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 applica-
tion of, respectively, § 168 or former
§ 168;

(vii) any property for which deprecia-
tion 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) (cer-
tain changes for § 1250 property). These
changes must be made prospectively and
are not permitted under the cited regula-
tions for property for which the deprecia-
tion is determined under § 168, § 1400I,
§ 1400L(c), former § 168, or any addi-
tional first year depreciation deduction
provision of the Code (for example,
§ 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)); or

(ix) any distributor commissions (as
defined by section 2 of Rev. Proc. 2000-
38, 2000-2 C.B. 310, as modified by Rev.
Proc. 2007-16, 2007-1 C.B. 358) for
which the taxpayer is changing the useful
life under the distribution fee period
method or the useful life method (both
described in Rev. Proc. 2000-38). A
change in this useful life is corrected by
adjustments in the applicable taxable year
provided under § 1.446-
1(e)(2)(ii)(d)(5)(iv).

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.
(4) Changes covered. This section 6.02
only applies to the following changes in
methods of accounting for depreciation:

(a) a change from the straight-line
method to the sum-of-the-years-digits
method, the sinking fund method, the
unit-of-production method, or the
declining-balance method using any
proper percentage of the straight-line rate;

(b) a change from the declining-
balance method using any percentage of
the straight-line rate to the sum-of-the-
years-digits method, the sinking fund

method, or the declining-balance method
using a different proper percentage of the
straight-line rate;

(c) a change from the sum-of-the-
years-digits method to the sinking fund
method, the declining-balance method us-
ing any proper percentage of the straight-
line rate, or the straight-line method;

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

(e) a change from the sinking fund
method to the straight-line method, the
unit-of-production method, the sum-of-
the-years-digits method, or the declining-
balance method using any proper percent-
age of the straight-line rate;

(f) a change in the interest factor used
in connection with a compound interest
method or sinking fund method;

(g) a change in averaging convention
as set forth in § 1.167(a)-10(b). However,
as specifically provided in § 1.167(a)-
10(b), in any taxable year in which an
averaging convention substantially dis-
torts the depreciation allowance for the
taxable year, it may not be used (see Rev.
Rul. 73-202, 1973-1 C.B. 81);

(h) a change from charging the depre-
ciation reserve with costs of removal and
crediting the depreciation reserve with
salvage proceeds to deducting costs of
removal as an expense and including sal-
vage proceeds in taxable income as set
forth in § 1.167(a)-8(e)(2). See Rev. Rul.
74-455, 1974-2 C.B. 63. This section
6.02 applies to this change, however, only
if:

(i) the change is applied to all items in
the account for which the change is being
made; and

(ii) the removal costs are not required
to be capitalized under any provision of
the Code (for example, § 263(a), 263A, or
280B);

(i) a change from crediting the depre-
ciation reserve with the salvage proceeds
realized on normal retirement sales to
computing and recognizing gains and
losses on the sales (see Rev. Rul. 70-165,
1970-1 C.B. 43);

(j) a change from crediting ordinary
income (including the combination
method of crediting the lesser of estimated
salvage value or actual salvage proceeds
to the depreciation reserve, with any ex-
cess of salvage proceeds over estimated

salvage value credited to ordinary in-
come) with the salvage proceeds realized
on normal retirement sales, to computing
and recognizing gains and losses on the
sales (see Rev. Rul. 70-166, 1970-1 C.B.
44);

(k) a change from item accounting for
specific assets to multiple asset account-
ing (pooling) for the same assets, or vice
versa;

(l) a change from one type of multiple
asset accounting (pooling) for specific as-
sets to a different type of multiple asset
accounting (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
asset, or vice versa, for distributor com-
missions (as defined by section 2 of Rev.
Proc. 2000-38) for which the taxpayer is
using the distribution fee period method
or the useful life method (both described
in Rev. Proc. 2000-38).

(5) Additional requirements. A tax-
payer also must comply with the follow-
ing:

(a) Basis for depreciation. At the be-
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 preceding
the year of change (determined under tax-
payer's present method of accounting for
depreciation). If applicable under the tax-
payer'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-
years-digits method of depreciation must
be based on the remaining useful life of
the property as of the beginning of the
year of change; or

(ii) the declining-balance method of
depreciation must be based on the useful
life of the property measured from the
placed-in-service date, and not the ex-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

pected remaining life from the date the
change becomes effective.

(c) Regulatory requirements. For
changes in method of depreciation to the
sum-of-the-years-digits or declining-
balance method, the property must meet
the requirements of § 1.167(b)-0 or
1.167(c)-1, as appropriate.

(d) Public utility property. If any item
of property is public utility property within
the meaning of former § 167(l)(3)(A), the
taxpayer (including a qualified small tax-
payer as defined in section 6.01(4)(b) of
this revenue procedure) must attach to the
Form 3115 a statement providing that the
taxpayer agrees to the following addi-
tional terms and conditions:

(i) a normalization method of account-
ing within the meaning of former
§ 167(l)(3)(G) will be used for the public
utility property subject to the Form 3115;
and

(ii) within 30 calendar days of filing the
federal income tax return for the year of
change, the taxpayer will provide a copy
of the completed Form 3115 to any regu-
latory body having jurisdiction over the
public utility property subject to the Form
3115.

(6) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, line 24; and

(f) Schedule E.

(7) Section 481 (a) adjustment. Because
the adjusted basis of the property is not
changed as a result of a method change
made under this section 6.02, no items are
being duplicated or omitted. Accordingly,
a § 481(a) adjustment is neither required
nor permitted.

(8) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets.

(b) A taxpayer making both this
change and a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required by
section 6.02(6) of this revenue procedure
for this change and the information re-
quired by the lines on Form 3115 appli-
cable to the UNICAP method change, in-
cluding Part II line 12 and 13, Part IV, and
Schedule D, and must include a separate
response to each line on Form 3115 that is
applicable to both changes (such as Part II
lines 4b, 5c, 12, and, as applicable for this
change, Part IV) for which the taxpayer's
response is different for this change and
the change to a UNICAP method.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.02 is "8."

(10) Contact information. For further
information regarding a change under this
section, contact Douglas Kim at (202)
317-7005 (not a toll-free number).

.03 Sale, lease, or financing transac-
tions.

(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
property as sold or financed by the tax-
payer;

(iii) improperly treating property as fi-
nanced by the taxpayer to properly treat-
ing property as sold or leased by the tax-
payer;

(iv) improperly treating property as
purchased by the taxpayer to properly
treating property as leased by the tax-
payer; 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 this section 6.03 is made using
a cut-off method and applies to transac-
tions entered into on or after the beginning
of the year of change. Accordingly, a
§ 481(a) adjustment is neither required
nor permitted.

(b) If a taxpayer wants to change its
method of accounting for sale, lease or
financing transactions entered into before
the beginning of the year of change, the
taxpayer must file a Form 3115 under the
non-automatic change procedures of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419. A
change involving sale, lease, or financing
transactions entered into before the begin-
ning of the year of change will require a
§ 481(a) adjustment. The IRS will gener-
ally not consider a taxpayer's request to
change a method of accounting for a sale,
lease, or financing transaction entered into
before the beginning of the year of change
unless the taxpayer's proposed method of
accounting is consistent with the method
used by the counterparty to the agreement.
The following information should be sub-
mitted with Form 3115 to substantiate that
the taxpayer's proposed method is consis-
tent with the counterparty's method: (i)
the name of the counterparty to the trans-
action; and (ii) a representation, signed
under penalties of perjury, from the coun-
terparty that provides the method of ac-
counting for the agreement used by the
counterparty for federal income tax pur-
poses. If a taxpayer does not submit the
counterparty information, the taxpayer's
request to change a method of accounting
for a sale, lease, or financing transaction
entered into before the beginning of the
year of change will be considered only in
unusual and compelling circumstances.
The requirement to obtain counterparty

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

information from multiple counterparties
will not be considered unusual or compel-
ling.

(3) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.03 is "10."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Edward Schwartz at (202)
317-7006 (not a toll-free number).

.04 Reserved.

.05 Reserved.

.06 Reserved.

.07 Reserved.

.08 Depreciation of cable TV fiber op-
tics.

(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 consist-
ing of fiber optic cable used in a cable
television distribution system owned by
the taxpayer at the beginning of the year
of change to the safe harbor method of
accounting provided by section 4 of Rev.
Proc. 2003-63, 2003-2 C.B. 304. The
taxpayer must operate a cable television
distribution system designed to provide
one-way and two-way communication
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. This change
applies only to taxable years ending on or
before December 31, 2013. For taxable
years ending after December 31, 2013, see
section 6.42 of this revenue procedure for
making a change to the safe harbor
method of accounting provided in section
8.03 of Rev. Proc. 2015-12, 2015-2
I.R.B. 266, for depreciation of fiber optic
transfer node and trunk line consisting of
fiber optic cable used in a cable distribu-
tion network. The safe harbor method of
accounting provided in section 8.03 of
Rev. Proc. 2015-12 determines the asset

for purposes of §§ 167 and 168. See sec-
tion 9 of Rev. Proc. 2015-12 for the safe
harbor manner of determining the primary
use of that asset for taxable years ending
after December 31, 2013.

(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, all lines except line 24; and

(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the tax-
payer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 gen-
erating such adjustment and a single pos-
itive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.08 is "15."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

.09 Change 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 property (as
defined in § 1.168(b)-1(a)(2)) to the
method of accounting provided in

§ 1.168(i)-1(c)(2)(ii)(I) or § 1.168(i)-
1(h)(2), which applies when there is a
change in the use of MACRS property
pursuant to § 1.168(i)-4(d).

(2) Manner of making change.

(a) The change is made on a modified
cut-off basis (as defined in § 1.446-
1(e)(2)(ii)(d)(5)(iii)) and, thus, the ad-
justed depreciable basis of the MACRS
property as of the beginning of the year of
change is recovered using the proposed
method of accounting for general asset
account treatment. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required. See § 1.168(i)-1(h)(2)(ii)
and (iii) for more information regarding
how to establish the general asset account
when a change in the use of MACRS
property occurs pursuant to § 1.168(i)-
4(d).

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, line 24; and

(vi) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.09 is "87."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

.10 Change 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 de-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

fined in § 1.168(b)-1(a)(2)) to the method
of accounting for depreciation provided in
§ 1.168(i)-4, which applies when there is
a change in the use of MACRS property,
or (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) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, all lines except line 24; and
(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the tax-
payer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 gen-
erating such adjustment and a single pos-
itive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.10 is "88."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

.11 Depreciation of qualified non-
personal use vans and light trucks.

(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciation
for certain vehicles in accordance with

§ 1.280F-6(f)(2)(iv). Section 1.280F-
6(f)(2)(iv) applies to a truck or van that is
a qualified nonpersonal use vehicle as de-
fined under § 1.274-5T(k), was placed in
service by the taxpayer before July 7,
2003, and was treated by the taxpayer as a
passenger automobile under § 1.280F-6T
as in effect prior to July 7, 2003. If the
taxpayer files Form 3115, in accordance
with § 1.280F-6(f)(2)(iv), the treatment
of the truck or van will be changed from
property to which § 280F(a) applies to
property to which § 280F(a) does not ap-
ply.

(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, all lines except line 24; and
(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the tax-
payer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 gen-
erating such adjustment and a single pos-
itive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.11 is "89."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Bernard Harvey at (202)
317-7005 (not a toll-free number).

.12 Reserved.

.13 Reserved.

.14 Reserved.

.15 Reserved.

.16 Reserved.

.17 Impermissible to permissible method
of accounting for depreciation or amortiza-
tion for disposed depreciable or amortizable
property.

(1) Description of change. This change
applies to a taxpayer that wants to make
the change in method of accounting for
depreciation or amortization (deprecia-
tion) provided under section 3 of Rev.
Proc. 2007-16, 2007-1 C.B. 358, for an
item of depreciable or amortizable prop-
erty that has been disposed of by the tax-
payer. Section 3 of Rev. Proc. 2007-16
allows a taxpayer to make a change in
method of accounting for depreciation for
the disposed property if the taxpayer used
an impermissible method of accounting
for depreciation for the property under
which the taxpayer did not take into ac-
count any depreciation allowance, or did
take into account some depreciation but
less than the depreciation allowable, in the
year of change (as defined in section
6.17(4) of this revenue procedure) or any
prior taxable year.

(2) Applicability.

(a) In general. Except as provided in
section 6.17(2)(b) of this revenue proce-
dure, this section 6.17 applies to a tax-
payer that is changing from an impermis-
sible method of accounting for
depreciation to a permissible method of
accounting for depreciation for any item
of depreciable or amortizable property
subject to §§ 167, 168, 197, 1400I, or
1400L(c), to former § 168, or to any ad-
ditional first year depreciation deduction
provision of the Code (for example,
§ 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)):

(i) that has been disposed of by the
taxpayer during the year of change (as
defined in section 6.17(4) of this revenue
procedure); and

(ii) for which the taxpayer did not take
into account any depreciation allowance,
or did take into account some depreciation
but less than the depreciation allowable
(hereinafter, both are referred to as
"claimed less than the depreciation allow-
able"), in the year of change (as defined in

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

section 6.17(4) of this revenue procedure)
or any prior taxable year.

(b) Inapplicability. This section 6.17
does not apply to:

(i) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;

(ii) any property for which a taxpayer
is revoking a timely valid depreciation
election, or making a late depreciation
election, under the Code or regulations
thereunder, or under other guidance pub-
lished in the Internal Revenue Bulletin
(including under § 13261(g)(2) or (3) of
the Revenue Reconciliation Act of 1993
(1993 Act), 1993-3 C.B. 1, 128 (relating
to amortizable § 197 intangibles));

(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) does not apply to property
disposed of by the taxpayer in a § 1031 or
§ 1033 transaction if the taxpayer elects
under § 1.168(i)-6(i) and (j) to treat the
entire basis (that is, both the exchanged
and excess basis (as defined in § 1.168(i)-
6(b)(7) and (8), respectively) of the re-
placement MACRS property (as defined
in § 1.168(i)-6(b)(1)) as property placed
in service by the taxpayer at the time of
replacement and treat the adjusted depre-
ciable basis of the relinquished MACRS
property (as defined in § 1.168(i)-6(b)(2))
as being disposed of by the taxpayer at the
time of disposition.

(3) Manner of making the change.

(a) Change made on an original return
for the year of change. This change may
be made on a taxpayer's timely filed (in-
cluding any extension) original federal tax
return for the year of change (as defined in
section 6.17(4) of this revenue procedure),
provided the taxpayer files the original
Form 3115 in accordance with section
6.03(1)(a) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419.

(b) Change made on an amended re-
turn for the year of change. This change
may also be made on an amended federal
tax return for the year of change (as de-
fined in section 6.17(4) of this revenue
procedure), provided:

(i) the taxpayer files the original Form
3115 with the taxpayer's amended federal
tax return for the year of change (as de-
fined in section 6.17(4) of this revenue
procedure) prior to the expiration of the
period of limitation for assessment under
§ 6501(a) for the taxable year in which the
item of depreciable or amortizable 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 revenue procedure)
includes the adjustments to taxable in-
come and any collateral adjustments to
taxable income or tax liability (for exam-
ple, adjustments to the amount or charac-
ter of the gain or loss of the disposed
depreciable or amortizable property) re-
sulting from the change in method of ac-
counting for depreciation made by the tax-
payer under this section 6.17.

(4) Year of change. The year of change
for this change is the taxable year in
which the item of depreciable or amortiz-
able property was disposed of by the tax-
payer.

(5) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13
do not apply to this change.

(6) Filing requirements.

(a) Notwithstanding section 6.03(1)(a)
of Rev. Proc. 2015-13, a taxpayer making
this change in accordance with section
6.17(3)(b) of this revenue procedure must
attach the original Form 3115 to the tax-
payer'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 IRS in Ogden, UT, no
later than when the original 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 revenue proce-
dure, the filing requirements in section
6.03(1)(a) of Rev. Proc. 2015-13 apply.

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, all lines except line 24; and
(vi) Schedule E.

(7) 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.

(8) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.17 is "107."

(10) Contact information. For further
information regarding a change under this
section, contact Douglas Kim at (202)
317-7005 (not a toll-free number).

.18 Reserved.

.19 Reserved.

.20 Reserved.

.21 Reserved.

.22 Reserved.

.23 Tenant construction allowances.

(1) Description of change and scope.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for tenant construc-
tion allowances:

(i) from improperly treating the tax-
payer as having a depreciable interest in
the property subject to the tenant con-
struction allowances for federal income
tax purposes to properly treating the tax-
payer 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
tax purposes to properly treating the tax-
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;

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(ii) any portion of a tenant construction
allowance that is not expended on depre-
ciable property; or

(iii) any amount expended for depre-
ciable property in excess of the tenant
construction allowance.

(2) Definition. For purposes of this sec-
tion 6.23, the term "tenant construction
allowance(s)" means any amount received
by a lessee from a lessor to construct,
acquire, or improve property for use by
the lessee pursuant to a lease.

(3) Manner of making the change.

(a) The change in method of account-
ing under this section 6.23 is made using
a cut-off method and only applies to
leases entered into on or after the begin-
ning of the year of change. Accordingly, a
§ 481(a) adjustment is neither required
nor permitted.

(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
non-automatic change procedures of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419. A
change involving tenant construction al-
lowances under existing leases will re-
quire a § 481(a) adjustment. The Commis-
sioner may grant consent to change a
method of accounting for tenant construc-
tion allowances under existing leases only
if the taxpayer's treatment of the property
subject to the tenant construction allow-
ances is consistent with the treatment of
such property by the counterparty for fed-
eral income tax purposes. The taxpayer
must submit the following information
with a Form 3115 submitted under the
non-automatic change procedures of Rev.
Proc. 2015-13 and this section 6.23.

(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 allow-
ance received by the lessee, the amount of
such tenant construction allowance ex-
pended by the lessee on property, and the
name of the lessor that provided the tenant
construction allowance; and (B) a repre-
sentation, signed under penalties of per-
jury, from such lessor that provides the
amount of the tenant construction allow-
ance provided to the lessee and an expla-
nation as to how the lessor is treating the
property subject to such tenant construc-

tion allowance for federal income tax pur-
poses. If the lessor capitalized the tenant
construction allowance (or any portion
thereof) provided to the lessee and depre-
ciated the property subject to such tenant
construction allowance, the representation
must also include the amount that was
capitalized by the lessor, the Internal Rev-
enue Code section under which the prop-
erty 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 allow-
ance provided to a lessee and the name of
the lessee that received such tenant con-
struction allowance; and (B) a representa-
tion, signed under penalties of perjury,
from such lessee that provides the amount
of the tenant construction allowance re-
ceived from the lessor, the amount of such
tenant 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 con-
struction allowance for federal income tax
purposes. If the lessee capitalized the ten-
ant construction allowance (or any portion
thereof) received from the lessor and de-
preciated the property subject to such ten-
ant construction allowance, the represen-
tation must also include the amount that
was capitalized by the lessee, the Internal
Revenue Code section under which the
property is depreciated by the lessee, and
the life over which the property is depre-
ciated by the lessee.

(4) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, line 24; and

(f) Schedule E.

(5) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(6) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.23 is "145."

(8) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

.24 Reserved.

.25 Reserved.

.26 Safe harbor method of accounting
for determining the depreciation of cer-
tain tangible assets used by wireless tele-
communications carriers under Rev.
Proc. 2011-22.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011-22, 2011-18
I.R.B. 737, and wants to change to the
recovery periods described in section 5 of
Rev. Proc. 2011-22 and any collateral
change to the depreciation methods for all,
or some of, the assets listed in that section.

(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 to make this
change:

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

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

(c) Part I;

(d) Part II, all lines except lines 11, 13,
14, 15, and 17;

(e) Part IV, all lines except line 24; and

(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

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 tax-
payer may provide a single negative
§ 481(a) adjustment for all the changes
that are included in that Form 3115 gen-
erating such adjustment and a single pos-
itive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.26 is "157."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

.27 Depreciation of leasehold improve-
ments (§§ 167, 168, and 197; § 1.167(a)-
4T).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-17, 2014-12
I.R.B. 661, applies to a taxpayer that
wants to change its method of accounting
to comply with § 1.167(a)-4T for lease-
hold improvements in which the taxpayer
has a depreciable interest at the beginning
of the year of change:

(i) from improperly depreciating the
leasehold improvements to which § 168
applies over the term of the lease (includ-
ing renewals, if applicable) to properly
depreciating these improvements under
§ 168;

(ii) from improperly amortizing lease-
hold improvements to which § 197 applies
over the term of the lease (including re-
newals, if applicable) to properly amortiz-
ing these improvements under § 197; or

(iii) from improperly amortizing lease-
hold improvements to which § 167(f)(1)
applies over the term of the lease (includ-
ing renewals, if applicable) to properly
amortizing these improvements under
§ 167(f)(1).

(b) Inapplicability. This change does
not apply to a taxpayer that wants to make
this change for any taxable year beginning
before January 1, 2012, or beginning on or
after January 1, 2014.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.

2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014.

(3) Manner of making change.

(a) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 14,
15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E.

(b) If any leasehold improvement is
public utility property within the meaning
of § 168(i)(10) or former § 167(l)(3)(A), a
taxpayer (including a qualified small tax-
payer) making this change must attach to
its Form 3115 a statement providing that
the taxpayer agrees to the following addi-
tional terms and conditions:

(i) A normalization method of account-
ing (within the meaning of § 168(i)(9) or
former § 167(l)(3)(G)) will be used for the
public utility property subject to the
change;

(ii) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
change; and

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.

(4) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115

generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment.

(b) A taxpayer making both this
change and a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required by section 6.27(3)(a)
of this revenue procedure for this change
and the information required by the lines
on Form 3115 applicable to the UNICAP
method change, including Part II line 12
and 13, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 4b, 5c, 12,
and, as applicable for this change, Part IV)
for which the taxpayer's response is dif-
ferent for this change and the change to a
UNICAP method.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of ac-
counting under this section 6.27 is "175."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.28 Permissible to permissible method
of accounting for depreciation of
MACRS property (§ 168; §§1.168(i)-
1T, 1.168(i)-7T, and 1.168(i)-8T, Prop.
Reg. §§1.168(i)-1, 1.168(i)-7, and
1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-17, 2014-12
I.R.B. 661, applies to a taxpayer that
wants to make a change in method of

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

accounting for depreciation that is speci-
fied in section 6.28(3) of this revenue pro-
cedure for an asset:

(i) to which § 168 applies (MACRS
property);

(ii) for which the present and proposed
methods of accounting are permissible
methods of accounting under § 1.168(i)-1T,
§ 1.168(i)-7T, § 1.168(i)-8T, Prop. Reg.
§ 1.168(i)-1, Prop. Reg. § 1.168(i)-7, or
Prop. Reg. § 1.168(i)-8, as applicable; and

(iii) that is owned by the taxpayer at the
beginning of the year of change.

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

(i) A taxpayer that wants to make this
change for any taxable year beginning be-
fore January 1, 2012, or beginning on or
after January 1, 2014; or

(ii) Any property that is not depreciated
under § 168 under the taxpayer's present
and proposed methods of accounting.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014.

(3) Changes covered. This section 6.28
only applies to the following changes in
methods of accounting for depreciation of
MACRS property:

(a) For the items of MACRS property
not subject to a general asset account elec-
tion under § 168(i)(4) and the regulations
thereunder-

(i) a change from single asset accounts
(or item accounts) for specific items of
MACRS property to multiple asset ac-
counts (or pools) for the same assets, or
vice versa, in accordance with § 1.168(i)-7T
or Prop. Reg. § 1.168(i)-7;

(ii) a change from grouping specific
items of MACRS property in multiple as-
set accounts to a different grouping of the
same assets in multiple asset accounts in
accordance with § 1.168(i)-7T(c);

(iii) for the items of MACRS property
accounted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the specific identification
method under § 1.168(i)-8T(f)(1) or
Prop. Reg. § 1.168(i)-8(g)(1), as applica-
ble, to the first-in, first-out (FIFO) method

of accounting under § 1.168(i)-8T(f)(2)(i)
or Prop. Reg. § 1.168(i)-8(g)(2)(i), as ap-
plicable, or the modified FIFO method of
accounting under § 1.168(i)-8T(f)(2)(ii)
or Prop. Reg. § 1.168(i)-8(g)(2)(ii), as
applicable;

(iv) for the items of MACRS property
accounted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(i) or Prop.
Reg. § 1.168(i)-8(g)(2)(i), as applicable,
or the modified FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(ii) or Prop.
Reg. § 1.168(i)-8(g)(2)(ii), as applicable,
to the specific identification method under
§ 1.168(i)-8T(f)(1) or Prop. Reg. § 1.168(i)-
8(g)(1), as applicable;

(v) for the items of MACRS property
accounted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(i) or Prop.
Reg. § 1.168(i)-8(g)(2)(i), as applicable,
to the modified FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(ii) or Prop.
Reg. § 1.168(i)-8(g)(2)(ii), as applicable,
or vice versa;

(vi) for the items of MACRS property
that are mass assets (as defined in
§ 1.168(i)-8T(b)(2) or Prop. Reg.
§ 1.168(i)-8(b)(3), as applicable) ac-
counted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the specific identification
method under § 1.168(i)-8T(f)(1) or
Prop. Reg. § 1.168(i)-8(g)(1), as applica-
ble, to a mortality dispersion table in ac-
cordance with § 1.168(i)-8T(f)(2)(iii) or
Prop. Reg. § 1.168(i)-8(g)(2)(iii), as ap-
plicable;

(vii) for the items of MACRS property
that are mass assets (as defined in
§ 1.168(i)-8T(b)(2) or Prop. Reg.
§ 1.168(i)-8(b)(3), as applicable) ac-
counted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(i) or Prop.
Reg. § 1.168(i)-8(g)(2)(i), as applicable,
or the modified FIFO method of account-
ing under § 1.168(i)-8T(f)(2)(ii) or Prop.
Reg. § 1.168(i)-8(g)(2)(ii), as applicable,

to a mortality dispersion table in accor-
dance with § 1.168(i)-8T(f)(2)(iii) or
Prop. Reg. § 1.168(i)-8(g)(2)(iii), as ap-
plicable;

(viii) for the items of MACRS property
that are mass assets (as defined in
§ 1.168(i)-8T(b)(2) or Prop. Reg. § 1.168(i)-
8(b)(3), as applicable) accounted for in
multiple asset accounts, a change in the
method of identifying which assets have
been disposed of by the taxpayer from a
mortality dispersion table in accordance
with § 1.168(i)-8T(f)(2)(iii) or Prop. Reg.
§ 1.168(i)-8(g)(2)(iii), as applicable, to
the specific identification method under
§ 1.168(i)-8T(f)(1) or Prop. Reg. § 1.168(i)-
8(g)(1), as applicable, the FIFO method of
accounting under § 1.168(i)-8T(f)(2)(i)
or Prop. Reg. § 1.168(i)-8(g)(2)(i), as ap-
plicable, or the modified FIFO method of
accounting under § 1.168(i)-8T(f)(2)(ii)
or Prop. Reg. § 1.168(i)-8(g)(2)(ii), as
applicable;

(ix) if § 1.168(i)-8T(e)(2) or Prop.
Reg. § 1.168(i)-8(f)(2), as applicable, ap-
plies to a disposition of an item of
MACRS property in a multiple asset ac-
count, a change in the method of deter-
mining the unadjusted depreciable basis
of all assets in the multiple asset account
from one reasonable method to another
reasonable method for purposes of deter-
mining the unadjusted depreciable basis
of the disposed asset; or

(x) if Prop. Reg. § 1.168(i)-8(f)(3) ap-
plies to a disposition of more than one
portion of the same asset, a change in the
method of determining the unadjusted de-
preciable basis of all portions of the asset
from one reasonable method to another
reasonable method for purposes of deter-
mining the unadjusted depreciable basis
of each disposed portion of the asset; and

(b) For the items of MACRS property
subject to a general asset account election
under § 168(i)(4) and the regulations
thereunder-

(i) a change from grouping specific
items of MACRS property in general asset
accounts to a different grouping of the
same assets in general asset accounts in
accordance with § 1.168(i)-1T(c) or Prop.
Reg. § 1.168(i)-1(c), as applicable;

(ii) a change in the method of identi-
fying which assets have been disposed of
by the taxpayer from the specific identifica-
tion method under § 1.168(i)-1T(j)(2)(i) or

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Prop. Reg. § 1.168(i)-1(j)(2)(i)(A), as ap-
plicable, to the FIFO method of account-
ing under § 1.168(i)-1T(j)(2)(ii) or Prop.
Reg. § 1.168(i)-1(j)(2)(i)(B), as applica-
ble, or the modified FIFO method of ac-
counting under § 1.168(i)-1T(j)(2)(iii) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(C), as ap-
plicable;

(iii) a change in the method of identi-
fying which assets have been disposed of
by the taxpayer from the FIFO method of
accounting under § 1.168(i)-1T(j)(2)(ii)
or Prop. Reg. § 1.168(i)-1(j)(2)(i)(B), as
applicable, or the modified FIFO method
of accounting under § 1.168(i)-1T(j)(2)(iii)
or Prop. Reg. § 1.168(i)-1(j)(2)(i)(C), as
applicable, to the specific identification
method under § 1.168(i)-1T(j)(2)(i) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(A), as ap-
plicable;

(iv) a change in the method of identi-
fying which assets have been disposed of
by the taxpayer from the FIFO method of
accounting under § 1.168(i)-1T(j)(2)(ii)
or Prop. Reg. § 1.168(i)-1(j)(2)(i)(B), as
applicable, to the modified FIFO method
of accounting under § 1.168(i)-1T(j)(2)(iii),
or Prop. Reg. § 1.168(i)-1(j)(2)(i)(C), as
applicable, or vice versa;

(v) for the items of MACRS property
that are mass assets (as defined in
§ 1.168(i)-1T(b)(5) or Prop. Reg. § 1.168(i)-
1(b)(6), as applicable) accounted for in a
separate general asset account in accor-
dance with § 1.168-1T(c)(2)(ii)(H) or
Prop. Reg. § 1.168(i)-1(c)(2)(ii)(H), as
applicable, a change in the method of identi-
fying which assets have been disposed of by
the taxpayer from the specific identification
method under § 1.168(i)-1T(j)(2)(i) or Prop.
Reg. § 1.168(i)-1(j)(2)(i)(A), as applica-
ble, to a mortality dispersion table in ac-
cordance with § 1.168(i)-1T(j)(2)(iv) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(D), as ap-
plicable;

(vi) for the items of MACRS property
that are mass assets (as defined in § 1.168(i)-
1T(b)(5) or Prop. Reg. §1.168(i)-1(b)(6), as
applicable) accounted for in a separate
general asset account in accordance with
§ 1.168-1T(c)(2)(ii)(H) or Prop. Reg.
§ 1.168(i)-1(c)(2)(ii)(H), as applicable, a
change in the method of identifying which
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-1T(j)(2)(ii) or Prop.
Reg. § 1.168(i)-1(j)(2)(i)(B), as applica-

ble, or the modified FIFO method of ac-
counting under § 1.168(i)-1T(j)(2)(iii) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(C), as ap-
plicable, to a mortality dispersion table in
accordance with § 1.168(i)-1T(j)(2)(iv) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(D), as ap-
plicable;

(vii) for the items of MACRS property
that are mass assets (as defined in
§ 1.168(i)-1T(b)(5) or Prop. Reg.
§ 1.168(i)-1(b)(6), as applicable) ac-
counted for in a separate general asset
account in accordance with § 1.168-
1T(c)(2)(ii)(H) or Prop. Reg. § 1.168(i)-
1(c)(2)(ii)(H), as applicable, a change in
the method of identifying which assets
have been disposed of by the taxpayer
from a mortality dispersion table in accor-
dance with § 1.168(i)-1T(j)(2)(iv) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(D), as ap-
plicable, to the specific identification
method under § 1.168(i)-1T(j)(2)(i) or
Prop. Reg. § 1.168(i)-1(j)(2)(i)(A), as ap-
plicable, the FIFO method of accounting
under § 1.168(i)-1T(j)(2)(ii) or Prop. Reg.
§ 1.168(i)-1(j)(2)(i)(B), as applicable, or
the modified FIFO method of accounting
under § 1.168(i)-1T(j)(2)(iii) or Prop.
Reg. § 1.168(i)-1(j)(2)(i)(C), as applica-
ble; or

(viii) for purposes of determining the
unadjusted depreciable basis of a disposed
asset or a disposed portion of an asset in a
general asset account, a change in the
method of determining the unadjusted de-
preciable basis of all assets in the general
asset account from one reasonable method
to another reasonable method, in accor-
dance with § 1.168(i)-1T(j)(3) or Prop.
Reg. § 1.168(i)-1(j)(3), as applicable.

(4) Manner of making change.

(a) The changes in methods of account-
ing specified in section 6.28(3)(a)(i) and
(ii) and section 6.28(3)(b)(i) of this reve-
nue procedure are made using a modified
cut-off method under which the unad-
justed depreciable basis and the depre-
ciation reserve of the asset as of the
beginning of the year of change are ac-
counted for using the proposed method
of accounting.

(i) If the change specified in section
6.28(3)(a)(i) of this revenue procedure is a
change to a single asset account, the new
single asset account must include a begin-
ning balance for both the unadjusted de-
preciable basis and the depreciation re-

serve of the asset included in that single
asset account.

(ii) If the change specified in section
6.28(3)(a)(i) or (ii) of this revenue proce-
dure is a change to a multiple asset ac-
count (either a new one or a different
grouping), the multiple asset account must
include a beginning balance for both the
unadjusted depreciable basis and the de-
preciation reserve. The beginning balance
for the unadjusted depreciable basis of
each multiple asset account is equal to the
sum of the unadjusted depreciable bases
as of the beginning of the year of change
for all assets included in that multiple
asset account. The beginning balance of
the depreciation reserve of each multiple
asset account is equal to the sum of the
greater of the depreciation allowed or al-
lowable as of the beginning of the year of
change for all assets included in that mul-
tiple asset account.

(iii) The change specified in section
6.28(3)(b)(i) of this revenue procedure re-
quires the general asset account to include
a beginning balance for both the unad-
justed depreciable basis and the deprecia-
tion reserve. The beginning balance for
the unadjusted depreciable basis of each
general asset account is equal to the sum
of the unadjusted depreciable bases as of
the beginning of the year of change for all
assets included in that general asset ac-
count. The beginning balance of the de-
preciation reserve of each general asset
account is equal to the sum of the greater
of the depreciation allowed or allowable
as of the beginning of the year of change
for all assets included in that general asset
account.

(b) The changes in methods of account-
ing specified in section 6.28(3)(a)(iii), (vi),
(ix), and (x) and section 6.28(3)(b)(ii), (v),
and (viii) of this revenue procedure are
made using a cut-off method and apply to
dispositions occurring on or after the be-
ginning of the year of change.

(c) Even though the changes in meth-
ods of accounting specified in section
6.28(3)(a)(iv), (v), (vii), and (viii) and
section 6.28(3)(b)(iii), (iv), (vi), and (vii)
of this revenue procedure are changes
from one permissible method of account-
ing to another permissible method of ac-
counting, these changes are made with a
§ 481(a) adjustment. For the changes in
methods of accounting specified in section

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

6.28(3)(b)(iii), (iv), (vi), and (vii) of this
revenue procedure, the § 481(a) adjust-
ment should be zero unless § 1.168(i)-
1T(e)(3) or Prop. Reg. § 1.168(i)-1(e)(3),
as applicable, applies to the asset subject
to the change.

(d) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 24, 25, and 26; and

(vi) Schedule E, lines 3, 4a, 4b, and 4c.

(e) If any asset subject to this change is
public utility property within the meaning
of § 168(i)(10), a taxpayer (including a
qualified small taxpayer) making this
change must attach to its Form 3115 a
statement that the taxpayer agrees to the
following additional terms and conditions:

(i) A normalization method of account-
ing (within the meaning of § 168(i)(9))
will be used for the public utility property
subject to the change;

(ii) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
a change in method of accounting speci-
fied in section 6.28(3)(a)(iv), (v), (vii), or
(viii) or section 6.28(3)(b)(iii), (iv), (vi),
or (vii) of this revenue procedure made for
the public utility property subject to the
change; and

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.

(5) Concurrent automatic change.

(a) A taxpayer making a change under
this section 6.28 for more than one asset
for the same year of change should file a
single Form 3115 for all such assets. If the
change for more than one asset included

in that Form 3115 is specified in section
6.28(3)(a)(iv), (v), (vii), or (viii) or sec-
tion 6.28(3)(b)(iii), (iv), (vi), or (vii) of
this revenue procedure, the single Form
3115 also should provide a single net
§ 481(a) adjustment for all such changes.
If one or more of the changes specified in
section 6.28(3)(a)(iv), (v), (vii), or (viii)
or section 6.28(3)(b)(iii), (iv), (vi), or (vii)
of this revenue procedure in that single
Form 3115 generate a negative § 481(a)
adjustment and other changes specified in
section 6.28(3)(a)(iv), (v), (vii), or (viii)
or section 6.28(3)(b)(iii), (iv), (vi), or (vii)
of this revenue procedure in that same
Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a
single negative § 481(a) adjustment for all
such changes that are included in that
Form 3115 generating such negative ad-
justment and a single positive § 481(a)
adjustment for all such changes that are
included in that Form 3115 generating
such positive adjustment.

(b) For a building, condominium unit,
cooperative unit, structural component, or
an improvement or addition thereto, a tax-
payer making a change under section
6.28(3)(a)(iii), (iv), (v), (vi), (vii), (viii),
(ix), or (x) of this revenue procedure, a
change under section 6.29 of this revenue
procedure, and/or a change under section
6.01 of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

(c) For section 1245 property or a de-
preciable land improvement, a taxpayer
making a change under section 6.28(3)(a)(iii),
(iv), (v), (vi), (vii), (viii), (ix), or (x) of
this revenue procedure, a change under
section 6.30 of this revenue procedure,
and/or a change under section 6.01 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-

ignated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(d) A taxpayer making a change under
section 6.28(3)(b)(ii), (iii), (iv), (v), (vi),
(vii), or (viii) of this revenue procedure, a
change under section 6.31 of this revenue
procedure, and/or a change under section
6.01 of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

(e) A taxpayer making a change under
section 6.28(3)(b)(ii), (iii), (iv), (v), (vi),
(vii), or (viii) of this revenue procedure, a
change under section 6.32(1)(a)(ii), (iii),
(iv), or (v) of this revenue procedure,
and/or a change under section 6.01 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-
ignated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.28(5)(e) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(f) A taxpayer making a change under
section 6.28(3)(b)(ii), (iii), (iv), (v), (vi),
(vii), or (viii) of this revenue procedure, a
change under section 6.31 of this revenue
procedure, a change under section
6.32(1)(a)(ii), (iii), (iv), or (v) of this rev-
enue procedure, and/or a change under
section 6.01 of this revenue procedure for
the same year of change should file a
single Form 3115 for all such changes and
must enter the designated automatic ac-
counting method change numbers for the
changes on the appropriate line on the
Form 3115. This section 6.28(5)(f) applies
only if all of these changes are made for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes. For example,
a qualified small taxpayer must include on
the single Form 3115 the information re-
quired to be completed on Form 3115 by
a qualified small taxpayer under this rev-
enue procedure for each change in method
of accounting included on that Form 3115.

(g) A taxpayer making both this
change and a change under section 6.01 of
this revenue procedure for the same year
of change should file a single Form 3115
for both changes and must enter the des-
ignated automatic accounting method
change numbers for both changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.28 is
"176."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.29 Disposition of a building or struc-
tural component (§ 168; § 1.168(i)-8T,
and Prop. Reg. § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-17, 2014-12
I.R.B. 661, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.29(3) of this revenue procedure pertain-
ing to the disposition of a building or a
structural component or the disposition of
a portion of a building (including its struc-
tural components) to which the partial dis-
position rule in Prop. Reg. § 1.168(i)-
8(d)(1) applies. These specified changes
are consistent with §§ 1.168(i)-8T(b)(1),
1.168(i)-8T(c)(4)(ii)(A), (B), (C), (E),
and (F), and 1.168(i)-8T(f), or Prop. Reg.
§§ 1.168(i)-8(b)(2), 1.168(i)-8(c)(4)(ii)(A),
(B), and (D), and 1.168(i)-8(g), as appli-
cable. This change also affects the deter-
mination of gain or loss from the disposi-
tion of the building, the structural
component, or the portion of the building
(including its structural components) and
may affect whether the taxpayer must cap-
italize amounts paid to restore a unit of
property (as determined under § 1.263(a)-
3T(e) or (f), or § 1.263(a)-3(e) or (f), as
applicable) under § 1.263(a)-3T(i) or
§ 1.263(a)-3(k), as applicable.

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

(i) A taxpayer making this change for
any taxable year beginning before January
1, 2012, or beginning on or after January
1, 2014;

(ii) Any property (or if applicable, a
portion thereof) that is not depreciated
under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(iii) Any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder (but see
section 6.31 of this revenue procedure for
making a change for dispositions of tan-
gible depreciable assets subject to a gen-
eral asset account election);

(iv) Any multiple buildings, condomin-
ium units, or cooperative units that are
treated as a single building under the tax-
payer's present method of accounting, or
will be treated as a single building under
the taxpayer's proposed method of ac-
counting, pursuant to § 1.1250-1(a)(2)(ii);

(v) Any disposition of a portion of an
asset for which a partial disposition elec-
tion under Prop. Reg. § 1.168(i)-8(d)(2)

is required but for which the taxpayer did
not make such election in accordance with
Prop. Reg. § 1.168(i)-8(d)(2)(ii) or (iii),
as applicable (but see section 6.33 of this
revenue procedure for making a late par-
tial disposition election and section 6.35
of this revenue procedure for making a
partial disposition election pursuant to
Prop. Reg. § 1.168(i)-8(d)(2)(iii)); or

(vi) Any demolition of a structure to
which § 280B and § 1.280B-1 apply.

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014.

(3) Covered changes. This section 6.29
only applies to the following changes in
methods of accounting for a building, con-
dominium unit, cooperative unit, struc-
tural component, or an improvement or
addition thereto:

(a) For purposes of applying
§ 1.168(i)-8T(c)(4) (determination of as-
set disposed of), a change to the appropri-
ate asset as determined under § 1.168(i)-
8T(c)(4)(ii)(A), (B), (C), (E), or (F), as
applicable;

(b) If the taxpayer makes the change
specified in section 6.29(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.29(3)(a) of this revenue proce-
dure in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for such disposed asset under the tax-
payer's present method of accounting, a
change from depreciating the disposed as-
set to recognizing gain or loss upon dis-
position;

(c) If the taxpayer's present method of
accounting is in accord with § 1.168(i)-
8T(c)(4)(ii)(A), (B), (C), (E), and (F), and
if the taxpayer disposed of a building,
condominium unit, cooperative unit,
structural component, or an improvement
or addition thereto in a taxable year prior
to the year of change but continues to
deduct depreciation for such disposed as-
set under the taxpayer's present method of
accounting, a change from depreciating
the disposed asset to recognizing gain or
loss upon disposition;

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(d) For buildings, condominium units,
cooperative units, structural components,
or improvements or additions thereto ac-
counted for in multiple asset accounts, a
change in the method of identifying which
assets have been disposed of from a
method of accounting not specified in
§ 1.168(i)-8T(f)(1) or (2)(i), (ii), or (iii)
(for example, the last-in, first-out (LIFO)
method of accounting) to a method of
accounting specified in § 1.168(i)-
8T(f)(1) or (2)(i), (ii), or (iii), as applica-
ble;

(e) For purposes of applying Prop.
Reg. § 1.168(i)-8(c)(4) (determination of
asset disposed of), a change to the appro-
priate asset as determined under Prop.
Reg. § 1.168(i)-8(c)(4)(ii)(A), (B), or
(D), as applicable;

(f) If the taxpayer makes the change
specified in section 6.29(3)(e) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.29(3)(e) of this revenue proce-
dure or disposed of a portion of such asset
in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for such disposed asset or such dis-
posed portion under the taxpayer's present
method of accounting, a change from de-
preciating the disposed asset or disposed
portion to recognizing gain or loss upon
disposition;

(g) If the taxpayer's present method of
accounting is in accord with Prop. Reg.
§ 1.168(i)-8(c)(4)(ii)(A), (B), and (D),
and if the taxpayer disposed of an asset as
determined under Prop. Reg. § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable,
or disposed of a portion of such asset in a
taxable year prior to the year of change
but continues to deduct depreciation for
such disposed asset or such disposed por-
tion under the taxpayer's present method
of accounting, a change from depreciating
the disposed asset or disposed portion to
recognizing gain or loss upon disposition;

(h) For buildings (including their struc-
tural components), condominium units
(including their structural components),
cooperative units (including their struc-
tural components), or improvements or
additions thereto accounted for in multiple
asset accounts, a change in the method of
identifying which assets have been dis-
posed of from a method of accounting not
specified in Prop. Reg. § 1.168(i)-8(g)(1)

or (2)(i), (ii), or (iii) (for example, the
last-in, first-out (LIFO) method of ac-
counting) to a method of accounting spec-
ified in Prop. Reg. § 1.168(i)-8(g)(1) or
(2)(i), (ii), or (iii), as applicable; or

(i) If the taxpayer makes the change
specified in section 6.34 of this revenue
procedure (revocation of a general asset
account election), the taxpayer made a
qualifying disposition election under
§ 1.168(i)-1T(e)(3)(iii) in a taxable year
prior to the year of change for the dispo-
sition of an asset (as determined under
Prop. Reg. § 1.168(i)-8(c)(4)(ii)(A), (B),
or (D), as applicable) included in a general
asset account, the taxpayer's present
method of accounting for such asset is in
accord with Prop. Reg. § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable,
and the taxpayer recognized a gain or loss
under § 1.168(i)-8T upon the disposition
of such asset in a taxable year prior to the
year of change, a change from recognizing
gain or loss upon the disposition of that
asset under § 1.168(i)-8T to recognizing
gain or loss upon the disposition of the
same asset under Prop. Reg. § 1.168(i)-8.

(4) Examples. The following examples
illustrate the covered changes specified in
section 6.29(3) of this revenue procedure.

(a) Example 1. X, a calendar year taxpayer, ac-
quired and placed in service a building and its struc-
tural components in 1990. X depreciates this build-
ing and its structural components under § 168. In
2000, X replaced the entire roof of the building. X
did not recognize a loss on the retirement of the
original roof and continues to depreciate the original
roof. X also capitalized the cost of the replacement
roof and has been depreciating this roof under § 168
since 2000. A change by X to treating the building as
an asset and each structural component of the build-
ing as a separate asset for disposition purposes and
also to change from depreciating the original roof to
recognizing a loss upon its retirement is a covered
change described in section 6.29(3)(a) and (b) of this
revenue procedure solely for purposes of § 1.168(i)-
8T(c)(4).

(b) Example 2. Y, a calendar-year taxpayer, ac-
quired and placed in service a building and its struc-
tural components in 2000. In 2005, Y constructed
and placed in service an addition to this building. Y
depreciates the building, the addition, and their
structural components under § 168. A change by Y
to treating the original building as an asset, the
addition to the building as a separate asset, and each
structural component of the original building and the
addition as a separate asset for disposition purposes
is a change described in section 6.29(3)(a) of this
revenue procedure solely for purposes of § 1.168(i)-
8T(c)(4).

(c) Example 3. Z, a calendar-year taxpayer, ac-
quired and placed in service a building and its struc-

tural components in 2000. In 2005, Z constructed
and placed in service an addition to this building. Z
depreciates the building, the addition, and their
structural components under § 168. A change by Z to
treating the original building (including its structural
components) as an asset and the addition to the
building (including the structural components of
such addition) as a separate asset for disposition
purposes is a change described in section 6.29(3)(e)
of this revenue procedure solely for purposes of
Prop. Reg. § 1.168(i)-8(c)(4).

(5) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making a change
specified in section 6.29(3)(a) or section
6.29(3)(e) of this revenue procedure, a
description of the assets disposed of under
the taxpayer's present and proposed meth-
ods of accounting;

(iii) If the taxpayer is making the
change specified in section 6.29(3)(d) or
section 6.29(3)(h) of this revenue proce-
dure, a description of the method of iden-
tifying which assets have been disposed of
under the taxpayer's present and proposed
methods of accounting; and

(iv) If any asset is public utility prop-
erty within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of ac-
counting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;

(B) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(b) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(6) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.29(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8T(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)-8T(c)(4). Further, the consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.29(3)(e) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under Prop. Reg. § 1.168(i)-8(c)(4) for
determining what asset is disposed of by
the taxpayer and does not create any pre-
sumption that the proposed asset is per-
missible under Prop. Reg. § 1.168(i)-
8(c)(4). The director will ascertain
whether the taxpayer's determination of
its asset under § 1.168(i)-8T(c)(4) or
Prop. Reg. § 1.168(i)-8(c)(4), as applica-
ble, is permissible.

(7) Section 481(a) adjustment. A tax-
payer changing its method of accounting
under this section 6.29 may use statistical
sampling in determining the § 481(a) ad-
justment by following the guidance pro-
vided in Rev. Proc. 2011-42, 2011-37
I.R.B. 318.

(8) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
§ 481(a) adjustment into account in com-
puting taxable income for the year of
change:

(i) If the taxpayer is making the change
specified in section 6.29(3)(e) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-8T
on the disposition of the asset (or if appli-

cable, a portion thereof) in a taxable year
prior to the year of change; or

(ii) If the taxpayer is making the
change specified in section 6.29(3)(i) of
this revenue procedure.

(b) For a change not described in sec-
tion 6.29(8)(a) of this revenue procedure,
see section 7.03 of Rev. Proc. 2015-13 for
the § 481(a) adjustment period.

(c) Example. Y, a calendar year taxpayer, ac-
quired and placed in service a building and its struc-
tural components in 2000. Y depreciates this build-
ing and its structural components under § 168. The
roof is a structural component of the building. Y
replaced the entire roof in 2010. On its federal tax
return for the taxable year ended December 31,
2010, Y did not recognize a loss on the retirement of
the original roof and continues to depreciate the
original roof. Y also capitalized the cost of the re-
placement roof and has been depreciating this roof
under § 168 since June 2010. In accordance with
§ 1.168(i)-8T(c)(4)(ii)(A) and (B) and section
6.29(3)(a) and (b) of the APPENDIX to Rev. Proc.
2011-14, as modified by Rev. Proc. 2012-20,
2012-14 I.R.B. 700, Y filed with its federal income
tax return for the taxable year ended December 31,
2012, a Form 3115 to treat the building as an asset
and each structural component of the building as a
separate asset for disposition purposes and also to
change from depreciating the original roof to recog-
nizing a loss upon its retirement. The amount of the
net negative § 481(a) adjustment on this Form 3115
is $10,000, which is the amount of the loss recog-
nized upon the retirement of the original roof. Y
decides to apply Prop. Reg. § 1.168(i)-8 for its
taxable year ending December 31, 2013, but decides
not to make any late partial disposition election
under section 6.33 of this revenue procedure. In
accordance with section 6.29(3)(e) of this revenue
procedure, Y files a Form 3115 with its 2013 federal
income tax return to change to treating the original
building (including its original roof and other origi-
nal structural components) as an asset and the re-
placement roof as a separate asset for disposition
purposes. Because Y is not making a late partial
disposition election for the original roof, Y does not
recognize the loss of $10,000 upon the retirement of
the original roof under Prop. Reg. § 1.168(i)-8 and
Y will continue to depreciate the original roof. As-
sume the depreciation deduction for the original roof
is $500 for the 2012 taxable year. Thus, the net
positive § 481(a) adjustment for this change is
$9,500 (loss of $10,000 claimed on the 2012 return
for the retirement of the original roof less deprecia-
tion of $500 for the original roof for 2012) and is
included in Y's taxable income for 2013.

(9) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment

and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) For a building, condominium unit,
cooperative unit, structural component, or
an improvement or addition thereto, a tax-
payer making this change, a change under
section 6.28(3)(a)(iii), (iv), (v), (vi), (vii),
(viii), (ix), or (x) of this revenue proce-
dure, and/or a change under section 6.01
of this revenue procedure for the same
year of change should file a single Form
3115 for all of such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

(c) A taxpayer making a change under
section 6.29(3)(e), (f), (g), (h), or (i) of
this revenue procedure, a change under
section 6.01 of this revenue procedure,
and/or a change under section 6.34 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-
ignated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.29(9)(c) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(d) A taxpayer making both this
change and a change under section 6.01 of
this revenue procedure for the same year
of change should file a single Form 3115
for both changes and must enter the des-
ignated automatic accounting method
change numbers for both changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(10) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.29 is
"177."

(11) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.30 Dispositions of tangible deprecia-
ble assets (other than a building or its
structural components) (§ 168;
§ 1.168(i)-8T and Prop. Reg. § 1.168(i)-
8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-17, 2014-12
I.R.B. 661, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.30(3) of this revenue procedure pertain-
ing to the disposition of § 1245 property
or a depreciable land improvement or the
disposition of a portion of § 1245 property
or a depreciable land improvement to
which the partial disposition rule in Prop.
Reg. § 1.168(i)-8(d)(1) applies. These
specified changes are consistent with
§§ 1.168(i)-8T(c)(4)(i), 1.168(i)-
8T(c)(4)(ii)(D), (E), and (F), and
1.168(i)-8T(f), or Prop. Reg. §§ 1.168(i)-
8(c)(4)(i), 1.168(i)-8(c)(4)(ii)(C) and (D),
and 1.168(i)-8(g), as applicable. This
change also affects the determination of
gain or loss from the disposition of the
§ 1245 property, the depreciable land im-
provement, or a portion of the § 1245
property or depreciable land improve-
ment, and may affect whether the taxpayer

must capitalize amounts paid to restore a
unit of property (as determined under
§ 1.263(a)-3T(e) or (f), or § 1.263(a)-3(e)
or (f), as applicable) under § 1.263(a)-
3T(i) or § 1.263(a)-3(k), as applicable.

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

(i) A taxpayer that wants to make this
change for any taxable year beginning be-
fore January 1, 2012, or beginning on or
after January 1, 2014;

(ii) Any property (or if applicable, a
portion thereof) that is not depreciated
under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(iii) Any building, condominium unit,
cooperative unit, structural component, or
improvement or addition thereto (but see
section 6.29 of this revenue procedure for
making this change);

(iv) Any property subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder (but see
section 6.31 of this revenue procedure for
making a change for dispositions of tan-
gible depreciable assets subject to a gen-
eral asset account election); or

(v) Any disposition of a portion of an
asset for which a partial disposition elec-
tion under Prop. Reg. § 1.168(i)-8(d)(2)
is required but for which the taxpayer did
not make such election in accordance with
Prop. Reg. § 1.168(i)-8(d)(2)(ii) or (iii),
as applicable (but see section 6.33 of this
revenue procedure for making a late par-
tial disposition election and section 6.35
of this revenue procedure for making a
partial disposition election pursuant to
Prop. Reg. § 1.168(i)-8(d)(2)(iii)).

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014.

(3) Covered changes. This section 6.30
only applies to the following changes in
methods of accounting for a § 1245 prop-
erty, a depreciable land improvement, or
an improvement or addition thereto:

(a) For purposes of applying
§ 1.168(i)-8T(c)(4) (determination of as-
set disposed of), a change to the appropri-

ate asset as determined under § 1.168(i)-
8T(c)(4)(i), (ii)(D), (ii)(E), or (ii)(F), as
applicable;

(b) If the taxpayer makes the change
specified in section 6.30(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.30(3)(a) of this revenue proce-
dure in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for such disposed asset under the tax-
payer's present method of accounting, a
change from depreciating the disposed as-
set to recognizing gain or loss upon dis-
position;

(c) If the taxpayer's present method of
accounting is in accord with § 1.168(i)-
8T(c)(4)(i) or (ii), as applicable, for the
§ 1245 property, the depreciable land im-
provement, or the improvement or addi-
tion thereto, and if the taxpayer disposed
of such asset in a taxable year prior to the
year of change but continues to deduct
depreciation for this disposed asset under
the taxpayer's present method of account-
ing, a change from depreciating the dis-
posed asset to recognizing gain or loss
upon disposition;

(d) For § 1245 property, depreciable
land improvements, or improvements or
additions thereto accounted for in multiple
asset accounts, a change in the method of
identifying which assets have been dis-
posed of from a method of accounting not
specified in § 1.168(i)-8T(f)(1) or (2)(i),
(ii), or (iii) (for example, the last-in, first-
out (LIFO) method of accounting) to a
method of accounting specified in
§ 1.168(i)-8T(f)(1) or (2)(i), (ii), or (iii),
as applicable;

(e) For purposes of applying Prop.
Reg. § 1.168(i)-8(c)(4) (determination of
asset disposed of), a change to the appro-
priate asset as determined under Prop.
Reg. § 1.168(i)-8(c)(4)(i), (ii)(C), or
(ii)(D), as applicable;

(f) If the taxpayer makes the change
specified in section 6.30(3)(e) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.30(3)(e) of this revenue proce-
dure or disposed of a portion of such asset
in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for such disposed asset or such dis-
posed portion, as applicable, under the
taxpayer's present method of accounting,

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

a change from depreciating the disposed
asset or disposed portion, as applicable, to
recognizing gain or loss upon disposition;

(g) If the taxpayer's present method of
accounting is in accord with Prop. Reg.
§ 1.168(i)-8(c)(4)(i) or (ii), as applicable,
for the § 1245 property, the depreciable
land improvement, or the improvement or
addition thereto and if the taxpayer dis-
posed of such asset or a portion of such
asset in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for this disposed asset or disposed
portion, as applicable, under the taxpay-
er's present method of accounting, a
change from depreciating the disposed as-
set or disposed portion, as applicable, to
recognizing gain or loss upon disposition;

(h) For § 1245 property, depreciable
land improvements, or improvements or
additions thereto accounted for in multiple
asset accounts, a change in the method of
identifying which assets have been dis-
posed of from a method of accounting not
specified in Prop. Reg. § 1.168(i)-8(g)(1)
or (2)(i), (ii), or (iii) (for example, the
last-in, first-out (LIFO) method of ac-
counting) to a method of accounting spec-
ified in Prop. Reg. § 1.168(i)-8(g)(1) or
(2)(i), (ii), or (iii), as applicable; or

(i) If the taxpayer makes the change
specified in section 6.34 of this revenue
procedure (revocation of a general asset
account election), the taxpayer made a
qualifying disposition election under
§ 1.168(i)-1T(e)(3)(iii) in a taxable year
prior to the year of change for the dispo-
sition of a § 1245 property, depreciable
land improvement, or improvement or ad-
dition thereto included in a general asset
account, the taxpayer's present method of
accounting for such asset is in accord with
Prop. Reg. § 1.168(i)-8(c)(4)(i) or (ii), as
applicable, and the taxpayer recognized a
gain or loss under § 1.168(i)-8T on the
disposition of such asset in a taxable year
prior to the year of change, a change from
recognizing gain or loss upon the disposi-
tion of that asset under § 1.168(i)-8T to
recognizing gain or loss upon the disposi-
tion of the same asset under Prop. Reg.
§ 1.168(i)-8.

(4) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its

Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making a change
specified in section 6.30(3)(a) of this rev-
enue procedure, a description of the assets
disposed of under the taxpayer's present
and proposed methods of accounting and
a statement as to whether or not the tax-
payer, under its proposed method of ac-
counting, is treating each of an asset's
components as the asset in accordance
with § 1.168(i)-8T(c)(4)(ii)(F);

(iii) If the taxpayer is making a change
specified in section 6.30(3)(e) of this rev-
enue procedure, a description of the assets
disposed of under the taxpayer's present
and proposed methods of accounting;

(iv) If the taxpayer is making the
change specified in section 6.30(3)(d) or
section 6.30(3)(h) of this revenue proce-
dure, a description of the method of iden-
tifying which assets have been disposed of
under the taxpayer's present and proposed
methods of accounting; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of ac-
counting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;

(B) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115.

(b) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.30(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8T(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)-8T(c)(4). Further, the consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.30(3)(e) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under Prop. Reg. § 1.168(i)-8(c)(4) for
determining what asset is disposed of by
the taxpayer and does not create any pre-
sumption that the proposed asset is per-
missible under Prop. Reg. § 1.168(i)-
8(c)(4). The director will ascertain
whether the taxpayer's determination of
its asset under § 1.168(i)-8T(c)(4) or
Prop. Reg. § 1.168(i)-8(c)(4), as applica-
ble, is permissible.

(6) Section 481(a) adjustment. A tax-
payer changing its method of accounting
under this section 6.30 may use statistical
sampling in determining the § 481(a) ad-
justment by following the guidance pro-
vided in Rev. Proc. 2011-42, 2011-37
I.R.B. 318.

(7) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
§ 481(a) adjustment into account in com-
puting taxable income for the year of
change:

(i) If the taxpayer is making the change
specified in section 6.30(3)(e) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-8T
on the disposition of the § 1245 property,
depreciable land improvement, or im-
provement or addition thereto (or if appli-
cable, a portion of such asset) in a taxable
year prior to the year of change; or

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(ii) If the taxpayer is making the
change specified in section 6.30(3)(i) of
this revenue procedure.

(b) For a change not described in sec-
tion 6.30(7)(a) of this revenue procedure,
see section 7.03 of Rev. Proc. 2015-13 for
the § 481(a) adjustment period.

(8) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) For a § 1245 property or a depre-
ciable land improvement that is depreci-
ated under § 168, a taxpayer making this
change, a change under section
6.28(3)(a)(iii), (iv), (v), (vi), (vii), (viii),
(ix), or (x) of this revenue procedure,
and/or a change under section 6.01 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-
ignated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(c) A taxpayer making a change under
section 6.30(3)(e), (f), (g), (h), or (i) of
this revenue procedure, a change under
section 6.01 of this revenue procedure,
and/or a change under section 6.34 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-
ignated automatic accounting method

change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.30(8)(c) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

(d) A taxpayer making both this
change and a change under section 6.01 of
this revenue procedure for the same year
of change should file a single Form 3115
for both changes and must enter the des-
ignated automatic accounting method
change numbers for both changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.30 is
"178."

(10) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.31 Dispositions of tangible deprecia-
ble assets in a general asset account
(§ 168(i)(4); § 1.168(i)-1T and Prop. Reg.
§ 1.168(i)-1).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-17, 2014-12
I.R.B. 661, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.31(3) of this revenue procedure pertain-
ing to the disposition of an asset subject to
a general asset account election under
§ 168(i)(4) and the regulations thereunder.
These specified changes are consistent

with §§ 1.168(i)-1T(e)(1), 1.168(i)-
1T(e)(2)(viii), and 1.168(i)-1T(j), or
Prop. Reg. §§ 1.168(i)-1(e)(1), 1.168(i)-
1(e)(2)(viii), and 1.168(i)-1(j), as applica-
ble. This change also may affect the de-
termination of gain or loss from the
disposition of the asset and may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f), or § 1.263(a)-3(e) or (f), as applica-
ble) under § 1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable.

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

(i) A taxpayer that wants to make this
change for any taxable year beginning be-
fore January 1, 2012, or beginning on or
after January 1, 2014;

(ii) Any property that is not depreci-
ated under § 168 under the taxpayer's
present method of accounting and, if ap-
plicable, proposed method of accounting;
or

(iii) Any property not subject to a gen-
eral asset account election under
§ 168(i)(4) and the regulations thereunder
(but see sections 6.29 and 6.30 of this
revenue procedure for making a change
for dispositions of tangible depreciable as-
sets not subject to a general asset account
election).

(2) Certain eligibility rules temporarily
inapplicable. The eligibility rules in sec-
tions 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014.

(3) Covered changes. This section 6.31
only applies to the following changes in
methods of accounting for an asset subject
to a general asset account election under
§ 168(i)(4) and the regulations thereunder:

(a) For purposes of applying
§ 1.168(i)-1T(e)(2)(viii) (determination
of asset disposed of), a change to the
appropriate asset as determined under
§ 1.168(i)-1T(e)(2)(viii)(A) or (B), as ap-
plicable;

(b) A change in the method of identi-
fying which assets have been disposed of
from a method of accounting not specified
in § 1.168(i)-1T(j)(2)(i), (ii), (iii), or (iv)
(for example, the last-in, first-out (LIFO)
method of accounting) to a method of

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

accounting specified in § 1.168(i)-
1T(j)(2)(i), (ii), (iii), or (iv), as applicable;

(c) For purposes of applying Prop.
Reg. § 1.168(i)-1(e)(2)(viii) (determina-
tion of asset disposed of), a change to the
appropriate asset as determined under
Prop. Reg. § 1.168(i)-1(e)(2)(viii)(A) or
(B), as applicable; or

(d) A change in the method of identi-
fying which assets have been disposed of
from a method of accounting not specified
in Prop. Reg. § 1.168(i)-1(j)(2)(i)(A), (B),
(C), or (D) (for example, the last-in, first-
out (LIFO) method of accounting) to a
method of accounting specified in Prop.
Reg. § 1.168(i)-1(j)(2)(i)(A), (B), (C), or
(D), as applicable.

(4) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making the
change specified in section 6.31(3)(a) of
this revenue procedure, a description of
the assets disposed of by the taxpayer
under the taxpayer's present and proposed
methods of accounting and a statement as
to whether or not the taxpayer, under its
proposed method of accounting, is treat-
ing each of an asset's components as the
asset in accordance with § 1.168(i)-
1T(e)(2)(viii)(B)(6);

(iii) If the taxpayer is making the
change specified in section 6.31(3)(c) of
this revenue procedure, a description of
the assets disposed of by the taxpayer
under the taxpayer's present and proposed
methods of accounting;

(iv) If the taxpayer is making the
change specified in section 6.31(3)(b) or
section 6.31(3)(d) of this revenue proce-
dure, a description of the method of iden-
tifying which assets have been disposed of
under the taxpayer's present and proposed
methods of accounting; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of ac-
counting (within the meaning of

§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;

(B) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115.

(b) A qualified small taxpayer is re-
quired to complete only the following in-
formation on Form 3115 to make this
change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.31(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-1T(e)(2)(viii) for deter-
mining what asset is disposed of by the
taxpayer and does not create any pre-
sumption that the proposed asset is per-
missible under § 1.168(i)-1T(e)(2)(viii).
Further, the consent granted under section
9 of Rev. Proc. 2015-13 for a change
specified in section 6.31(3)(c) of this rev-
enue procedure is not a determination by
the Commissioner that the taxpayer is us-
ing the appropriate asset under Prop. Reg.
§ 1.168(i)-1(e)(2)(viii) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
Prop. Reg. § 1.168(i)-1(e)(2)(viii). The
director will ascertain whether the taxpay-
er's determination of its asset under
§ 1.168(i)-1T(e)(2)(viii) or Prop. Reg.

§ 1.168(i)-1(e)(2)(viii), as applicable, is
permissible.

(6) Section 481(a) adjustment period.

(a) If a taxpayer makes the change
specified in section 6.31(3)(c) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-1T or
§ 1.168(i)-8T, as applicable, on the dis-
position of a portion of the asset in a
taxable year prior to the year of change,
the taxpayer must take the entire § 481(a)
adjustment into account in computing tax-
able income for the year of change.

(b) For a change not described in sec-
tion 6.31(6)(a) of this revenue procedure,
see section 7.03 of Rev. Proc. 2015-13 for
the § 481(a) adjustment period.

(c) Example. (i) X, a calendar year taxpayer,
acquired and placed in service a building and its
structural components in 2000. X depreciates this
building and its structural components under § 168.
The roof is a structural component of the building. X
replaced the entire roof in 2010. On its federal tax
return for the taxable year ended December 31,
2010, X did not recognize a loss on the retirement of
the original roof and continues to depreciate the
original roof. X also capitalized the cost of the re-
placement roof and has been depreciating this roof
under § 168 since June 2010.

(ii) In accordance with § 1.168(i)-1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011-14,
as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, X filed with its federal tax return for the taxable
year ended December 31, 2012, a Form 3115 to: (1)
make a late general asset account election to include
the building (including its structural components)
placed in service in 2000 in one general asset ac-
count and the replacement roof in a separate general
asset account; and (2) make a late qualifying dispo-
sition election for the retirement of the original roof
in 2010. As a result, X removed the original roof
from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of
$10,000, which is the loss recognized upon the re-
tirement of the original roof.

(iii) X decides to apply Prop. Reg. § 1.168(i)-1
for its taxable year ending December 31, 2013. In
accordance with section 6.31(3)(c) of this revenue
procedure, X files a Form 3115 with its 2013 federal
income tax return to change to treating the building
(including its original roof and other original struc-
tural components) placed in service in 2000 as an
asset and the replacement roof as a separate asset for
disposition purposes. As a result, X must include the
original roof that X retired in 2010 in the general
asset account. Assume the depreciation for this orig-
inal roof is $500 for the 2012 taxable year. Thus, the
net positive § 481(a) adjustment for this change is
$9,500 (loss of $10,000 claimed on the 2012 return
for the retirement of the original roof less deprecia-
tion of $500 for the original roof for 2012) and is
included in X's taxable income for 2013.

(7) Concurrent automatic change.

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

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) A taxpayer making this change, a
change under section 6.28(3)(b)(ii), (iii),
(iv), (v), (vi), (vii), or (viii) of this revenue
procedure, and/or a change under section
6.01 of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115.

(c) A taxpayer making this change, a
change under section 6.32(1)(a)(ii), (iii),
(iv), or (v) of this revenue procedure,
and/or a change under section 6.01 of this
revenue procedure for the same year of
change should file a single Form 3115 for
all such changes and must enter the des-
ignated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.31(8)(c) applies only if both
changes are made for any taxable year
beginning on or after January 1, 2012, and
beginning before January 1, 2014. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for

each change in method of accounting in-
cluded on that Form 3115.

(d) A taxpayer making this change, a
change under section 6.28(3)(b)(ii), (iii),
(iv), (v), (vi), (vii), or (viii) of this revenue
procedure, a change under section
6.32(1)(a)(ii), (iii), (iv), or (v) of this rev-
enue procedure, and/or a change under
section 6.01 of this revenue procedure for
the same year of change should file a
single Form 3115 for all such changes and
must enter the designated automatic ac-
counting method change numbers for the
changes on the appropriate line on the
Form 3115. This section 6.31(8)(d) ap-
plies only if all of these changes are made
for any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes. For example,
a qualified small taxpayer must include on
the single Form 3115 the information re-
quired to be completed on Form 3115 by
a qualified small taxpayer under this rev-
enue procedure for each change in method
of accounting included on that Form 3115.

(e) A taxpayer making both this change
and a change under section 6.01 of this
revenue procedure for the same year of
change should file a single Form 3115 for
both changes and must enter the desig-
nated automatic accounting method
change numbers for both changes on the
appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.31 is
"179."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.32 General asset account elections
(§ 168(i)(4); § 1.168(i)-1; § 1.168(i)-IT,
and Prop. Reg. § 1.168(i)-1).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make:

(i) A late general asset account election
under § 168(i)(4) and § 1.168(i)-1,
§ 1.168(i)-1T, or Prop. Reg. §1.168(i)-1,
for one or more items of property depre-
ciated under § 168 (MACRS property)
that is placed in service by the taxpayer in
a taxable year beginning before January 1,
2012, and owned by the taxpayer at the
beginning of the year of change. This
change also may affect whether the tax-
payer must capitalize amounts paid to re-
store a unit of property (as determined
under § 1.263(a)-3T(e) or (f), or
§ 1.263(a)-3(e) or (f), as applicable) un-
der §1.263(a)-3T(i) or § 1.263(a)-3(k), as
applicable;

(ii) A late election to recognize gain or
loss upon the disposition of all of the
assets, or the last asset, in a general asset
account in accordance with § 1.168(i)-
1T(e)(3)(ii). This change also may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f), or § 1.263(a)-3(e) or (f), as applica-
ble) under §1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable;

(iii) A late election to recognize gain or
loss upon the disposition of all of the
assets, the last asset, or the remaining por-
tion of the last asset, in a general asset
account in accordance with § 1.168(i)-
1(e)(3)(ii) or Prop. Reg. § 1.168(i)-
1(e)(3)(ii), as applicable. This change also
may affect whether the taxpayer must cap-
italize amounts paid to restore a unit of
property (as determined under § 1.263(a)-
3T(e) or (f), or § 1.263(a)-3(e) or (f), as
applicable) under §1.263(a)-3T(i) or
§ 1.263(a)-3(k), as applicable;

(iv) For an item of MACRS property
subject to a general asset account election,
a late election to recognize gain or loss
upon the disposition of that item in a
qualifying disposition (as defined in
§ 1.168(i)-1T(e)(3)(iii)(B)) in accordance
with § 1.168(i)-1T(e)(3)(iii). This change
also may affect whether the taxpayer must
capitalize amounts paid to restore a unit of
property (as determined under § 1.263(a)-
3T(e) or (f), or § 1.263(a)-3(e) or (f), as

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

applicable) under § 1.263(a)-3T(i) or
§ 1.263(a)-3(k), as applicable; or

(v) For an item of MACRS property
subject to a general asset account election,
a late election to recognize gain or loss
upon the disposition of that item in a
qualifying disposition (as defined in
§ 1.168(i)-1(e)(3)(iii)(B) or Prop. Reg.
§ 1.168(i)-1(e)(3)(iii)(B), as applicable)
in accordance with § 1.168(i)-1(e)(3)(iii)
or Prop. Reg. § 1.168(i)-1(e)(3)(iii), as
applicable. This change also may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f), or § 1.263(a)-3(e) or (f), as applica-
ble) under § 1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable.

(b) Inapplicability. Because of the
changes made to the general asset account
temporary regulations (§ 1.168(i)-1T) by
§ 1.168(i)-1, the IRS will treat the making
of the late elections specified in section
6.32(1)(a) of this revenue procedure as a
change in method of accounting only for
the time specified in section 6.32(2) of this
revenue procedure. Accordingly, this
treatment does not apply to a taxpayer that
makes any election specified in section
6.32(1)(a) of this revenue procedure be-
fore or after the time specified in section
6.32(2) of this revenue procedure, and any
such election is not a change in method of
accounting pursuant to § 1.446-
1(e)(2)(ii)(d)(3)(iii).

(2) Time for making the change. The
change under this section 6.32 must be
made for any taxable year beginning on or
after January 1, 2012, and beginning be-
fore January 1, 2014.

(3) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to this change.

(b) Concurrent automatic change. If a
taxpayer makes both a change under this
section 6.32 and a change under section
6.01 of this revenue procedure for any
taxable year beginning on or after January
1, 2012, and beginning before January 1,
2014, on a single Form 3115 for the same
asset for the year of change in accordance
with section 6.32(5)(b) of this revenue
procedure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13

do not apply to the taxpayer for either
change.

(4) Manner of making change.

(a) The change specified in section
6.32(1)(a)(i) of this revenue procedure is
made using a modified cut-off method un-
der which the unadjusted depreciable ba-
sis and the depreciation reserve of the
asset as of the beginning of the year of
change are accounted for using the pro-
posed method of accounting. This change
requires the general asset account to in-
clude a beginning balance for both the
unadjusted depreciable basis and the de-
preciation reserve. The beginning balance
for the unadjusted depreciable basis of
each general asset account is equal to the
sum of the unadjusted depreciable bases
as of the beginning of the year of change
for all assets included in that general asset
account. The beginning balance of the de-
preciation reserve of each general asset
account is equal to the sum of the greater
of the depreciation allowed or allowable
as of the beginning of the year of change
for all assets included in that general asset
account.

(b) The change specified in section
6.32(1)(a)(ii), (iii), (iv), or (v) of this rev-
enue procedure is made with a § 481(a)
adjustment.

(c) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 24, 25, and 26; and

(vi) Schedule E, lines 3, 4a, 4b, and 4c.

(d) A taxpayer (including a qualified
small taxpayer) making the change spec-
ified in section 6.32(1)(a)(i), (iv), or (v) of
this revenue procedure must attach to its
Form 3115 a statement with a description
of the asset(s) to which this change ap-
plies (for example, all 5-year property
placed in service in 2009 in Holmdel,
New Jersey facility (for a change specified
in section 6.32(1)(a)(i) of this revenue
procedure) or one desk costing $2,000 in
2007 General Asset Account #1 (for a

change specified in section 6.32(1)(a)(iv)
of this revenue procedure)).

(e) A taxpayer (including a qualified
small taxpayer) making the change spec-
ified in section 6.32(1)(a)(ii) or (iii) of this
revenue procedure must attach to its Form
3115 a statement with a description of the
general asset account(s) to which this
change applies (for example, General As-
set Account #2 - all 2008 5-year property
additions).

(f) A taxpayer (including a qualified
small taxpayer) making the change spec-
ified in section 6.32(1)(a)(i) of this reve-
nue procedure must attach to its Form
3115 a statement providing that the tax-
payer agrees to the following additional
terms and conditions:

(i) The taxpayer consents to, and
agrees to apply, all of the provisions of
[Insert, as appropriate, either:
§ 1.168(i)-1, § 1.168(i)-IT, or Prop. Reg.
§ 1.168(i)-1] to the assets that are subject
to the election specified in section
6.32(1)(a)(i) of this revenue procedure;
and

(ii) Except as provided in [Insert, as
appropriate, either: § 1.168(i)-
1(c)(1)(iii)(A), (e)(3), (g), or (h),
§ 1.168(i)-1T(c)(1)(ii)(A), (e)(3), (g), or
(h), or Prop. Reg. § 1.168(i)-
1(c)(1)(iii)(A), (e)(3), (g), or (h)], the
election made by the taxpayer under sec-
tion 6.32(1)(a)(i) of this revenue proce-
dure is irrevocable and will be binding on
the taxpayer for computing taxable in-
come for the year of change and for all
subsequent taxable years with respect to
the assets that are subject to this election.

(g) If any asset is public utility property
within the meaning of § 168(i)(10), a tax-
payer (including a qualified small tax-
payer) making this change must attach to
its Form 3115 a statement providing that
the taxpayer agrees to the following addi-
tional terms and conditions:

(i) A normalization method of account-
ing (within the meaning of § 168(i)(9))
will be used for the public utility property
subject to the Form 3115;

(ii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(iii) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115. This additional term and con-
dition only has to be included in the state-
ment by a taxpayer making the change
specified in section 6.32(1)(a)(ii), (iii),
(iv), or (v) of this revenue procedure.

(5) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.32(1)(a) of this rev-
enue procedure, the single Form 3115
should provide a single net § 481(a) ad-
justment for all such changes. If one or
more of the changes specified in section
6.32(1)(a) of this revenue procedure in
that single Form 3115 generate a negative
§ 481(a) adjustment and other changes
specified in section 6.32(1)(a) of this rev-
enue procedure in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all such
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all such changes that are included in
that Form 3115 generating such positive
adjustment.

(b) A taxpayer making a change under
section 6.32(1)(a)(ii), (iii), (iv), or (v) of
this revenue procedure and any change
listed in this section 6.32(5)(b)(i)-(ix) of
this revenue procedure for the same year
of change should file a single Form 3115
for all such changes and must enter the
designated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.32(5)(b) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be

completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.28(3)(b)
of this revenue procedure;

(iii) A change under section 6.29 of
this revenue procedure;

(iv) A change under section 6.30 of this
revenue procedure;

(v) A change under section 6.31 of this
revenue procedure;

(vi) A change under section 6.37(3)(b)
of this revenue procedure;

(vii) A change under section 6.38 of
this revenue procedure;

(viii) A change under section 6.39 of
this revenue procedure; and

(ix) A change under section 6.40 of this
revenue procedure.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.32 is
"180."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.33 Late partial disposition election
(§ 168; § 1.168(i)-8 and Prop. Reg.
§ 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make a late partial disposition
election under § 1.168(i)-8(d)(2)(i) or
Prop. Reg. § 1.168(i)-8(d)(2)(i) for the
disposition of a portion of an asset (as
determined under § 1.168(i)-8(c)(4) or
Prop. Reg. § 1.168(i)-8(c)(4), as applica-
ble) by the taxpayer. This change includes
the late partial disposition election speci-
fied in § 1.168(i)-8(d)(2)(i) that is made
pursuant to § 1.168(i)-8(d)(2)(iv)(B) or in
Prop. Reg. § 1.168(i)-8(d)(2)(i) that is
made pursuant to Prop. Reg. § 1.168(i)-
8(d)(2)(iv)(B). This change also may af-
fect whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f), or § 1.263(a)-3(e) or (f), as applica-

ble) under § 1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable.

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

(i) A taxpayer making a late partial
disposition election under Prop. Reg.
§ 1.168(i)-8(d)(2)(i) but does not apply
all the provisions of Prop. Reg.
§ 1.168(i)-8;

(ii) Any asset of which the disposed
portion was a part that is not owned by the
taxpayer at the beginning of the year of
change;

(iii) A taxpayer making any late elec-
tion specified in section 6.33(1)(a) of this
revenue procedure after the time specified
in section 6.33(3) of this revenue proce-
dure. Any such late election is not a
change in method of accounting pursuant
to § 1.446-1(e)(2)(ii)(d)(3)(iii); or

(iv) The partial disposition election
specified in § 1.168(i)-8(d)(2)(i) that is
made pursuant to § 1.168(i)-8(d)(2)(iii)
or in Prop. Reg. § 1.168(i)-8(d)(2)(i) that
is made pursuant to Prop. Reg. § 1.168(i)-
8(d)(2)(iii), as applicable (but see section
6.35 of this revenue procedure for making
this change).

(2) Change in method of accounting.
The IRS will treat the making of the late
election specified in section 6.33(1) of this
revenue procedure as a change in method
of accounting only for the time specified
in section 6.33(3) of this revenue proce-
dure.

(3) Time for making the change.

(a) If the change under this section 6.33
is made pursuant to § 1.168(i)-8(d)(2)(i),
this change must be made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015.

(b) If the change under this section
6.33 is made pursuant to Prop. Reg.
§ 1.168(i)-8(d)(2)(i), this change must be
made for any taxable year beginning on or
after January 1, 2012, and beginning be-
fore January 1, 2014.

(c) If the change under this section 6.33
is made pursuant to § 1.168(i)-
8(d)(2)(iv)(B) or Prop. Reg. § 1.168(i)-
8(d)(2)(iv)(B), as applicable, this change
must be made for the first or second tax-
able year succeeding the applicable tax-
able year (as defined in § 1.168(i)-
8(d)(2)(iv) or Prop. Reg. § 1.168(i)-
8(d)(2)(iv), as applicable), pursuant to

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

§ 1.168(i)-8(d)(2)(iv)(B) or Prop. Reg.
§ 1.168(i)-8(d)(2)(iv)(B), as applicable.

(4) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to this change.

(b) Concurrent automatic change. If a
taxpayer makes both a change under this
section of this revenue procedure and a
change under section 6.01 of this revenue
procedure for any taxable year specified in
section 6.33(3) of this revenue procedure,
as applicable, on a single Form 3115 for
the same asset for the same year of change
in accordance with section 6.33(6)(b) of
this revenue procedure, the eligibility
rules in sections 5.01(1)(d) and (f) of Rev.
Proc. 2015-13 do not apply to the tax-
payer for either change.

(5) Manner of making change.

(a) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(b) A taxpayer (including a qualified
small taxpayer) making this change must:

(i) Apply § 1.168(i)-8(h)(i) and (3) or
Prop. Reg. § 1.168(i)-8(h)(1) and (3), as
applicable (accounting for asset disposed
of);

(ii) If the asset (as determined under
§ 1.168(i)-8(c)(4) or Prop. Reg. § 1.168(i)-
8(c)(4), as applicable) of which the dis-
posed portion is a part is properly in-
cluded in one of the asset classes 00.11
through 00.4 of Rev. Proc. 87-56, 1987-2
C.B. 674, classify the replacement portion
of such asset under the same asset class as
the disposed portion of the asset in the
taxable year in which the replacement
portion is placed in service by the tax-
payer;

(iii) If the taxpayer's present method of
accounting is not in accord with § 1.168(i)-
8(c)(4) or Prop. Reg. § 1.168(i)-8(c)(4), as

applicable (determination of asset dis-
posed of), change to the appropriate asset
as determined under § 1.168(i)-8(c)(4) or
Prop. Reg. § 1.168(i)-8(c)(4), as applica-
ble;

(iv) If the taxpayer continues to deduct
depreciation for the disposed portion of
the asset (as determined under § 1.168(i)-
8(c)(4) or Prop. Reg. § 1.168(i)-8(c)(4),
as applicable) under the taxpayer's pres-
ent method of accounting, change from
depreciating such disposed portion to rec-
ognizing gain or loss for the disposed por-
tion or, if § 280B and § 1.280B-1 apply to
the disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demoli-
tion to the land on which the demolished
structure was located;

(v) If the taxpayer recognized a gain or
loss under § 1.168(i)-1T or § 1.168(i)-8T
for the disposed portion of the asset in a
taxable year prior to the year of change,
recognize gain or loss for such disposed
portion under § 1.168(i)-8 or Prop. Reg.
§ 1.168(i)-8, as applicable; and

(vi) If any asset is public utility prop-
erty within the meaning of § 168(i)(10),
attach to its Form 3115 a statement pro-
viding that the taxpayer agrees to the fol-
lowing additional terms and conditions:

(A) A normalization method of account-
ing (within the meaning of § 168(i)(9)) will
be used for the public utility property sub-
ject to the Form 3115;

(B) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and

(C) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.

(6) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is

specified in section 6.33(1) of this revenue
procedure, the single Form 3115 should
provide a single net § 481(a) adjustment
for all such changes. If one or more of the
changes specified in section 6.33(1) of this
revenue procedure in that single Form
3115 generate a negative § 481(a) adjust-
ment and other changes specified in sec-
tion 6.33(1) of this revenue procedure in
that same Form 3115 generate a positive
§ 481(a) adjustment, the taxpayer may
provide a single negative § 481(a) adjust-
ment for all such changes that are in-
cluded in that Form 3115 generating such
negative adjustment and a single positive
§ 481(a) adjustment for all such changes
that are included in that Form 3115 gen-
erating such positive adjustment.

(b) A taxpayer making this change and
any change listed in this section 6.33(6)(b)(i)-
(ii) of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter
the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
This section 6.33(6)(b) applies only if all
of these changes are made for any taxable
year specified in section 6.33(3) of this
revenue procedure, as applicable (for ex-
ample, for a taxable year beginning on or
after January 1, 2012, and beginning be-
fore January 1, 2015, if the change under
section 6.33 of this revenue procedure is
made pursuant to § 1.168(i)-8(d)(2)(i)).
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure; and

(ii) A change under section 6.34 of this
revenue procedure.

(7) Examples. The following examples
illustrate the changes that may be made
under this section 6.33.

(a) Example 1. (i) X, a calendar year taxpayer,
acquired and placed in service a truck in 2009. The
truck is described in asset class 00.242 of Rev. Proc.
87-56. X depreciates the truck under § 168. X does
not reasonably expect to replace the engine of the
truck more than once during its class life of 6 years.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

The engine is a major component of the truck under
§ 1.263(a)-3T(i)(1)(vi).

(ii) In 2012, X replaced the engine of the truck.
X applied § 1.168(i)-8T and § 1.263(a)-3T for its
taxable year ended December 31, 2012. Because the
truck is the asset for disposition purposes, X did not
recognize a loss on the retirement of the engine
under § 1.168(i)-8T and continues to depreciate the
original engine. Further, X capitalized the new en-
gine as an improvement, classified the new engine
under asset class 00.242 of Rev. Proc. 87-56, and
depreciates the new engine under § 168.

(iii) X decides to apply § 1.168(i)-8 beginning
with its taxable year ending December 31, 2013. X
also decides to make the late partial disposition elec-
tion under this section 6.33 for the truck's original
engine that X retired in 2012. Although the truck is
the asset for disposition purposes under § 1.168(i)-
8(c)(4)(ii)(C), the partial disposition rule under
§ 1.168(i)-8(d)(2)(i) results in the retirement of the
engine being a disposition under § 1.168(i)-8(b)(2).
Thus, in accordance with section 6.33 of this revenue
procedure, X may file a Form 3115 with its 2013
federal income tax return to make the late disposition
election for the engine and change from depreciating
the original engine to recognizing a loss upon its
retirement.

(b) Example 2. (i) Y, a calendar year taxpayer,
acquired and placed in service a building and its
structural components in 2000. Y depreciates this
building and its structural components under § 168.
The roof is a structural component of the building. Y
replaced the entire roof in 2010. On its federal in-
come tax return for the taxable year ended December
31, 2010, Y did not recognize a loss on the retire-
ment of the original roof and continued to depreciate
the original roof. Y also capitalized the cost of the
replacement roof and has been depreciating this roof
under § 168 since June 2010. The adjusted deprecia-
ble basis of the original roof at the time of the
retirement in 2010 (taking into account the applica-
ble convention) is $11,000, and Y claimed depreci-
ation of $1,000 for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year.

(ii) In accordance with § 1.168(i)-
8T(c)(4)(ii)(A) and (B) and section 6.29(3)(a) and
(b) of the APPENDIX to Rev. Proc. 2011-14, as
modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, Y filed with its federal income tax return for the
taxable year ended December 31, 2012, a Form 3115
to treat the building as an asset and each structural
component of the building as a separate asset for
disposition purposes and also to change from depre-
ciating the original roof to recognizing a loss upon
its retirement. The amount of the net negative
§ 481(a) adjustment on this Form 3115 is $10,000
(adjusted depreciable basis of $11,000 for the orig-
inal roof at the time of its retirement (taking into
account the applicable convention) less depreciation
of $1,000 claimed for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year).

(iii) Y complies with § 1.168(i)-8 beginning
with its taxable year ending December 31, 2014. Y
also decides to make the late partial disposition elec-
tion under this section 6.33 for the building's origi-
nal roof that Y retired in 2010. Although the original

building (including its original roof and other origi-
nal structural components) is the asset for disposition
purposes under § 1.168(i)-8(c)(4)(ii)(A), the partial
disposition rule under § 1.168(i)-8(d)(2)(i) results in
the retirement of the original roof being a disposition
under § 1.168(i)-8(b)(2). Thus, in accordance with
section 6.33 of this revenue procedure, Y may file a
Form 3115 with its 2014 federal income tax return to
make a late partial disposition election for the orig-
inal roof, treat the original building (including its
original roof and other original structural compo-
nents) as an asset and the replacement roof to the
building as a separate asset for disposition purposes
and recognize a loss upon the retirement of the
original roof under § 1.168(i)-8.

(iv) The computation of the net § 481
adjustment for this change is computed as
follows:

Net Loss on retirement of original roof on 2012 return under § 1.168(i)-8T

$10,000

Net Loss on retirement of original roof under § 1.168(i)-8

(10,000)

Net § 481(a) adjustment for the roof

$ 0

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.33 is
"196."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.34 Revocation of a general asset ac-
count election (§ 168; § 1.168(i)-1,
§ 1.168(i)-IT and Prop. Reg. § 1.168(i)-
1).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to revoke its general asset account
election:

(i) Made under section 6.32(1)(a)(i) of
this revenue procedure or section
6.32(1)(a)(i) of the APPENDIX to Rev.
Proc. 2011-14 for one or more items of
property depreciated under § 168
(MACRS property) included in the gen-
eral asset account. This change also may
affect whether the taxpayer must capital-
ize amounts paid to restore a unit of prop-
erty (as determined under § 1.263(a)-
3T(e) or (f), or § 1.263(a)-3(e) or (f), as

applicable) under §1.263(a)-3T(i) or
§ 1.263(a)-3(k), as applicable; or

(ii) Made under § 1.168(i)-1,
§ 1.168(i)-1T, or Prop. Reg. § 1.168(i)-1
for one or more items of MACRS prop-
erty placed in service by the taxpayer in a
taxable year beginning on or after January
1, 2012, and beginning before January 1,
2014. This change also may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f), or § 1.263(a)-3(e) or (f), as applica-
ble) under §1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable.

(b) Inapplicability. Because of the
changes made to the general asset account
temporary regulations (§ 1.168(i)-1T) by
§ 1.168(i)-1, the IRS will treat the revo-
cation of the elections specified in section
6.34(1)(a) of this revenue procedure as a
change in method of accounting only for
the time specified in section 6.34(2) of this
revenue procedure. Accordingly, this
treatment does not apply to a taxpayer that
makes any revocation specified in section
6.34(1)(a) of this revenue procedure be-
fore or after the time specified in section
6.34(2) of this revenue procedure. Any
such revocation is not a change in method
of accounting pursuant to § 1.446-
1(e)(2)(ii)(d)(3)(iii). The elections speci-
fied in section 6.34(1)(a) of this revenue
procedure are irrevocable except as pro-
vided in § 1.168(i)-1(c)(1)(ii)(A), (e)(3),
(g), or (h), § 1.168(i)-1T(c)(1)(ii)(A),
(e)(3), (g), or (h), or Prop. Reg.
§ 1.168(i)-1(c)(1)(ii)(A), (e)(3), (g), or
(h), as applicable.

(2) Time for making the change. The
change under this section 6.34 must be
made for any taxable year beginning on or
after January 1, 2012, and beginning be-
fore January 1, 2015.

(3) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to this change.

(b) Concurrent automatic change. If a
taxpayer makes both a change under this
section of the revenue procedure and a
change under section 6.01 of this revenue
procedure for any taxable year beginning
on or after January 1, 2012, and beginning
before January 1, 2015, on a single Form

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

3115 for the same asset for the same year
of change in accordance with section
6.34(6)(b) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015-13 do not apply to
the taxpayer for either change. If a tax-
payer makes both a change under this
section of the revenue procedure and a
change under section 6.01 of this revenue
procedure for any taxable year beginning
on or after January 1, 2012, and beginning
before January 1, 2014, on a single Form
3115 for the same asset for the same year
of change in accordance with section
6.34(6)(c) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015-13 do not apply to
the taxpayer for either change.

(4) Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into ac-
count in computing taxable income for the
year of change.

(5) Manner of making change.

(a) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, lines 3, 4a, 4b, and 4c.

(b) A taxpayer (including a qualified
small taxpayer) making this change must:

(i) Attach to its Form 3115 a statement
with a description of the asset(s) to which
this change applies (for example, all gen-
eral asset accounts established pursuant to
a Form 3115 filed under section
6.32(1)(a)(i) of the APPENDIX to Rev.
Proc. 2011-14 for the year of change be-
ginning January 1, 2012 (for a change
specified in section 6.34(1)(a)(i) of this
revenue procedure); one desk costing
$2,000 in 2012 General Asset Account #1
(for a change specified in section
6.34(1)(a)(ii) of this revenue procedure));

(ii) Include the asset(s) that were in the
general asset account(s) at the end of the
taxable year immediately preceding the
year of change in a single asset account or

a multiple asset account in accordance
with § 1.168(i)-7. The single asset ac-
count or the multiple asset account must
include a beginning balance for both the
unadjusted depreciable basis and the de-
preciation reserve. For a single asset ac-
count, the beginning balance for the un-
adjusted depreciable basis of that single
asset account is equal to the unadjusted
depreciable basis as of the beginning of
the year of change for the asset included
in that single asset account and the begin-
ning balance of the depreciation reserve of
that single asset account is the greater of
the depreciation allowed or allowable as
of the beginning of the year of change for
the asset included in that single asset ac-
count. For a multiple asset account, the
beginning balance for the unadjusted de-
preciable basis of that multiple asset ac-
count is equal to the sum of the unadjusted
depreciable bases as of the beginning of
the year of change for all assets included
in that multiple asset account and the be-
ginning balance of the depreciation re-
serve of that multiple asset account is
equal to the sum of the greater of the
depreciation allowed or allowable as of
the beginning of the year of change for all
assets included in that multiple asset ac-
count; and

(iii) If any asset is public utility prop-
erty within the meaning of § 168(i)(10),
attach to its Form 3115 a statement pro-
viding that the taxpayer agrees to the fol-
lowing additional terms and conditions:

(A) A normalization method of account-
ing (within the meaning of § 168(i)(9)) will
be used for the public utility property sub-
ject to the Form 3115;

(B) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and

(C) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.

(6) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.34(1)(a) of this rev-
enue procedure, the single Form 3115
must provide a single net § 481(a) adjust-
ment for all such changes.

(b) A taxpayer making this change and
any change listed in section 6.34(6)(b)(i)-
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter
the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
This section 6.34(6)(b) applies only if all
of these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.33 of this
revenue procedure made pursuant to
§ 1.168(i)-8(d)(2)(i);

(iii) A change under section 6.38 of
this revenue procedure; and

(iv) A change under section 6.39 of this
revenue procedure.

(c) A taxpayer making this change, any
change listed in section 6.34(6)(b)(i), (iii),
or (iv) of this revenue procedure, and any
change listed in this section 6.34(6)(c)(i)-
(iii) of this revenue procedure for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
This section 6.34(6)(c) applies only if all
of these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. The listed changes are:

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(i) A change under section 6.29 of this
revenue procedure;

(ii) A change under section 6.30 of this
revenue procedure; and

(iii) A change under section 6.33 of
this revenue procedure made pursuant to
Prop. Reg. § 1.168(i)-8(d)(2)(i).

(7) Examples. The following examples
illustrate the changes that may be made
under this section 6.34.

(a) Example 1. (i) On its federal tax return for the
taxable year ended December 31, 2012, X made a
general asset account election under § 1.168(i)-1T to
apply § 1.168(i)-1T to all of its assets placed in
service during 2012. No such assets were disposed of
during 2012. X decides to apply §§ 1.168(i)-1 and
1.168(i)-8 for its taxable year ending December 31,
2013. Because of the change in the definition of a
qualifying disposition under § 1.168(i)-1(e)(3)(iii),
X does not want its assets placed in service during
2012 in general asset accounts. In accordance with
this section 6.34, X files with its federal tax return
for the taxable year ending December 31, 2013, a
Form 3115 to revoke the general asset account elec-
tion for all assets placed in service during 2012 and
include such assets in one multiple asset account in
accordance with § 1.168(i)-7. Because the adjusted
depreciable basis of the assets is not changed as a
result of this change, a § 481(a) adjustment is neither
required nor permitted.

(b) Example 2. (i) Y, a calendar year taxpayer,
acquired and placed in service three used trucks in
2011. The trucks are described in asset class 00.242
of Rev. Proc. 87-56, 1987-2 C.B. 674. Of the three
trucks, one truck costs $20,000 and the other two
trucks cost a total of $30,000. Y depreciates the
trucks under § 168. In 2012, Y sold the truck that
cost $20,000 to an unrelated party for $12,000.
The adjusted depreciable basis of the truck at the
time of its disposition (taking into account the
applicable convention) is $12,800 (cost of $20,000
less depreciation of $7,200 for 2011 and 2012).

(ii) In accordance with § 1.168(i)-1T and section
6.32(1)(a)(i) of the APPENDIX to Rev. Proc. 2011-
14, as modified by Rev. Proc. 2012-20, 2012-14
I.R.B. 700, Y filed with its federal tax return for the
taxable year ended December 31, 2012, a Form 3115
to make a late general asset account election to
include the three trucks in one general asset account.
Because a sales transaction is a qualifying disposi-
tion under § 1.168(i)-1T(e)(3)(iii)(B), Y also elected
to apply § 1.168(i)-1T(e)(3)(iii) for the sale of the
truck in 2012. As a result, Y removed this truck from
the general asset account and, on its 2012 federal tax
return, recognized a loss of $800 under
§ 1.168(i)-8T (sales proceeds of $12,000 less the
adjusted depreciable basis of $12,800 for the truck.)

(iii) Y complies with §§ 1.168(i)-1 and
1.168(i)-8 beginning with its taxable year ending
December 31, 2014. Because a sales transaction is
not a qualifying disposition under § 1.168(i)-
1(e)(3)(iii)(B), Y should have recognized all of the
sales proceeds of $12,000 from the sale of the truck
in 2012 as ordinary income and continued to deduct
depreciation for this truck in the general asset ac-
count. As a result and in accordance with sections

6.34 and 6.39(3)(i) of this revenue procedure, Y files
with its 2014 federal tax return a Form 3115 to
revoke the general asset account election for the
three trucks placed in service in 2011, include the
two unsold trucks in one multiple asset account in
accordance with § 1.168(i)-7, and recognize the loss
of $800 upon the sale of the truck in 2012 under
§ 1.168(i)-8.

(iv) The computation of the § 481 adjustment for
this change is computed as follows:

Loss on sale of truck on 2012 return under § 1.168(i)-8T

$ 800

Loss on sale of truck under § 1.168(i)-8

(800)

Net § 481(a) adjustment for the asset

$ 0

(c) Example 3. (i) Z, a calendar year taxpayer,
acquired and placed in service a building and its
structural components in 2000. Z depreciates this
building and its structural components under § 168.
The roof is a structural component of the building. Z
replaced the entire roof in 2010. On its federal tax
return for the taxable year ended December 31,
2010, Z did not recognize a loss on the retirement of
the original roof and continued to depreciate the
original roof. Z also capitalized the cost of the re-
placement roof and has been depreciating this roof
under § 168 since June 2010. The adjusted deprecia-
ble basis of the original roof at the time of its
retirement in 2010 (taking into account the applica-
ble convention) is $11,000, and Z claimed depreci-
ation of $1,000 for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year. Also, the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year.

(ii) In accordance with § 1.168(i)-1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011-14,
as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, Z filed with its federal tax return for the taxable
year ended December 31, 2012, a Form 3115 to: (1)
make a late general asset account election to include
the building (including its structural components)
placed in service in 2000 in one general asset ac-
count and the replacement roof in a separate general
asset account; and (2) make a late qualifying dispo-
sition election for the retirement of the original roof
in 2010. As a result, Z removed the original roof
from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of
$10,000 (adjusted depreciable basis of $11,000 for
the original roof at the time of its retirement (taking
into account the applicable convention) less depre-
ciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable con-
vention) and before the 2012 taxable year).

(iii) Z decides to apply §§ 1.168(i)-1 and
1.168(i)-8 for its taxable year ending December 31,
2013, but decides not to make any late partial dis-
position election under section 6.33 of this revenue
procedure. In accordance with sections 6.34 and
6.38(3)(a) of this revenue procedure, Z files a Form
3115 with its 2013 federal income tax return to
revoke the general asset account election for the

building (including its structural components) placed
in service in 2000 and for the replacement roof, and
to change to treating the building (including its orig-
inal roof and other original structural components)
placed in service in 2000 as an asset and the replace-
ment roof as a separate asset for disposition pur-
poses. The net positive § 481(a) adjustment for this
change is $9,500 (net loss of $10,000 claimed on the
2012 return for the retirement of the original roof
less depreciation of $500 for the original roof for
2012) and is included in Z's taxable income for
2013.

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.34 is
"197."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.35 Partial dispositions of tangible de-
preciable assets to which the IRS's adjust-
ment pertains (§ 168; § 1.168(i)-8 and
Prop. Reg. § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that is
described in § 1.168(i)-8(d)(2)(iii) or
Prop. Reg. § 1.168(i)-8(d)(2)(iii) and,
pursuant to § 1.168(i)-8(d)(2)(iii) or
Prop. Reg. § 1.168(i)-8(d)(2)(iii), that
wants to make the partial disposition elec-
tion specified in § 1.168(i)-8(d)(2)(i) or
Prop. Reg. § 1.168(i)-8(d)(2)(i) to the
disposition of a portion of an asset to
which the IRS's adjustment (as described
in § 1.168(i)-8(d)(2)(iii) or Prop. Reg.
§ 1.168(i)-8(d)(2)(iii), as applicable) per-
tains.

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

(i) Any asset of which the disposed
portion was a part that is not owned by the
taxpayer at the beginning of the year of
change;

(ii) The partial disposition election
specified in § 1.168(i)-8(d)(2)(i) that is
made pursuant to § 1.168(i)-8(d)(2)(iv)
or specified in Prop. Reg. § 1.168(i)-
8(d)(2)(i) that is made pursuant to Prop.
Reg. § 1.168(i)-8(d)(2)(iv) (but see sec-
tion 6.33 of this revenue procedure for
making this change).

(2) Change in method of accounting.
The IRS will treat the making of the late
election specified in section 6.35(1) of this

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

revenue procedure as a change in method
of accounting.

(3) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, do not apply to this
change.

(4) Manner of making change.

(a) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(b) A taxpayer (including a qualified
small taxpayer) making this change must:

(i) Apply § 1.168(i)-8(h)(1) and (3) or
Prop. Reg. § 1.168(i)-8(h)(1)and (3), as
applicable (accounting for asset disposed
of);

(ii) If the asset (as determined under
§ 1.168(i)-8(c)(4) or Prop. Reg.
§ 1.168(i)-8(c)(4), as applicable) of
which the disposed portion is a part is
properly included in one of the asset
classes 00.11 through 00.4 of Rev. Proc.
87-56, 1987-2 C.B. 674, classify the re-
placement portion of such asset under the
same asset class as the disposed portion of
the asset in the taxable year in which the
replacement portion is placed in service
by the taxpayer;

(iii) If the taxpayer's present method of
accounting is not in accord with
§ 1.168(i)-8(c)(4) or Prop. Reg.
§ 1.168(i)-8(c)(4), as applicable (determi-
nation of asset disposed of), change to the
appropriate asset as determined under
§ 1.168(i)-8(c)(4) or Prop. Reg.
§ 1.168(i)-8(c)(4), as applicable;

(iv) If the taxpayer continues to deduct
depreciation for the disposed portion of
the asset (as determined under § 1.168(i)-
8(c)(4) or Prop. Reg. § 1.168(i)-8(c)(4),
as applicable) under the taxpayer's pres-
ent method of accounting, change from
depreciating such disposed portion to rec-
ognizing gain or loss for the disposed por-
tion or, if § 280B and § 1.280B-1 apply to

the disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demoli-
tion to the land on which the demolished
structure was located; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), attach
a statement to its Form 3115 providing
that the taxpayer agrees to the following
additional terms and conditions:

(A) A normalization method of ac-
counting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the Form 3115;

(B) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
Form 3115; and

(C) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
Form 3115.

(5) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets. If the change for more than one
asset included in that Form 3115 is spec-
ified in section 6.35(1) of this revenue
procedure, the single Form 3115 should
provide a single net § 481(a) adjustment
for all such changes. If one or more of the
changes specified in section 6.35(1) of this
revenue procedure in that single Form
3115 generate a negative § 481(a) adjust-
ment and other changes specified in sec-
tion 6.35(1) of this revenue procedure in
that same Form 3115 generate a positive
§ 481(a) adjustment, the taxpayer may
provide a single negative § 481(a) adjust-
ment for all such changes that are in-
cluded in that Form 3115 generating such
negative adjustment and a single positive
§ 481(a) adjustment for all such changes
that are included in that Form 3115 gen-
erating such positive adjustment.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change

number for a change to the method of
accounting under this section 6.35 is
"198."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.36 Depreciation of leasehold improve-
ments (§§ 167, 168, and 197; § 1.167(a)-4).

(1) Description of change. This
change, as described in Rev. Proc. 2014-
17, 2014-12 I.R.B. 661, applies to a tax-
payer that wants to change its method of
accounting to comply with § 1.167(a)-4
for leasehold improvements in which the
taxpayer has a depreciable interest at the
beginning of the year of change:

(a) From improperly depreciating the
leasehold improvements to which § 168
applies over the term of the lease (includ-
ing renewals, if applicable) to properly
depreciating these improvements under
§ 168;

(b) From improperly amortizing lease-
hold improvements to which § 197 applies
over the term of the lease (including re-
newals, if applicable) to properly amortiz-
ing these improvements under § 197; or

(c) From improperly amortizing lease-
hold improvements to which § 167(f)(1)
applies over the term of the lease (includ-
ing renewals, if applicable) to properly
amortizing these improvements under
§ 167(f)(1).

(2) Certain eligibility rules inapplicable.

(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer making this change.

(b) Special rule. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-13
does not apply to a taxpayer making this
change for any taxable year beginning on
or after January 1, 2012, and beginning
before January 1, 2015.

(3) Manner of making change.

(a) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(iv) Part II, all lines except lines 11, 14,
15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E.

(b) If any leasehold improvement is
public utility property within the meaning
of § 168(i)(10) or former § 167(l)(3)(A), a
taxpayer (including a qualified small tax-
payer) making this change must attach to
its Form 3115 a statement providing that
the taxpayer agrees to the following addi-
tional terms and conditions:

(i) A normalization method of account-
ing (within the meaning of § 168(i)(9) or
former § 167(l)(3)(G)) will be used for the
public utility property subject to the
change;

(ii) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
change; and

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.

(4) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment.

(b) A taxpayer making both this
change and a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for all such

changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required by section 6.36(3)(a)
of this revenue procedure for this change
and the information required by the lines
on Form 3115 applicable to the UNICAP
method change, including Part II line 12
and 13, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 4b, 5c, 12,
and, as applicable for this change, Part IV)
for which the taxpayer's response is dif-
ferent for this change and the change to a
UNICAP method.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of ac-
counting under this section 6.36 is "199."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.37 Permissible to permissible method
of accounting for depreciation of MACRS
property (§ 168; §§ 1.168(i)-1,
1.168(i)-7, and 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting for depreciation that is speci-
fied in section 6.37(3) of this revenue pro-
cedure for an asset:

(i) to which § 168 applies (MACRS
property);

(ii) for which the present and proposed
methods of accounting are permissible
methods of accounting under § 1.168(i)-1,
§ 1.168(i)-7, or § 1.168(i)-8, as applicable;
and

(iii) that is owned by the taxpayer at the
beginning of the year of change.

(b) Inapplicability. This change does
not apply to any property that is not de-
preciated under § 168 under the taxpay-
er's present and proposed methods of ac-
counting.

(2) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer making this change.

(b) Special rule.

(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015.

(ii) If a taxpayer makes both a change
under this section of this revenue proce-
dure and a change under section 6.01 of
this revenue procedure for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015, on a single Form 3115 for the same
asset for the same year of change in ac-
cordance with section 6.37(5)(b) of this
revenue procedure, the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13 do not apply to the taxpayer for
either change. If a taxpayer makes both a
change under this section of the revenue
procedure and a change under section 6.01
of this revenue procedure for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2014, on a single Form 3115 for the same
asset for the same year of change in ac-
cordance with section 6.37(5)(c) of this
revenue procedure, the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13 do not apply to the taxpayer for
either change.

(3) Changes covered. This section 6.37
only applies to the following changes in
methods of accounting for depreciation of
MACRS property: (a) For the items of
MACRS property not subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder-

(i) a change from single asset accounts
(or item accounts) for specific items of
MACRS property to multiple asset ac-
counts (or pools) for the same assets, or
vice versa, in accordance with § 1.168(i)-7;

(ii) a change from grouping specific
items of MACRS property in multiple as-
set accounts to a different grouping of the
same assets in multiple asset accounts in
accordance with § 1.168(i)-7(c);

(iii) a change in the method of identi-
fying which assets in multiple asset ac-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

counts or which portions of assets have
been disposed of by the taxpayer from the
specific identification method under
§ 1.168(i)-8(g)(1) to the first-in, first-out
(FIFO) method of accounting under
§ 1.168(i)-8(g)(2)(i) or the modified
FIFO method of accounting under
§ 1.168(i)-8(g)(2)(ii);

(iv) a change in the method of identi-
fying which assets in multiple asset ac-
counts or which portions of assets have
been disposed of by the taxpayer from the
FIFO method of accounting under
§ 1.168(i)-8(g)(2)(i) or the modified
FIFO method of accounting under
§ 1.168(i)-(g)(2)(ii) to the specific identi-
fication method under § 1.168(i)-8(g)(1);

(v) a change in the method of identify-
ing which assets in multiple asset ac-
counts or which portions of assets have
been disposed of by the taxpayer from the
FIFO method of accounting under
§ 1.168(i)-8(g)(2)(i) to the modified
FIFO method of accounting under
§ 1.168(i)-8(g)(2)(ii), or vice versa;

(vi) a change in the method of identi-
fying which mass assets (as defined in
§ 1.168(i)-8(b)(3)) in multiple asset ac-
counts or which portions of mass assets
have been disposed of by the taxpayer
from the specific identification method
under § 1.168(i)-8(g)(1) to a mortality
dispersion table in accordance with
§ 1.168(i)-8(g)(2)(iii);

(vii) a change in the method of identi-
fying which mass assets (as defined in
§ 1.168(i)-8(b)(3)) in multiple asset ac-
counts or which portions of mass assets
have been disposed of by the taxpayer
from the FIFO method of accounting un-
der § 1.168(i)-8(g)(2)(i) or the modified
FIFO method of accounting under
§ 1.168(i)-8(g)(2)(ii) to a mortality dis-
persion table in accordance with
§ 1.168(i)-8(g)(2)(iii);

(viii) a change in the method of iden-
tifying which mass assets (as defined in
§ 1.168(i)-8(b)(3)) in multiple asset ac-
counts or which portions of mass assets
have been disposed of by the taxpayer
from a mortality dispersion table in accor-
dance with § 1.168(i)-8(g)(2)(iii) to the
specific identification method under
§ 1.168(i)-8(g)(1), the FIFO method of
accounting under § 1.168(i)-8(g)(2)(i), or
the modified FIFO method of accounting
under § 1.168(i)-8(g)(2)(ii);

(ix) if § 1.168(i)-8(f)(2) applies (dis-
position of an asset in a multiple asset
account) and it is impracticable from the
taxpayer's records to determine the unad-
justed depreciable basis of the asset dis-
posed of, a change in the method of de-
termining the unadjusted depreciable
basis of all assets in the same multiple
asset account from one reasonable method
to another reasonable method; or

(x) if § 1.168(i)-8(f)(3) applies (dispo-
sition of a portion of an asset) and it is
impracticable from the taxpayer's records
to determine the unadjusted depreciable
basis of the disposed portion of the asset,
a change in the method of determining the
unadjusted depreciable basis of all dis-
posed portions of the asset from one rea-
sonable method to another reasonable
method; and

(b) For the items of MACRS property
subject to a general asset account election
under § 168(i)(4) and the regulations
thereunder-

(i) a change from grouping specific
items of MACRS property in general asset
accounts to a different grouping of the
same assets in general asset accounts in
accordance with § 1.168(i)-1(c);

(ii) a change in the method of identi-
fying which assets or which portions of
assets have been disposed of by the tax-
payer from the specific identification
method under § 1.168(i)-1(j)(2)(i)(A) to
the FIFO method of accounting under
§ 1.168(i)-1(j)(2)(i)(B) or the modified
FIFO method of accounting under
§ 1.168(i)-1(j)(2)(i)(C);

(iii) a change in the method of identi-
fying which assets or which portions of
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-1(j)(2)(i)(B) or the
modified FIFO method of accounting un-
der § 1.168(i)-1(j)(2)(i)(C) to the specific
identification method under § 1.168(i)-
1(j)(2)(i)(A);

(iv) a change in the method of identi-
fying which assets or which portions of
assets have been disposed of by the tax-
payer from the FIFO method of account-
ing under § 1.168(i)-1(j)(2)(i)(B) to the
modified FIFO method of accounting un-
der § 1.168(i)-1(j)(2)(i)(C), or vice versa;

(v) a change in the method of identify-
ing which mass assets (as defined in
§ 1.168(i)-1(b)(6)) or which portions of

mass assets that are in a separate general
asset account in accordance with § 1.168-
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from the specific identifica-
tion method under § 1.168(i)-1(j)(2)(i)(A)
to a mortality dispersion table in accor-
dance with § 1.168(i)-1(j)(2)(i)(D);

(vi) a change in the method of identi-
fying which mass assets (as defined in
§ 1.168(i)-1(b)(6)) or which portions of
mass assets that are in a separate general
asset account in accordance with § 1.168-
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from the FIFO method of
accounting under § 1.168(i)-1(j)(2)(i)(B)
or the modified FIFO method of account-
ing under § 1.168(i)-1(j)(2)(i)(C) to a
mortality dispersion table in accordance
with § 1.168(i)-1(j)(2)(i)(D);

(vii) a change in the method of identi-
fying which mass assets (as defined in
§ 1.168(i)-1(b)(6)), or which portions of
mass assets that are in a separate general
asset account in accordance with § 1.168-
1(c)(2)(ii)(H), have been disposed of by
the taxpayer from a mortality dispersion
table in accordance with § 1.168(i)-
1(j)(2)(i)(D) to the specific identification
method under § 1.168(i)-1(j)(2)(i)(A), the
FIFO method of accounting under
§ 1.168(i)-1(j)(2)(i)(B), or the modified
FIFO method of accounting under
§ 1.168(i)-1(j)(2)(i)(C); or

(viii) if § 1.168(i)-1(j)(3) applies (basis
of a disposed asset or a disposed portion
of an asset in a general asset account) and
it is impracticable from the taxpayer's re-
cords to determine the unadjusted depre-
ciable basis of the disposed asset or the
disposed portion of the asset, a change in
the method of determining the unadjusted
depreciable basis of all assets in the same
general asset account from one reasonable
method to another reasonable method.

(4) Manner of making change.

(a) The changes in methods of account-
ing specified in section 6.37(3)(a)(i) and
(ii) and section 6.37(3)(b)(i) of this reve-
nue procedure are made using a modified
cut-off method under which the unad-
justed depreciable basis and the deprecia-
tion reserve of the asset as of the begin-
ning of the year of change are accounted
for using the proposed method of account-
ing.

(i) If the change specified in section
6.37(3)(a)(i) of this revenue procedure is a

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

change to a single asset account, the new
single asset account must include a begin-
ning balance for both the unadjusted de-
preciable basis and the depreciation re-
serve of the asset included in that single
asset account.

(ii) If the change specified in section
6.37(3)(a)(i) or (ii) of this revenue proce-
dure is a change to a multiple asset ac-
count (either a new one or a different
grouping), the multiple asset account must
include a beginning balance for both the
unadjusted depreciable basis and the de-
preciation reserve. The beginning balance
for the unadjusted depreciable basis of
each multiple asset account is equal to the
sum of the unadjusted depreciable bases
as of the beginning of the year of change
for all assets included in that multiple
asset account. The beginning balance of
the depreciation reserve of each multiple
asset account is equal to the sum of the
greater of the depreciation allowed or al-
lowable as of the beginning of the year of
change for all assets included in that mul-
tiple asset account.

(iii) The change specified in section
6.37(3)(b)(i) of this revenue procedure re-
quires the general asset account to include
a beginning balance for both the unad-
justed depreciable basis and the deprecia-
tion reserve. The beginning balance for
the unadjusted depreciable basis of each
general asset account is equal to the sum
of the unadjusted depreciable bases as of
the beginning of the year of change for all
assets included in that general asset ac-
count. The beginning balance of the de-
preciation reserve of each general asset
account is equal to the sum of the greater
of the depreciation allowed or allowable
as of the beginning of the year of change
for all assets included in that general asset
account.

(b) The changes in methods of account-
ing specified in section 6.37(3)(a)(iii), (vi),
(ix), and (x) and section 6.37(3)(b)(ii), (v),
and (viii) of this revenue procedure are
made using a cut-off method and apply to
dispositions occurring on or after the be-
ginning of the year of change.

(c) Even though the changes in meth-
ods of accounting specified in section
6.37(3)(a)(iv), (v), (vii), and (viii) and
section 6.37(3)(b)(iii), (iv), (vi), and (vii)
of this revenue procedure are changes
from one permissible method of account-

ing to another permissible method of ac-
counting, these changes are made with a
§ 481(a) adjustment. For the changes in
methods of accounting specified in section
6.37(3)(b)(iii), (iv), (vi), and (vii) of this
revenue procedure, the § 481(a) adjust-
ment should be zero unless § 1.168(i)-
1(e)(3) applies to the asset subject to the
change.

(d) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 24, 25, and 26; and

(vi) Schedule E, lines 3, 4a, 4b, and 4c.

(e) If any asset subject to this change is
public utility property within the meaning
of § 168(i)(10), a taxpayer (including a
qualified small taxpayer) making this
change must attach to its Form 3115 a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(i) A normalization method of account-
ing (within the meaning of § 168(i)(9))
will be used for the public utility property
subject to the change;

(ii) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
a change in method of accounting speci-
fied in section 6.37(3)(a)(iv), (v), (vii), or
(viii) or section 6.37(3)(b)(iii), (iv), (vi),
or (vii) of this revenue procedure made for
the public utility property subject to the
change; and

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.

(5) Concurrent change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.37(3)(a)(iv), (v),
(vii), or (viii) or section 6.37(3)(b)(iii),
(iv), (vi), or (vii) of this revenue proce-
dure, the single Form 3115 also should
provide a single net § 481(a) adjustment
for all such changes. If one or more
changes specified in section 6.37(3)(a)(iv),
(v), (vii), or (viii) or section 6.37(3)(b)(iii),
(iv), (vi), or (vii) of this revenue proce-
dure in that single Form 3115 generate a
negative § 481(a) adjustment and other
changes specified in section 6.37(3)(a)(iv),
(v), (vii), or (viii) or section 6.37(3)(b)(iii),
(iv), (vi), or (vii) of this revenue proce-
dure in that same Form 3115 generate a
positive § 481(a) adjustment, the taxpayer
may provide a single negative § 481(a)
adjustment for all such changes that are
included in that Form 3115 generating
such negative adjustment and a single
positive § 481(a) adjustment for all such
changes that are included in that Form
3115 generating such positive adjustment.

(b) A taxpayer making this change and
any change listed in this section
6.37(5)(b)(i)-(iv) of this revenue proce-
dure for the same year of change should
file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included
on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.38 of this
revenue procedure;

(iii) A change under section 6.39 of
this revenue procedure;

(iv) A change under section 6.40 of this
revenue procedure; and

(v) A change under section 10.07(3)(c)
of this revenue procedure.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(c) A taxpayer making a change under
section 6.37(3)(b)(ii), (iii), (iv), (v), (vi),
(vii), or (viii) of this revenue procedure
(certain permissible to permissible
changes for general asset accounts) and a
change under section 6.32(1)(a)(ii), (iii),
(iv), or (v) of this revenue procedure (cer-
tain late general asset account elections)
and/or any change listed in this section
6.37(5)(c)(i)-(vii) of this revenue proce-
dure for the same year of change should
file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. This section
6.37(5)(c) applies only if all of these
changes are made for any taxable year
beginning on or after January 1, 2012, and
beginning before January 1, 2014. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115. The listed
changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.29 of this
revenue procedure;

(iii) A change under section 6.30 of
this revenue procedure;

(iv) A change under section 6.31 of this
revenue procedure;

(v) A change under section 6.38 of this
revenue procedure;

(vi) A change under section 6.39 of this
revenue procedure; and

(vii) A change under section 6.40 of
this revenue procedure.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of ac-
counting under this section 6.37 is "200."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.38 Disposition of a building or struc-
tural component (§ 168; § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.38(3) of this revenue procedure for dis-
posing of a building or a structural com-
ponent or disposing of a portion of a
building (including its structural compo-
nents) to which the partial disposition rule
in § 1.168(i)-8(d)(1) applies. These spec-
ified changes are consistent with
§§ 1.168(i)-8(b)(2), 1.168(i)-8(c)(4)(ii)(A),
(B), and (D), 1.168(i)-8(f), and 1.168(i)-
8(g), as applicable. This change also af-
fects the determination of gain or loss
from disposing of the building, the struc-
tural component, or the portion of the
building (including its structural compo-
nents) and may affect whether the tax-
payer must capitalize amounts paid to re-
store a unit of property (as determined
under § 1.263(a)-3(e) or (f)) under
§ 1.263(a)-3(k).

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

(i) Any asset (as determined under
§ 1.168(i)-8(c)(4)) that is not depreciated
under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(ii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.40 of this revenue procedure for making
a change in method of accounting for dis-
positions of tangible depreciable assets
subject to a general asset account elec-
tion);

(iii) Any multiple buildings, condo-
minium units, or cooperative units that are
treated as a single building under the tax-
payer's present method of accounting, or
will be treated as a single building under
the taxpayer's proposed method of ac-
counting, pursuant to § 1.1250-
1(a)(2)(ii);

(iv) Any disposition of a portion of an
asset for which a partial disposition elec-
tion under § 1.168(i)-8(d)(2) is required
but for which the taxpayer did not make
such election in accordance with
§ 1.168(i)-8(d)(2)(ii) or (iii), as applica-
ble (but see section 6.33 of this revenue
procedure for making a late partial dispo-
sition election and section 6.35 of this

revenue procedure for making a partial dis-
position election pursuant to § 1.168(i)-
8(d)(2)(iii)); or

(v) Any demolition of a structure to
which § 280B and § 1.280B-1 apply.

(2) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer making this change.

(b) Special rule.

(i) The eligibility rule in sections
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015.

(ii) If a taxpayer makes both a change
under this section 6.38 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.38(9)(b) or (c) of this revenue proce-
dure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13
do not apply to the taxpayer for either
change.

(3) Covered changes. This section 6.38
only applies to the following changes in
methods of accounting for a building (in-
cluding its structural components), condo-
minium unit (including its structural com-
ponents), cooperative unit (including its
structural components), or an improve-
ment or addition (including its structural
components) thereto:

(a) For purposes of applying § 1.168(i)-
8(c)(4) (determination of asset disposed of),
a change to the appropriate asset as deter-
mined under § 1.168(i)-8(c)(4)(ii)(A), (B),
or (D), as applicable;

(b) If the taxpayer makes the change
specified in section 6.38(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.38(3)(a) of this revenue proce-
dure or disposed of a portion of such asset
in a taxable year prior to the year of
change but under its present method of
accounting continues to deduct deprecia-
tion for such disposed asset or such dis-
posed portion, a change from depreciating

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the disposed asset or disposed portion to
recognizing gain or loss upon disposition;

(c) If the taxpayer's present method of
accounting for its buildings (including
their structural components), condomin-
ium units (including their structural com-
ponents), cooperative units (including
their structural components), and im-
provements or additions (including its
structural components) thereto that are de-
preciated under § 168 is in accord with
§ 1.168(i)-8(c)(4)(ii)(A), (B), and (D),
and if the taxpayer disposed of an asset as
determined under § 1.168(i)-8(c)(4)(ii)(A),
(B), or (D), as applicable, or disposed of a
portion of such asset in a taxable year
prior to the year of change but under its
present method of accounting continues to
deduct depreciation for such disposed as-
set or such disposed portion, a change
from depreciating the disposed asset or
disposed portion to recognizing gain or
loss upon disposition;

(d) A change in the method of identi-
fying which assets in multiple asset ac-
counts or which portions of assets have
been disposed of from a method of ac-
counting not specified in § 1.168(i)-
8(g)(1) or (2)(i), (ii), or (iii) (for example,
the last-in, first-out (LIFO) method of ac-
counting) to a method of accounting spec-
ified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or
(iii), as applicable;

(e) If § 1.168(i)-8(f)(2) applies (dispo-
sition of an asset in a multiple asset ac-
count) and it is practicable from the tax-
payer's records to determine the
unadjusted depreciable basis of the dis-
posed asset, a change in the method of
determining the unadjusted depreciable
basis of the disposed asset from a method
of not using the taxpayer's records to a
method of using the taxpayer's records;

(f) If § 1.168(i)-8(f)(2) applies (dispo-
sition of an asset in a multiple asset ac-
count) and it is impracticable from the
taxpayer's records to determine the unad-
justed depreciable basis of the disposed
asset, a change in the method of determin-
ing the unadjusted depreciable basis of all
assets in the same multiple asset account
from an unreasonable method (for exam-
ple, discounting the cost of the replace-
ment asset to its placed-in-service year
cost using the Consumer Price Index) to a
reasonable method;

(g) If § 1.168(i)-8(f)(3) applies (dispo-
sition of a portion of an asset) and it is
practicable from the taxpayer's records to
determine the unadjusted depreciable ba-
sis of the disposed portion of the asset, a
change in the method of determining the
unadjusted depreciable basis of the dis-
posed portion of the asset from a method
of not using the taxpayer's records to a
method of using the taxpayer's records;

(h) If § 1.168(i)-8(f)(3) applies (dispo-
sition of a portion of an asset) and it is
impracticable from the taxpayer's records
to determine the unadjusted depreciable
basis of the disposed portion of the asset,
a change in the method of determining the
unadjusted depreciable basis of the dis-
posed portion of the asset from an unrea-
sonable method (for example, discounting
the cost of the replacement portion of the
asset to its placed-in-service year cost us-
ing the Consumer Price Index) to a rea-
sonable method; or

(i) A change from recognizing gain or
loss under § 1.168(i)-8T upon the dispo-
sition of an asset (as determined under
§ 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as
applicable) included in a general asset ac-
count to recognizing gain or loss upon the
disposition of the same asset under
§ 1.168(i)-8 if: (A) the taxpayer makes
the change specified in section 6.34 of this
revenue procedure (revocation of a gen-
eral asset account election); (B) the tax-
payer made a qualifying disposition elec-
tion under § 1.168(i)-1T(e)(3)(iii) in a
taxable year prior to the year of change for
the disposition of such asset; (C) the tax-
payer's present method of accounting for
such asset is in accord with § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable;
and (D) the taxpayer recognized a gain or
loss under § 1.168(i)-8T upon the dispo-
sition of such asset in a taxable year prior
to the year of change.

(4) Examples. The following examples
illustrate the covered changes specified in
section 6.38(3) of this revenue procedure.

(a) Example 1. X, a calendar-year taxpayer, ac-
quired and placed in service a building and its struc-
tural components in 2000. In 2005, X constructed
and placed in service an addition to this building. X
depreciates the building, the addition, and their
structural components under § 168. A change by X
to treating the original building (including its struc-
tural components) as an asset and the addition to the
building (including the structural components of
such addition) as a separate asset for disposition
purposes is a change described in section 6.38(3)(a)

of this revenue procedure solely for purposes of
§ 1.168(i)-8(c)(4).

(b) Example 2. Y, a calendar year taxpayer, ac-
quired and placed in service a building and its struc-
tural components in 1990. Y depreciates this build-
ing and its structural components under § 168. In
2000, a tornado damaged the roof and, as a result, Y
replaced the entire roof of the building. Y did not
recognize a loss on the retirement of the original roof
and continues to depreciate the original roof. Y also
capitalized the cost of the replacement roof and has
been depreciating this roof under § 168 since 2000.
Because the original roof was disposed of as a result
of a casualty event described in § 165, a change by
Y from depreciating the original roof to recognizing
a loss upon its retirement is a covered change de-
scribed in section 6.38(3)(c) of this revenue proce-
dure solely for purposes of § 1.168(i)-8.

(c) Example 3. The facts are the same as in
Example 2, except a tornado did not occur, but Y still
replaced the entire roof of the building in 2000.
Because the original roof was not disposed of as a
result of any of the events described in § 1.168(i)-
8(d)(1) that require a partial disposition, a partial
disposition election must be made to change from
depreciating the original roof to recognizing a loss
upon its retirement. Pursuant to section
6.38(1)(b)(iv) of this revenue procedure, section 6.38
does not apply to the disposition of the original roof
in 2000. But see section 6.33 of this revenue proce-
dure for making the late partial disposition election
under § 1.168(i)-8(d)(2)(i) for the original roof.

(5) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making a change
specified in section 6.38(3)(a) of this rev-
enue procedure, a description of the assets
for disposition purposes under the taxpay-
er's present and proposed methods of ac-
counting;

(iii) If the taxpayer is making the
change specified in section 6.38(3)(d) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpay-
er's present and proposed methods of ac-
counting;

(iv) If the taxpayer is making the
change specified in section 6.38(3)(f) or
(h) of this revenue procedure, a descrip-
tion of the methods of determining the
unadjusted depreciable basis of the dis-
posed asset or disposed portion of the
asset, as applicable, under the taxpayer's

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

present and proposed methods of account-
ing; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of ac-
counting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the application;

(B) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
application; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.

(b) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(6) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.38(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)-8(c)(4). The director will as-
certain whether the taxpayer's determina-
tion of its asset under § 1.168(i)-8(c)(4) is
permissible.

(7) Section 481(a) adjustment. A tax-
payer changing its method of accounting

under this section 6.38 may use statistical
sampling in determining the § 481(a) ad-
justment by following the guidance pro-
vided in Rev. Proc. 2011-42, 2011-37
I.R.B. 318.

(8) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:

(i) If the taxpayer is making the change
specified in section 6.38(3)(a) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-8T
on the disposition of the asset (or if appli-
cable, a portion thereof) in a taxable year
prior to the year of change; or

(ii) If the taxpayer is making the
change specified in section 6.38(3)(i) of
this revenue procedure.

(b) If section 6.38(8)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(c) Example. (i) Y, a calendar year taxpayer,
acquired and placed in service a building and its
structural components in 2000. Y depreciates this
building and its structural components under § 168.
The roof is a structural component of the building. Y
replaced the entire roof in 2010. On its federal tax
return for the taxable year ended December 31,
2010, Y did not recognize a loss on the retirement of
the original roof and continues to depreciate the
original roof. Y also capitalized the cost of the re-
placement roof and has been depreciating this roof
under § 168 since June 2010. The adjusted deprecia-
ble basis of the original roof at the time of its
retirement in 2010 (taking into account the applica-
ble convention) is $11,000, and Y claimed depreci-
ation of $1,000 for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year. Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year and $500 for
the 2013 taxable year.

(ii) In accordance with § 1.168(i)-
8T(c)(4)(ii)(A) and (B) and section 6.29(3)(a) and
(b) of the APPENDIX to Rev. Proc. 2011-14, as
modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, Y filed with its federal income tax return for the
taxable year ended December 31, 2012, a Form 3115
to treat the building as an asset and each structural
component of the building as a separate asset for
disposition purposes and also to change from depre-
ciating the original roof to recognizing a loss upon
its retirement. The amount of the net negative
§ 481(a) adjustment on this Form 3115 is $10,000
(adjusted depreciable basis of $11,000 for the orig-
inal roof at the time of its retirement (taking into
account the applicable convention) less depreciation
of $1,000 claimed for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year).

(iii) Y complies with § 1.168(i)-8 beginning
with its taxable year ending December 31, 2014, but
decides not to make any late partial disposition elec-
tion under section 6.33 of this revenue procedure. In
accordance with section 6.38(3)(a) of this revenue
procedure, Y files a Form 3115 with its 2014 federal
income tax return to change to treating the original
building (including its original roof and other origi-
nal structural components) as an asset and the re-
placement roof as a separate asset for disposition
purposes. Because Y is not making a late partial
disposition election for the original roof, Y does not
recognize the net loss of $10,000 upon the retirement
of the original roof under § 1.168(i)-8 and Y will
continue to depreciate the original roof. Thus, the net
positive § 481(a) adjustment for this change is
$9,000 (net loss of $10,000 claimed on the 2012
return for the retirement of the original roof less
depreciation of $1,000 for the original roof for 2012
and 2013) and is included in Y's taxable income for
2014.

(9) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) A taxpayer making this change and
any change listed in this section
6.38(9)(b)(i)-(iv) of the revenue proce-
dure for the same year of change should
file a single Form 3115 for all of such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included
on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(ii) A change under section 6.37 of this
revenue procedure;

(iii) A change under section 6.39 of
this revenue procedure; and

(iv) A change under section 6.40 of this
revenue procedure.

(c) A taxpayer making this change and
a change under section 6.34 of this reve-
nue procedure (revocation of a general
asset account election) and/or any change
listed in this section 6.38(9)(c)(i)-(iii) of
the revenue procedure for the same year
of change should file a single Form 3115
for all such changes and must enter the
designated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.38(9)(c) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.37(3)(a)
of this revenue procedure; and

(iii) A change under section 6.39 of
this revenue procedure.

(10) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.38 is
"205."

(11) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.39 Dispositions of tangible depreciable
assets (other than a building or its struc-
tural components) (§ 168; § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.39(3) of this revenue procedure for dis-

posing of § 1245 property or a depreciable
land improvement or disposing of a por-
tion of § 1245 property or a depreciable
land improvement to which the partial dis-
position rule in § 1.168(i)-8(d)(1) applies.
These specified changes are consistent
with §§ 1.168(i)-8(c)(4)(i), 1.168(i)-
8(c)(4)(ii)(C) and (D), 1.168(i)-8(f), and
1.168(i)-8(g), as applicable. This change
also affects the determination of gain or
loss from disposing of the § 1245 prop-
erty, the depreciable land improvement, or
a portion of the § 1245 property or depre-
ciable land improvement, and may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of property
(as determined under § 1.263(a)-3T(e) or
(f) , or § 1.263(a)-3(e) or (f), as applica-
ble) under § 1.263(a)-3T(i) or § 1.263(a)-
3(k), as applicable.

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

(i) Any asset (as determined under
§ 1.168(i)-8(c)(4)) that is not depreciated
under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(ii) Any building (including its struc-
tural components), condominium unit (in-
cluding its structural components), coop-
erative unit (including its structural
components), or an improvement or addi-
tion (including its structural components)
thereto (but see section 6.38 of this reve-
nue procedure for making this change);

(iii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.40 of this revenue procedure for making
a change for dispositions of tangible de-
preciable assets subject to a general asset
account election); or

(iv) Any disposition of a portion of an
asset for which a partial disposition elec-
tion under § 1.168(i)-8(d)(2) is required
but for which the taxpayer did not make
such election in accordance with
§ 1.168(i)-8(d)(2)(ii) or (iii), as applica-
ble (but see section 6.33 of this revenue
procedure for making a late partial dispo-
sition election and section 6.35 of this
revenue procedure for making a partial
disposition election pursuant to
§ 1.168(i)-8(d)(2)(iii)).

(2) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer making this change.

(b) Special rule.

(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015.

(ii) If a taxpayer makes both a change
under this section 6.39 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.39(8)(b) or (c) of this revenue proce-
dure, the eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13
do not apply to the taxpayer for either
change.

(3) Covered changes. This section 6.39
only applies to the following changes in
methods of accounting for a § 1245 prop-
erty, a depreciable land improvement, or
an improvement or addition thereto:

(a) For purposes of applying § 1.168(i)-
8(c)(4) (determination of asset disposed of),
a change to the appropriate asset as deter-
mined under § 1.168(i)-8(c)(4)(i), (ii)(C),
or (ii)(D), as applicable;

(b) If the taxpayer makes the change
specified in section 6.39(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.39(3)(a) of this revenue proce-
dure or disposed of a portion of such asset
in a taxable year prior to the year of
change but continues to deduct deprecia-
tion for such disposed asset or such dis-
posed portion, as applicable, under the
taxpayer's present method of accounting,
a change from depreciating the disposed
asset or disposed portion, as applicable, to
recognizing gain or loss upon disposition;

(c) If the taxpayer's present method of
accounting for the § 1245 property, the
depreciable land improvement, or the im-
provement or addition thereto is in accord
with § 1.168(i)-8(c)(4)(i) or (ii), as appli-
cable, and if the taxpayer disposed of such
asset or a portion of such asset in a taxable
year prior to the year of change but under
its present method of accounting contin-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ues to deduct depreciation for this dis-
posed asset or disposed portion, as appli-
cable, a change from depreciating the
disposed asset or disposed portion, as ap-
plicable, to recognizing gain or loss upon
disposition;

(d) A change in the method of identi-
fying which assets in multiple asset ac-
counts or which portions of assets have
been disposed of from a method of ac-
counting not specified in § 1.168(i)-
8(g)(1) or (2)(i), (ii), or (iii) (for example,
the last-in, first-out (LIFO) method of ac-
counting) to a method of accounting spec-
ified in § 1.168(i)-8(g)(1) or (2)(i), (ii), or
(iii), as applicable;

(e) If § 1.168(i)-8(f)(2) applies (dis-
position of an asset in a multiple asset
account) and it is practicable from the
taxpayer's records to determine the un-
adjusted depreciable basis of the dis-
posed asset, a change in the method of
determining the unadjusted depreciable
basis of the disposed asset from a
method of not using the taxpayer's re-
cords to a method of using the taxpay-
er's records;

(f) If § 1.168(i)-8(f)(2) applies (dispo-
sition of an asset in a multiple asset ac-
count) and it is impracticable from the
taxpayer's records to determine the unad-
justed depreciable basis of the disposed
asset, a change in the method of determin-
ing the unadjusted depreciable basis of all
assets in the same multiple asset account
from an unreasonable method (for exam-
ple, discounting the cost of the replace-
ment asset to its placed-in-service year
cost using the Consumer Price Index) to a
reasonable method;

(g) If § 1.168(i)-8(f)(3) applies (dispo-
sition of a portion of an asset) and it is
practicable from the taxpayer's records to
determine the unadjusted depreciable ba-
sis of the disposed portion of the asset, a
change in the method of determining the
unadjusted depreciable basis of the dis-
posed portion of the asset from a method
of not using the taxpayer's records to a
method of using the taxpayer's records;

(h) If § 1.168(i)-8(f)(3) applies (dispo-
sition of a portion of an asset) and it is
impracticable from the taxpayer's records
to determine the unadjusted depreciable
basis of the disposed portion of the asset,
a change in the method of determining the
unadjusted depreciable basis of the dis-

posed portion of the asset from an unrea-
sonable method (for example, discounting
the cost of the replacement portion of the
asset to its placed-in-service year cost us-
ing the Consumer Price Index) to a rea-
sonable method; or

(i) A change from recognizing gain or
loss under § 1.168(i)-8T upon the dispo-
sition of a section 1245 property, depre-
ciable land improvement, or improvement
or addition thereto included in a general
asset account to recognizing gain or loss
upon the disposition of the same asset
under § 1.168(i)-8 if: (A) the taxpayer
makes the change specified in section 6.34
of this revenue procedure (revocation of a
general asset account election); (B) the
taxpayer made a qualifying disposition
election under § 1.168(i)-1T(e)(3)(iii) in a
taxable year prior to the year of change for
the disposition of such asset; (C) the tax-
payer's present method of accounting for
such asset is in accord with § 1.168(i)-
8(c)(4)(i) or (ii), as applicable; and (D) the
taxpayer recognized a gain or loss under
§ 1.168(i)-8T on the disposition of such
asset in a taxable year prior to the year of
change.

(4) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making a change
specified in section 6.39(3)(a) of this rev-
enue procedure, a description of the assets
for disposition purposes under the taxpay-
er's present and proposed methods of ac-
counting;

(iii) If the taxpayer is making the
change specified in section 6.39(3)(d) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpay-
er's present and proposed methods of ac-
counting;

(iv) If the taxpayer is making the
change specified in section 6.38(3)(f) or
(h) of this revenue procedure, a descrip-
tion of the methods of determining the
unadjusted depreciable basis of the dis-
posed asset or disposed portion of the
asset, as applicable, under the taxpayer's

present and proposed methods of account-
ing; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of account-
ing (within the meaning of § 168(i)(9)) will
be used for the public utility property sub-
ject 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 ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to
the public utility property subject to the
application; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.

(b) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and

(vi) Schedule E, line 3.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.39(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)-8(c)(4). The director will as-
certain whether the taxpayer's determina-
tion of its asset under § 1.168(i)-8(c)(4) is
permissible.

(6) Section 481(a) adjustment. A tax-
payer changing its method of accounting

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

under section 6.39 of the revenue proce-
dure may use statistical sampling in deter-
mining the § 481(a) adjustment by follow-
ing the guidance provided in Rev. Proc.
2011-42, 2011-37 I.R.B. 318.

(7) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:

(i) If the taxpayer is making the change
specified in section 6.39(3)(a) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-8T
on the disposition of the § 1245 property,
depreciable land improvement, or im-
provement or addition thereto (or if appli-
cable, a portion of such asset) in a taxable
year prior to the year of change; or

(ii) If the taxpayer is making the
change specified in section 6.39(3)(i) of
this revenue procedure.

(b) If section 6.39(7)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(8) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) A taxpayer making this change and
any change listed in this section
6.39(8)(b)(i)-(iv) of the revenue proce-
dure for the same year of change should
file a single Form 3115 for all of such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer

must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included
on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.37 of this
revenue procedure;

(iii) A change under section 6.38 of
this revenue procedure; and

(iv) A change under section 6.40 of this
revenue procedure.

(c) A taxpayer making this change and
a change under section 6.34 of this reve-
nue procedure (revocation of a general
asset account election) and/or any change
listed in this section 6.39(8)(c)(i)-(iii) of
the revenue procedure for the same year
of change should file a single Form 3115
for all such changes and must enter the
designated automatic accounting method
change numbers for the changes on the
appropriate line on the Form 3115. This
section 6.39(8)(c) applies only if all of
these changes are made for any taxable
year beginning on or after January 1,
2012, and beginning before January 1,
2015. See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes. For example, a qualified
small taxpayer must include on the single
Form 3115 the information required to be
completed on Form 3115 by a qualified
small taxpayer under this revenue proce-
dure for each change in method of ac-
counting included on that Form 3115. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.37(3)(a)
of this revenue procedure; and

(iii) A change under section 6.38 of
this revenue procedure.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.39 is
"206."

(10) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.40 Dispositions of tangible deprecia-
ble assets in a general asset account
(§ 168(i)(4); § 1.168(i)-1).

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-54, 2014-41
I.R.B. 675, applies to a taxpayer that
wants to make a change in method of
accounting that is specified in section
6.40(3) of this revenue procedure for dis-
posing of an asset subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder. These
specified changes are consistent with
§§ 1.168(i)-1(e)(1), 1.168(i)-1(e)(2)(viii),
and 1.168(i)-1(j), as applicable. This
change also may affect the determination
of gain or loss from disposing of the asset
and may affect whether the taxpayer must
capitalize amounts paid to restore a unit of
property (as determined under § 1.263(a)-
3T(e) or (f), or § 1.263(a)-3(e) or (f), as
applicable) under § 1.263(a)-3T(i) or
§ 1.263(a)-3(k), as applicable.

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

(i) Any asset (as determined under
§ 1.168(i)-1(e)(2)(viii)) that is not depre-
ciated under § 168 under the taxpayer's
present method of accounting and, if ap-
plicable, proposed method of accounting;
or

(ii) Any asset not subject to a general
asset account election under § 168(i)(4)
and the regulations thereunder (but see
sections 6.38 and 6.39 of this revenue
procedure for making a change for dispo-
sitions of tangible depreciable assets not
subject to a general asset account elec-
tion).

(2) Certain eligibility rules inapplica-
ble.

(a) In general. The eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer making this change.

(b) Special rule.

(i) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to a taxpayer making this change for
any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2015.

(ii) If a taxpayer makes both a change
under this section 6.40 and a change under
section 6.01 of this revenue procedure for
any taxable year beginning on or after

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

January 1, 2012, and beginning before
January 1, 2015, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.40(7)(b) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015-13 do not apply to
the taxpayer for either change. If a tax-
payer makes both a change under this
section of the revenue procedure and a
change under section 6.01 of this revenue
procedure for any taxable year beginning
on or after January 1, 2012, and beginning
before January 1, 2014, on a single Form
3115 for the same asset for the same year
of change in accordance with section
6.40(7)(c) of this revenue procedure, the
eligibility rules in sections 5.01(1)(d) and
(f) of Rev. Proc. 2015-13 do not apply to
the taxpayer for either change.

(3) Covered changes. This section 6.40
only applies to the following changes in
methods of accounting for an asset subject
to a general asset account election under
§ 168(i)(4) and the regulations thereunder:

(a) For purposes of applying § 1.168(i)-
1(e)(2)(viii) (determination of asset disposed
of), a change to the appropriate asset as deter-
mined under § 1.168(i)-1(e)(2)(viii)(A) or (B),
as applicable;

(b) A change in the method of identi-
fying which assets or which portions of
assets have been disposed of from a
method of accounting not specified in
§ 1.168(i)-1(j)(2)(i)(A), (B), (C), or (D)
(for example, the last-in, first-out (LIFO)
method of accounting) to a method of
accounting specified in § 1.168(i)-
1(j)(2)(i)(A), (B), (C), or (D), as applica-
ble;

(c) If § 1.168(i)-1(j)(3) applies (basis
of disposed asset or disposed portion of an
asset) and it is practicable from the tax-
payer's records to determine the unad-
justed depreciable basis of the disposed
asset or the disposed portion of an asset,
as applicable, a change in the method of
determining the unadjusted depreciable
basis of the disposed asset or the disposed
portion of an asset, as applicable, from a
method of not using the taxpayer's re-
cords to a method of using the taxpayer's
records; or

(d) If § 1.168(i)-1(j)(3) applies (basis
of disposed asset or disposed portion of an
asset) and it is impracticable from the
taxpayer's records to determine the unad-

justed depreciable basis of the disposed
asset or the disposed portion of an asset,
as applicable, a change in the method of
determining the unadjusted depreciable
basis of all assets in the same general asset
account from an unreasonable method (for
example, discounting the cost of the re-
placement asset to its placed-in-service
year cost using the Consumer Price Index)
to a reasonable method.

(4) Manner of making change.

(a) A taxpayer (including a qualified
small taxpayer as defined in section
6.01(4)(b) of this revenue procedure)
making this change must attach to its
Form 3115 a statement with the follow-
ing:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making the
change specified in section 6.40(3)(a) of
this revenue procedure, a description of
the assets for disposition purposes under
the taxpayer's present and proposed meth-
ods of accounting;

(iii) If the taxpayer is making the
change specified in section 6.40(3)(b) of
this revenue procedure, a description of
the methods of identifying which assets
have been disposed of under the taxpay-
er's present and proposed methods of ac-
counting;

(iv) If the taxpayer is making the
change specified in section 6.40(3)(d) of
this revenue procedure, a description of
the methods of determining the unad-
justed depreciable basis of the disposed
asset or disposed portion of the asset, as
applicable, under the taxpayer's present
and proposed methods of accounting; and

(v) If any asset is public utility property
within the meaning of § 168(i)(10), a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(A) A normalization method of ac-
counting (within the meaning of
§ 168(i)(9)) will be used for the public
utility property subject to the application;

(B) As of the beginning of the year of
change, the taxpayer will adjust its de-
ferred tax reserve account or similar ac-
count in the taxpayer's regulatory books
of account by the amount of the deferral
of federal income tax liability associated
with the § 481(a) adjustment applicable to

the public utility property subject to the
application; and

(C) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed application to any
regulatory body having jurisdiction over
the public utility property subject to the
application.

(b) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
to make this change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part IV, lines 25 and 26; and
(vi) Schedule E, line 3.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.40(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-1(e)(2)(viii) for deter-
mining what asset is disposed of by the
taxpayer and does not create any pre-
sumption that the proposed asset is per-
missible under § 1.168(i)-1(e)(2)(viii).
The director will ascertain whether the
taxpayer's determination of its asset under
§ 1.168(i)-1(e)(2)(viii) is permissible.

(6) Section 481(a) adjustment period.

(a) If a taxpayer makes the change
specified in section 6.40(3)(a) of this rev-
enue procedure and if the taxpayer recog-
nized a gain or loss under § 1.168(i)-1T or
§ 1.168(i)-8T, as applicable, on the dis-
position of a portion of the asset in a
taxable year prior to the year of change,
the taxpayer must take the entire amount
of the § 481(a) adjustment into account in
computing taxable income for the year of
change.

(b) If section 6.40(6)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(c) Example. (i) X, a calendar year taxpayer,
acquired and placed in service a building and its
structural components in 2000. X depreciates this
building and its structural components under § 168.
The roof is a structural component of the building. X

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

replaced the entire roof in 2010. On its federal tax
return for the taxable year ended December 31,
2010, X did not recognize a loss on the retirement of
the original roof and continues to depreciate the
original roof. X also capitalized the cost of the re-
placement roof and has been depreciating this roof
under § 168 since June 2010. The adjusted deprecia-
ble basis of the original roof at the time of its
retirement in 2010 (taking into account the applica-
ble convention) is $11,000, and X claimed depreci-
ation of $1,000 for such roof after its retirement
(taking into account the applicable convention) and
before the 2012 taxable year. Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year and $500 for
the 2013 taxable year.

(ii) In accordance with § 1.168(i)-1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011-14,
as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, X filed with its federal tax return for the taxable
year ended December 31, 2012, a Form 3115 to: (1)
make a late general asset account election to include
the building (including its structural components)
placed in service in 2000 in one general asset ac-
count and the replacement roof in a separate general
asset account; and (2) make a late qualifying dispo-
sition election for the retirement of the original roof
in 2010. As a result, X removed the original roof
from the general asset account and reported a net
negative § 481(a) adjustment on this Form 3115 of
$10,000 (adjusted depreciable basis of $11,000 for
the original roof at the time of its retirement (taking
into account the applicable convention) less depre-
ciation of $1,000 claimed for such roof after its
retirement (taking into account the applicable con-
vention) and before the 2012 taxable year).

(iii) X complies with § 1.168(i)-1 beginning with
its taxable year ending December 31, 2014. In ac-
cordance with section 6.40(3)(a) of this revenue pro-
cedure, X files a Form 3115 with its 2014 federal
income tax return to change to treating the building
(including its original roof and other original struc-
tural components) placed in service in 2000 as an
asset and the replacement roof as a separate asset for
disposition purposes. As a result, X must include the
original roof that X retired in 2010 in the general
asset account. Thus, the net positive § 481(a) adjust-
ment for this change is $9,000 (net loss of $10,000
claimed on the 2012 return for the retirement of the
original roof less depreciation of $1,000 for the
original roof for 2012 and 2013) and is included in
X's taxable income for 2014.

(7) Concurrent automatic change.

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

change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single nega-
tive § 481(a) adjustment for all the
changes that are included in that Form
3115 generating such negative adjustment
and a single positive § 481(a) adjustment
for all the changes that are included in that
Form 3115 generating such positive ad-
justment.

(b) A taxpayer making this change and
any change listed in this section
6.40(7)(b)(i)-(iv) of the revenue proce-
dure for the same year of change should
file a single Form 3115 for all of such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included
on that Form 3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.37 of this
revenue procedure;

(iii) A change under section 6.38 of
this revenue procedure; and

(iv) A change under section 6.39 of this
revenue procedure.

(c) A taxpayer making this change and
any change under section 6.32(1)(a)(ii),
(iii), (iv), or (v) of this revenue procedure
(certain late general asset account elec-

tions) and/or any change listed in this sec-
tion 6.40(7)(c)(i)-(ii) of the revenue pro-
cedure for the same year of change should
file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. This section
6.40(7)(c) of the revenue procedure ap-
plies only if all of these changes are made
for any taxable year beginning on or after
January 1, 2012, and beginning before
January 1, 2014. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes. For example,
a qualified small taxpayer must include on
the single Form 3115 the information re-
quired to be completed on Form 3115 by
a qualified small taxpayer under this rev-
enue procedure for each change in method
of accounting included on that Form 3115.
The listed changes are:

(i) A change under section 6.01 of this
revenue procedure; and

(ii) A change under section 6.37(3)(b)
of this revenue procedure.

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.40 is
"207."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free number).

.41 SUMMARY OF CERTAIN
CHANGES IN METHODS OF AC-
COUNTING RELATED TO DISPOSI-
TIONS OF MACRS PROPERTY

(1) Final regulations. The following
chart summarizes the changes in methods of
accounting under § 1.167(a)-4, § 1.168(i)-1,
§ 1.168(i)-7, and § 1.168(i)-8 that a tax-
payer may make under Rev. Proc. 2015-14.

FINAL REGULATION SECTION

SECTION # in in REV. PROC. 2015-14

DESIGNATED CHANGE NUMBER (DCN)

§ 1.167(a)-4, Depreciation of leasehold improvements

6.36

199

General Asset Accounts:

a. § 1.168(i)-1(c), Change in grouping assets

6.37

200

b. § 1.168(i)-1(e)(2)(viii), Change in determining asset disposed of

6.40

207

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

FINAL REGULATION SECTION

SECTION # in in REV. PROC. 2015-14

DESIGNATED CHANGE NUMBER (DCN)

c. § 1.168(i)-1(j)(2), Change in method of identifying which assets or portions of assets have been disposed of from one method to another method specified in § 1.168(i)-1(j)(2)

6.37

200

d. § 1.168(i)-1(j)(2), Change in method of identifying which assets or portions of assets have been disposed of from a method not specified in § 1.168(i)-1(j)(2) to a method specified in § 1.168(i)-1(j)(2)

6.40

207

e. § 1.168(i)-1(j)(3), Change in determining unadjusted depreciable basis of disposed asset or disposed portion of an asset from one reasonable method to another reasonable method when it is impracticable from the taxpayer's records to determine the unadjusted depreciable basis of dis- posed asset or disposed portion of asset

6.37

200

f. § 1.168(i)-1(j)(3), Change in determining unadjusted depreciable basis of disposed asset or disposed portion of an asset from not using to using the taxpayer's records when it is practicable from the taxpayer's records to determine the unadjusted depreciable basis of disposed asset or dis- posed portion of asset

6.40

207

g. § 1.168(i)-1(j)(3), Change in determining unadjusted depreciable basis of disposed asset or disposed portion of an asset from an unreasonable method to a reasonable method when it is impracticable from the taxpay- er's records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset

6.40

207

Single Asset Accounts or Multiple Asset Accounts for MACRS Property: a. § 1.168(i)-7, Change from single asset accounts to multiple asset ac- counts, or vice versa

6.37

200

b. § 1.168(i)-7(c), Change in grouping assets in multiple asset accounts

6.37

200

Dispositions of MACRS Property (not in a general asset account):

6.38 (Building or struc- tural component) 6.39 (Property other than a building or structural component)

a. § 1.168(i)-8(c)(4), Change in determining asset disposed of

205 206

b. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted deprecia- ble basis of disposed asset in a multiple asset account or disposed por- tion of an asset from one reasonable method to another reasonable method when it is impracticable from the taxpayer's records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset

6.37

200

c. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted deprecia- ble basis of disposed asset in a multiple asset account or disposed por- tion of an asset from not using to using the taxpayer's records when it is practicable from the taxpayer's records to determine the unadjusted de- preciable basis of disposed asset or disposed portion of asset

6.38 (Building or struc- tural component) 6.39 (Property other than a building or structural component)

205 206

d. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted deprecia- ble basis of disposed asset in a multiple asset account or disposed por- tion of an asset from an unreasonable method to a reasonable method when it is impracticable from the taxpayer's records to determine the unadjusted depreciable basis of disposed asset or disposed portion of as- set

6.38 (Building or struc- tural component) 6.39 (Property other than a building or structural component)

205 206

e. § 1.168(i)-8(g), Change in method of identifying which assets in a multiple asset account or portions of assets have been disposed of from one method to another method specified in § 1.168(i)-8(g)(1) or (2)

6.37

200

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

FINAL REGULATION SECTION

SECTION # in in REV. PROC. 2015-14

DESIGNATED CHANGE NUMBER (DCN)

f. § 1.168(i)-8(g), Change in method of identifying which assets in a multiple asset account or portions of assets have been disposed of from a method not specified in § 1.168(i)-8(g)(1) or (2) to a method specified in § 1.168(i)-8(g)(1) or (2)

6.38 (Building or struc- tural component) 6.39 (Property other than a building or structural component)

205 206

g. § 1.168(i)-8(h)(1), Change from depreciating a disposed asset or dis- posed portion of an asset to recognizing gain or loss upon disposition when a taxpayer continues to depreciate the asset or portion that the tax- payer disposed of prior to the year of change

6.38 (Building or struc- tural component) 6.39 (Property other than a building or structural component)

205 206

h. § 1.168(i)-8(d)(2)(iii), Partial disposition election for the disposition of a portion of an asset to which the IRS's adjustment pertains

6.35

198

(2) Late elections or revocation of a general asset account election. The following chart summarizes the late elections under
§ 1.168(i)-1, § 1.168(i)-8, Prop. Reg. §1.168(i)-1, Prop. Reg. §1.168(i)-8, or § 1.168(1)-1T that are treated as a change in method
of accounting for a limited period of time. The chart includes the revocation of a general asset account election that also is treated
as a change in method of accounting for a limited period of time.

ELECTION OR REVOCATION General Asset Accounts:

TIME PERIOD FOR TREATING ELECTION OR REVOCATION AS A METHOD CHANGE

SECTION # IN REV. PROC. 2015-14, AND DCN

a. Late general asset account election under § 1.168(i)-1, Prop. Reg. § 1.168(i)-1, or § 1.168(1)-1T

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2014

6.32 DCN 180

b. Late election to recognize gain or loss upon disposition of all assets, the last asset, or the remaining portion of the last asset under § 1.168(i)- 1(e)(3)(ii) or Prop. Reg. § 1.168(i)-1(e)(3)(ii)

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2014

6.32 DCN 180

c. Late election to recognize gain or loss upon disposition of all assets or the last asset under § 1.168(1)-1T(e)(3)(ii)

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2014

6.32 DCN 180

d. Late election to recognize gain or loss upon disposition of an asset in a qualifying disposition under § 1.168(i)-1(e)(3)(iii), Prop. Reg. § 1.168(i)-1(e)(3)(iii), or § 1.168(1)-1T(e)(3)(iii)

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2014

6.32 DCN 180

e. Revocation of a general asset account election made under § 1.168(i)-1, Prop. Reg. § 1.168(i)-1, or § 1.168(1)-1T, or made under section 6.32 in Rev. Proc. 2011-14 or Rev. Proc. 2015-14, as applicable

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2015

6.34 DCN 197

Late Partial Disposition Election for MACRS Property (not in a general asset account):

a. Late partial disposition election made under § 1.168(i)-8(d)(2)(iv)(B)

First or second taxable succeeding the applica- ble taxable year as de- fined in § 1.168(i)- 8(d)(2)(iv)

6.33 DCN 196

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ELECTION OR REVOCATION b. Other late partial disposition elections made under § 1.168(i)- 8(d)(2)(i)

TIME PERIOD FOR TREATING ELECTION OR REVOCATION AS A METHOD CHANGE Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2015

SECTION # IN REV. PROC. 2015-14, AND DCN 6.33 DCN 196

8(d)(2)(iv)(B) c. Late partial disposition election made under Prop. Reg. § 1.168(i)-

First or second taxable succeeding the applica- ble taxable year as de- fined in Prop. Reg. § 1.168(i)-8(d)(2)(iv)

6.33 DCN 196

d. Other late partial disposition elections made under Prop. Reg. § 1.168(i)-8(d)(2)(i)

Taxable year beginning on or after 1/1/2012 and beginning before 1/1/ 2014

6.33 DCN 196

(3) Temporary and proposed regulations. If a taxpayer applies § 1.167(a)-4T, § 1.168(i)-1T, §1.168(i)-7T, §1.168(i)-8T, Prop.
Reg. § 1.168(i)-1, Prop. Reg. § 1.168(i)-7, or Prop. Reg. § 1.168(i)-8 for a taxable year beginning on or after January 1, 2012, and
beginning before January 1, 2014, the following chart summarizes the changes in methods of accounting under those regulation
sections that the taxpayer may make under Rev. Proc. 2015-14.

TEMPORARY OR PROPOSED REGULATION SECTION § 1.167(a)-4T, Depreciation of leasehold improvements

SECTION # in REV. PROC. 2015-14

DCN

6.27

175

General Asset Accounts: a. § 1.168(i)-1T(c) or Prop. Reg. § 1.168(i)-1(c), Change in grouping assets

6.28

176

b. § 1.168(i)-1T(e)(2)(viii) or Prop. Reg. § 1.168(i)-1(e)(2)(viii), Change in determining asset disposed of

6.31

179

c. § 1.168(i)-1T(j)(2) or Prop. Reg. § 1.168(i)-1(j)(2), Change in method of identifying which assets have been disposed of from one method to another method specified in § 1.168(i)-1T(j)(2), or from one method to another method specified in Prop. Reg. § 1.168(i)-1(j)(2)

6.28

176

d. § 1.168(i)-1T(j)(2) or Prop. Reg. § 1.168(i)-1(j)(2), Change in method of identifying which assets have been disposed of from a method not specified in § 1.168(i)-1T(j)(2) to a method specified in § 1.168(i)- IT(j)(2), or from a method not specified in Prop. Reg. § 1.168(i)-1(j)(2) to a method specified in Prop. Reg. § 1.168(i)-1(j)(2)

6.31

179

e. § 1.168(i)-1T(j)(3), Change in determining unadjusted depreciable ba- sis of disposed asset from one reasonable method to another reasonable method

6.28

176

f. Prop. Reg. § 1.168(i)-1(j)(3), Change in determining unadjusted depre- ciable basis of disposed asset or disposed portion of an asset from one reasonable method to another reasonable method

6.28

176

Single Asset Accounts or Multiple Asset Accounts for MACRS Property: a. § 1.168(i)-7T or Prop. Reg. § 1.168(i)-7, Change from single asset accounts to multiple asset accounts, or vice versa

6.28

176

b. § 1.168(i)-7T(c), Change in grouping assets in multiple asset accounts Dispositions of MACRS Property (not in a general asset account):

6.28

176

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

TEMPORARY OR PROPOSED REGULATION SECTION

SECTION # in REV. PROC. 2015-14

DCN

a. § 1.168(i)-8T(c)(4) or Prop. Reg. § 1.168(i)-8(c)(4), Change in deter- mining asset disposed of

6.29 (Building or struc- tural component) 6.30 (Property other than a building or structural component)

177 178

b. § 1.168(i)-8T(e)(2) or Prop. Reg. § 1.168(i)-8(f)(2), Change in deter- mining unadjusted depreciable basis of disposed asset in a multiple asset account from one reasonable method to another reasonable method when it is impracticable from the taxpayer's records to determine the unad- justed depreciable basis of disposed asset

6.28

176

c. Prop. Reg. § 1.168(i)-8(f)(3), Change in determining unadjusted de- preciable basis of disposed portion of an asset from one reasonable method to another reasonable method

6.28

176

d. § 1.168(i)-8T(f) or Prop. Reg. § 1.168(i)-8(g), Change in method of identifying which assets in a multiple asset account have been disposed of from one method to another method specified in § 1.168(i)-8T(f)(1) or (2), or from one method to another method specified in Prop. Reg. § 1.168(i)-8(g)(1) or (2)

6.28

176

e. § 1.168(i)-8T(f) or Prop. Reg. § 1.168(i)-8(g), Change in method of identifying which assets in a multiple asset account have been disposed of from a method not specified in § 1.168(i)-8T(f)(1) or (2) to a method specified in § 1.168(i)-8T(f)(1) or (2), or from a method not specified in Prop. Reg. § 1.168(i)-8(g)(1) or (2) to a method specified in Prop. Reg. § 1.168(i)-8(g)(1) or (2)

6.29 (Building or struc- tural component) 6.30 (Property other than a building or structural component)

177 178

f. § 1.168(i)-8T(g)(1) or Prop. Reg. § 1.168(i)-8(h)(1), Change from depreciating a disposed asset or disposed portion of an asset to recogniz- ing gain or loss upon disposition when a taxpayer continues to depreciate the asset or portion that the taxpayer disposed of prior to the year of change

6.29 (Building or struc- tural component) 6.30 (Property other than a building or structural component)

177 178

g. Prop. Reg. § 1.168(i)-8(d)(2)(iii), Partial disposition election for the disposition of a portion of an asset to which the IRS's adjustment per- tains

6.35

198

.42 Depreciation of fiber optic transfer
node and fiber optic cable used by a cable
system operator (§§ 167 and 168).

(1) Description of change.

(a) Applicability. This change applies
to a cable system operator that is within
the scope of Rev. Proc. 2015-12, 2015-2
I.R.B. 266, and wants to change to the
safe harbor method of accounting pro-
vided in section 8.03 of Rev. Proc.
2015-12 for determining depreciation un-
der §§ 167 and 168 of a fiber optic transfer
node and trunk line consisting of fiber
optic cable used in a cable distribution
network providing one-way and two-way
communication services. The safe harbor
method provided by section 8.03 of Rev.
Proc. 2015-12 determines the asset for
purposes of §§ 167 and 168.

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

(i) any property that is not depreciated
under § 168 under the taxpayer's present
and proposed methods of accounting; or

(ii) any property that is not owned by
the taxpayer at the beginning of the year
of change.

(2) Certain eligibility rules inapplica-
ble.

(a) The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to a taxpayer
that makes this change for its first or sec-
ond taxable year ending after December
31, 2013.

(b) The eligibility rule in section
5.01(d) of Rev. Proc. 2015-13 does not
apply to a taxpayer that makes this
change.

(3) Concurrent automatic change.

(a) A taxpayer that wants to make this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets and provide
a single net § 481(a) adjustment for all the
changes included in that Form 3115. If
one or more of the changes in that single
Form 3115 generate a negative § 481(a)
adjustment and other changes in that same
Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a
single negative § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment.

(b) A taxpayer that wants to make both
this change and a change to a UNICAP

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure, as
applicable, for the same year of change
should file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.42 is
"210."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).

SECTION 7. RESEARCH AND
EXPERIMENTAL EXPENDITURES
(§ 174)

.01 Changes to a different method or
different amortization period.

(1) Description of change.

(a) This change applies to a taxpayer
that wants to change the treatment of ex-
penditures that qualify as research and
experimental expenditures under § 174.

(b) Section 174 and the regulations
thereunder provide the specific rules for
changing a method of accounting under
§ 174 for research and experimental ex-
penditures. Under § 174, a taxpayer may
treat research and experimental expendi-
tures that are paid or incurred by the tax-
payer during the taxable year in connec-
tion with the taxpayer's trade or business
as expenses under § 174(a) or as deferred
expenses amortizable ratably over a pe-
riod of not less than 60 months under
§ 174(b). Pursuant to § 1.174-1, research
and experimental expenditures that are not
treated as expenses or deferred expenses
under § 174 must be treated as a charge to
capital account. Further, § 1.174-1 pro-
vides that the expenditures to which § 174
applies may relate either to a general re-
search program or to a particular project.
Finally, §§ 1.174-3(a) and 1.174-4(a)(5)
provide that in no event will a taxpayer be
permitted to apply one method as to part
of the expenditures relative to a particular
project and apply a different method to the

balance of the expenditures relating to the
same project for the same taxable year.

(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) Applicability.

(a) In general. This change applies to
any taxpayer that is changing:

(i) from treating research and experi-
mental expenditures for a particular proj-
ect or projects as expenses under § 174(a)
to treating such expenditures as deferred
expenses under § 174(b), or vice versa;

(ii) to a different period of amortization
for research and experimental expendi-
tures for a particular project or projects
that are being treated as deferred expenses
under § 174(b);

(iii) from treating research and experi-
mental expenditures for a particular proj-
ect or projects as expenses under § 174(a)
or deferred expenses under § 174(b) to
treating such expenditures as a charge to
capital account, or vice versa; or

(iv) from treating research and experi-
mental expenditures under any provision
of the Code other than § 174 to treating
such expenditures under § 174 and the
regulations thereunder.

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

(i) a change in the treatment of com-
puter software costs under Rev. Proc.
2000-50, 2000-1 C.B. 601, as modified
by Rev. Proc. 2007-16, 2007-1 C.B. 358
(but see section 9 of this revenue proce-
dure for making that change); or

(ii) a change in the treatment of Year
2000 costs under Rev. Proc. 97-50,
1997-2 C.B. 525.

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, is not applicable to this
change.

(4) Manner of making change.

(a) This change is made on a cut-off
basis and applies to all research and ex-
perimental expenditures paid or incurred
for a particular project or projects on or
after the beginning of the year of change.
See § 174(b)(2), and §§ 1.174-3(a),
1.174-3(b)(2), and 1.174-4(a)(5) for
more information regarding a cut-off ba-
sis. Accordingly, a § 481(a) adjustment is
neither permitted nor required.

(b) The requirement under §§ 1.174-
3(b)(2), 1.174-3(b)(3), and 1.174-4(b)(2)
to file an application (that is, a Form 3115)
no later than the end of the first taxable
year in which the different method or dif-
ferent amortization period is to be used is
waived for this change. However, see sec-
tion 6.03 of Rev. Proc. 2015-13 for filing
requirements applicable to a change under
this section 7.01.

(c) The consent granted under section 9
of Rev. Proc. 2015-13 satisfies the con-
sent 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 chang-
ing from treating research and experimen-
tal expenditures as expenses under
§ 174(a); or

(c) the information required in
§ 1.174-4(b)(2) if the taxpayer is chang-
ing from treating research and experimen-
tal expenditures as deferred expenses un-
der § 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

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
7.01 is "17."

(8) Contact information. For further in-
formation regarding a change under this
section, contact Grant D. Anderson at
(202) 317-7005 (not a toll-free number).
.02 Reserved.

SECTION 8. ELECTIVE EXPENSING
PROVISIONS (§ 179D)

.01 Reserved.

.02 Reserved.

.03 Reserved.

.04 Deduction for Energy Efficient
Commercial Buildings (§ 179D).

(1) Description of change. This
change, as described in Rev. Proc. 2012-
39, 2012-41 I.R.B. 470, applies to a tax-
payer that wants to change its method of
accounting to deduct under § 179D
amounts paid or incurred for the installa-
tion of energy efficient commercial build-
ing property, as defined in § 179D(c)(1).
The deduction for energy efficient com-
mercial building property is subject to the
limits of § 179D(b) and must be claimed
in the taxable year in which the property is
placed in service. The basis of the energy
efficient commercial building property is
reduced by the amount of the § 179D
deduction taken and the remaining basis
of the energy efficient commercial build-
ing property is depreciated over its recov-
ery period.

(2) Applicability. This change applies
to a taxpayer that places in service prop-
erty for which a deduction is allowed un-
der § 179D(a).

(3) Inapplicability. This change does
not apply to a designer to whom the owner
of a government building allocates the
§ 179D deduction.

(4) Manner of making change. A tax-
payer making this change must attach to
its Form 3115 (the original, the copy filed
at Ogden, and any additional copies) a
statement with a detailed description of
the tax treatment of the property under the
taxpayer's present and proposed methods
of accounting.

(5) Certification requirement. In addi-
tion to the statement required by section
8.04(4) of this revenue procedure, a tax-
payer making this change must attach to
its Form 3115 a certification as required
by section 4 of Notice 2006-52, 2006-1
C.B. 1175, or section 5 of Notice 2008-
40, 2008-1 C.B. 725, to demonstrate that
the energy efficient commercial building
property has achieved the reduction in en-
ergy and power costs or in lighting power
density necessary to qualify for the
§ 179D deduction.

(6) No ruling on qualification. The
consent granted under section 9 of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, for a
change provided in this section 8.04 is not
a determination by the Commissioner that
the taxpayer qualifies for a deduction un-
der section 179D. The director will ascer-
tain whether the taxpayer qualifies for a
deduction under section 179D (including
a review of the required certifications).
See section 12 of Rev. Proc. 2015-13.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
8.04 is "152."

(8) Contact information. For further in-
formation regarding a change under this
section, contact Jennifer Bernardini at
(202) 317-6853 (not a toll-free number).

SECTION 9. COMPUTER SOFTWARE
EXPENDITURES (§§ 162, 167, and
197)

.01 Computer software expenditures.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the costs of
computer software to a method described
in Rev. Proc. 2000-50, 2000-1 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 applica-
ble to the costs of developing computer
software. Section 6 of Rev. Proc.
2000-50 describes the method applicable
to the costs of acquired computer soft-
ware. Section 7 of Rev. Proc. 2000-50
describes the method applicable to leased
or licensed 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
intangible" as defined in § 197(c) and the
regulations thereunder, or to costs that a
taxpayer has treated as research and ex-
perimentation expenditures under § 174.

(3) Statement required. If a taxpayer is
changing to the method described in sec-
tion 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) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
9.01 is "18."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free number).
.02 Reserved.

## SECTION 10. CAPITAL EXPENDITURES (§ 263)

.01 Package design costs.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package design
costs that are within the scope of Rev.
Proc. 97-35, 1997-2 C.B. 448, as modi-
fied by Rev. Proc. 98-39, 1998-1 C.B.
1320, to one of the three alternative meth-
ods of accounting for package design
costs described in section 5 of Rev. Proc.
97-35, which are: (i) the capitalization
method, (ii) the design-by-design capital-
ization and 60-month amortization
method, and (iii) the pool-of-cost capital-
ization and 48-month amortization
method.

(b) Inapplicability. This change does
not apply to a taxpayer that wants to
change to the capitalization method for
costs of developing or modifying any
package design that has an ascertainable
useful life.

(2) Additional requirements. If a tax-
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
statement must provide a description of

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

each package design, the date on which
each was placed in service, and the cost
basis of each (as determined under sec-
tions 5.01(2) or 5.02(2) of Rev. Proc. 97-
35).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.01 is "19."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.02 Line pack gas or cushion gas.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for line pack gas
or cushion gas to a method consistent with
the holding in Rev. Rul. 97-54, 1997-2
C.B. 23. Rev. Rul. 97-54 holds that the
cost of line pack gas or cushion gas is a
capital expenditure under § 263, the cost
of recoverable line pack gas or recover-
able cushion gas is not depreciable, and
the cost of unrecoverable line pack gas or
unrecoverable cushion gas is depreciable
under §§ 167 and 168.

(2) Additional requirements. A tax-
payer that changes its method of account-
ing for unrecoverable line pack gas or
unrecoverable cushion gas under this sec-
tion 10.02 must change to a permissible
method of accounting for depreciation for
the cost of that gas as part of this change.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.02 is "20."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.03 Removal costs.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for certain costs in
the retirement and removal of a deprecia-
ble asset to conform with Rev. Rul.
2000-7, 2000-1 C.B. 712, or for removal
costs in disposal of a depreciable asset,
including a partial disposition, as de-
scribed under § 1.263(a)-3(g)(2)(i).

(b) Inapplicability. This change does
not apply to a taxpayer that wants to

change its method of accounting for re-
moval costs in the disposal of a compo-
nent of a unit of property where the dis-
posal of the component is not a
disposition for federal tax purposes. To
make that change, see section 10.11 of
this revenue procedure.

(c) Manner of making change. A qual-
ified small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part II, line 13, if the change is to
depreciating property;

(vi) Part IV, lines 25 and 26; and

(vii) Schedule E, if applicable.

(2) Additional requirements.

(a) Except for assets for which depre-
ciation is determined in accordance with
§ 1.167(a)-11 (ADR), the taxpayer's pro-
posed method of treating removal costs
for assets accounted for in a multiple asset
account must be consistent with the tax-
payer's method of treating salvage pro-
ceeds. See Rev. Rul. 74-455, 1974-2
C.B. 63. (See section 6.02 of this revenue
procedure for changing a taxpayer's pres-
ent method of treating salvage proceeds.)

(b) If this change involves assets that
are public utility property within the
meaning of § 168(i)(10) or former
§ 167(l)(3)(A), the taxpayer must comply
with the terms and conditions in section
6.01(3)(b)(v) of this revenue procedure.

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.03 is "21."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.04 Distributor commissions.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change from
currently deducting distributor 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 am-
ortizing distributor commissions using the
distribution fee period method, the 5-year
method, or the useful life method (all de-
scribed in Rev. Proc. 2000-38).

(b) Inapplicability. This change does
not apply to an amortizable section 197
intangible (including any property for
which a timely election under § 13261(g)(2)
of the Revenue Reconciliation Act of
1993, 1993-3 C.B. 1, 128, was made).

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to distributor commissions
paid or incurred on or after the beginning
of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.04 is "47."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).
.05 Intangibles.

(1) Description of change. This change
applies to a taxpayer that wants to change
its treatment of an item to a method of
accounting permitted by §§ 1.263(a)-4,
1.263(a)-5, and 1.167(a)-3(b). See Rev.
Proc. 2006-12, 2006-1 C.B. 310, as
modified by Rev. Proc. 2006-37, 2006-2
C.B. 499, for the specific requirements,
information, and documentation required
for this change.

(2) Section 481(a) adjustment. In com-
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.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.05 is "78."

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(4) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.06 Rotable spare parts safe harbor
method.

(1) Description of change. This change
applies to a taxpayer that maintains a pool
or pools of rotable spare parts that are
primarily used to repair customer-owned
(or customer-leased) equipment under
warranty or maintenance agreements, and
wants to change its method of accounting
for the rotable spare parts to the safe har-
bor 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 har-
bor method under section 5.06 of Rev.
Proc. 2007-48, must make the change
under section 21.09 of this revenue pro-
cedure.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.06 is "109."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.07 Repairable and reusable spare
parts.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting to treat repairable
and reusable spare parts as depreciable
property to conform with the holdings in
Rev. Rul. 69-200, 1969-1 C.B. 60, and
Rev. Rul. 69-201, 1969-1 C.B. 60. This
change applies to repairable and reusable
spare parts that: are owned by the tax-
payer 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 equip-
ment at the time that the related equip-
ment is acquired; usually have the same
useful life as the related equipment; and
have been placed in service by the tax-
payer after 1986. A taxpayer making a
change in method of accounting under this

section 10.07 may treat its repairable and
reusable spare parts as tangible property
for which depreciation is allowable at the
time that the related equipment is placed
in service by the taxpayer. The method of
computing depreciation for the repairable
and reusable spare parts is the same
method of computing depreciation for the
related equipment.

(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 repair-
able and reusable spare parts and treating
these parts as nondepreciable property
(but see section 6.01 of this revenue pro-
cedure for making a change from an im-
permissible to a permissible method of
accounting for depreciation);

(ii) 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 de-
preciation under section 6 of this revenue
procedure;

(iii) A repairable and reusable spare
part that meets the definition of rotable
spare parts, temporary spare parts, or
standby emergency spare parts in § 1.162-
3(c)(2) or (3), for which the cost was paid
or incurred by the taxpayer in a taxable
year beginning on or after January 1, 2014
(or in a taxable year beginning on or after
January 1, 2012, if the taxpayer chooses to
apply § 1.162-3 to amounts paid or in-
curred in those taxable years), and for
which the taxpayer did not make the elec-
tion under § 1.162-3(d) to capitalize and
depreciate such repairable and reusable
spare part; or

(iv) a taxpayer that chooses to apply
§ 1.162-3T to a repairable and reusable
spare part that meets the definition of ro-
table spare parts or temporary spare parts
in § 1.162-3T(c)(2), for which the cost
was paid or incurred by the taxpayer in a
taxable year beginning on or after January
1, 2012, and before January 1, 2014, and
for which the taxpayer did not make the
election under § 1.162-3T(d) to capitalize
and depreciate such repairable and reus-
able spare part.

(2) Additional requirements.

(a) To change a method of accounting
under this section 10.07, a taxpayer (in-
cluding a qualified small taxpayer as de-
fined in section 6.01(4)(b) of this revenue
procedure) must complete Schedule E of
Form 3115 for the repairable and reusable
spare parts and also attach the following
information to the completed Form 3115:

(i) A description of the repairable and
reusable spare parts;

(ii) A list of related equipment for
which the repairable and reusable spare
parts are acquired; and

(iii) A complete description of the
method of computing depreciation (for
example, depreciation method, recovery
period, convention, and applicable asset
class under Rev. Proc. 87-56, 1987-2
C.B. 674, as clarified and modified by
Rev. Proc. 88-22, 1988-1 C.B. 785) that
the taxpayer uses for the related equip-
ment for which the repairable and reus-
able spare parts are acquired.

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17; and

(v) Part IV, all lines except line 24.

(3) Concurrent automatic change.

(a) A taxpayer making both this change
and a change to a UNICAP method under
section 11.01, 11.02, 11.09, or 11.13 of
this revenue procedure (as applicable) for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes. For example,
a qualified small taxpayer, as defined in
section 6.01(4)(b) of this revenue proce-
dure, must include on the single Form
3115 the information required by section
10.07(2)(b) of this revenue procedure and

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

the information required by the lines on
Form 3115, applicable to the UNICAP
method change, including Part II line 12
and 13, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 4b, 5c, 12,
and, as applicable for this change, Part IV)
for which the taxpayer's response is dif-
ferent for this change and the change to a
UNICAP method.

(b) A taxpayer making both this
change and a change to a permissible
method of accounting for depreciation for
repairable and reusable spare parts, or for
the related equipment for which the re-
pairable and reusable spare parts are ac-
quired, under section 6 of this revenue
procedure (as applicable) for the same
year of change should file a single Form
3115 for both changes, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for both changes on the appropriate line
on that Form 3115. See section 6.03(1)(b)
of Rev. Proc. 2015-13 for information on
making concurrent changes. For example,
a qualified small taxpayer must include on
the single Form 3115 the information re-
quired to be completed on Form 3115 by
a qualified small taxpayer under this rev-
enue procedure for each change in method
of accounting included on that Form 3115.

(c) A taxpayer making this change also
may establish pools for the repairable and
reusable spare parts or may identify dis-
posed repairable and reusable spare parts
in accordance with section 6.37 of this
revenue procedure. A taxpayer making
both this change and the change under
section 6.37 of this revenue procedure for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be com-
pleted on Form 3115 by a qualified small
taxpayer under this revenue procedure for
each change in method of accounting in-
cluded on that Form 3115.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.07 is "121".

(5) Contact information. For further in-
formation regarding a change under this
section, contact Deena Devereux at (202)
317-7003 (not a toll-free number).

.08 Reserved.

.09 Reserved.

.10 Reserved.

.11 Tangible property.

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-16, 2014-9
I.R.B. 606, applies to a taxpayer that
wants to make a change to a method of
accounting specified in section 10.11(3) of
this revenue procedure and permitted un-
der:

(i) Section 1.162-3, § 1.162-4,
§ 1.263(a)-1, § 1.263(a)-2, or § 1.263(a)-3
(the final tangible property regulations)
for taxable years beginning on or after
January 1, 2012;

(ii) Section 1.162-3T, § 1.162-4T,
§ 1.263(a)-2T, or § 1.263(a)-3T of the
temporary Income Tax Regulations (T.D.
9564, 76 Fed. Reg. 81060, as contained in
26 CFR part 1 edition revised as of Apr. 1,
2013) (the temporary tangible property
regulations) for a taxable year beginning
on or after January 1, 2012, and before
January 1, 2014; or

(iii) Section 1.446-1(e)(2)(ii)(d)(2) if
the property for which the taxpayer is
otherwise changing its method of account-
ing under this section is depreciable under
either the present or the proposed method
of accounting.

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

(i) A taxpayer that wants to change its
method of accounting for dispositions of
depreciable property, including a change
in the asset disposed of (but see sections
6.29, 6.30, 6.31, 6.33, 6.34, and 6.35 of
this revenue procedure);

(ii) Amounts paid or incurred for cer-
tain materials and supplies that the tax-
payer has elected to capitalize and depre-
ciate under § 1.162-3(d);

(iii) Amounts paid or incurred to which
the taxpayer has elected to apply the de
minimis safe harbor under § 1.263(a)-
1(f);

(iv) Amounts paid or incurred for em-
ployee compensation or overhead that the
taxpayer has elected to capitalize under
§ 1.263(a)-2(f)(2)(iv)(B);

(v) Amounts paid or incurred to
which the taxpayer has elected to apply
the safe harbor for small taxpayers un-
der § 1.263(a)-3(h);

(vi) Amounts paid or incurred for re-
pair and maintenance costs that the tax-
payer has elected to capitalize under
§ 1.263(a)-3(n); or

(vii) Amounts paid or incurred to facil-
itate the acquisition or disposition of as-
sets that constitute a trade or business (but
see section 10.05 of this revenue proce-
dure).

(2) Certain eligibility rules temporarily
inapplicable.

(a) In general. The eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, do not apply
to a taxpayer that makes one or more
changes in method of accounting under
this section for any taxable year beginning
before January 1, 2015.

(b) Concurrent automatic change. If
the taxpayer makes both a change under
this section 10.11 and a change to a UNI-
CAP method under section 11.01, 11.02,
11.09, or 11.13 of this revenue procedure
(as applicable) for any taxable year begin-
ning before January 1, 2015, on a single
Form 3115 for the same year of change in
accordance with section 10.11(5) of this
revenue procedure, the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13 do not apply to the taxpayer for
either change. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes.

(3) Covered changes. This section
10.11 only applies to the following
changes in methods of accounting:

(a) Changes under the final tangible
property regulations.

(i) A change to deducting amounts paid
or incurred to acquire or produce non-
incidental materials and supplies in the
taxable year in which they are first used in
the taxpayer's operations or consumed in
the taxpayer's operations in accordance
with §§ 1.162-3(a)(1) and 1.162-3(c)(1);

(ii) A change to deducting amounts to
acquire or produce incidental materials
and supplies in the taxable year in which

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

paid or incurred in accordance with
§§ 1.162-3(a)(2) and 1.162-3(c)(1);

(iii) A change to deducting amounts
paid or incurred to acquire or produce
non-incidental rotable and temporary
spare parts in the taxable year which the
taxpayer disposes of the parts in accor-
dance with §§ 1.162-3(a)(3) and 1.162-
3(c)(2);

(iv) A change to the optional method of
accounting for rotable and temporary
spare parts in accordance with § 1.162-
3(e);

(v) A change to deducting amounts
paid or incurred for repair and mainte-
nance in accordance with § 1.162-4, in-
cluding a change, if any, in identifying the
unit of property under § 1.263(a)-3(e) or,
in the case of a building, identifying the
building structure or building systems un-
der § 1.263(a)-3(e)(2) for purposes of
making the change to deducting the
amounts;

(vi) A change to capitalizing amounts
paid or incurred for improvements to tan-
gible property in accordance with
§ 1.263(a)-3 and, if depreciable, to depre-
ciating such property under § 167 or
§ 168, including a change, if any, in iden-
tifying the unit of property under
§ 1.263(a)-3(e) or, in the case of a build-
ing, identifying the building structure or
building systems under § 1.263(a)-3(e)(2)
for purposes of making the change to cap-
italizing the amounts;

(vii) A change by a dealer in property
to deduct amounts paid or incurred for
commissions and other costs that facilitate
the sale of property in accordance with
§ 1.263(a)-1(e)(2);

(viii) A change by a non-dealer in
property to capitalizing amounts paid or
incurred for commissions and other costs
that facilitate the sale of property in ac-
cordance with § 1.263(a)-1(e);

(ix) A change to capitalizing amounts
paid or incurred to acquire or produce
property in accordance with § 1.263(a)-2,
and if depreciable, to depreciating such
property under § 167 or § 168;

(x) A change to deducting amounts
paid or incurred in the process of investi-
gating or otherwise pursuing the acquisi-
tion of real property if the amounts meet
the requirements of § 1.263(a)-2(f)(2)(iii); and

(xi) A change to the optional regula-
tory accounting method in accordance

with § 1.263(a)-3(m) to determine
whether amounts paid or incurred to re-
pair, maintain, or improve tangible prop-
erty are treated as deductible expenses or
capital expenditures.

(b) Changes under the temporary tan-
gible property regulations.

(i) A change to deducting amounts paid
or incurred to acquire or produce non-
incidental materials and supplies in the
taxable year in which they are used or
consumed in the taxpayer's operations in
accordance with §§ 1.162-3T(a)(1) and
1.162-3T(c)(1);

(ii) A change to deducting amounts to
acquire or produce incidental materials
and supplies in the taxable year in which
they are paid or incurred in accordance
with §§ 1.162-3T(a)(2) and 1.162-
3T(c)(1);

(iii) A change to deducting the
amounts paid or incurred to acquire or
produce non-incidental rotable and tem-
porary spare parts in the taxable year
which the taxpayer disposes of the parts in
accordance with §§ 1.162-3T(a)(3) and
1.162-3T(c)(2);

(iv) A change to the optional method of
accounting for rotable and temporary
spare parts in accordance with § 1.162-
3T(e);

(v) A change to deducting amounts
paid or incurred for repair and mainte-
nance in accordance with § 1.162-4T,
including a change, if any, in identifying
the unit of property under § 1.263(a)-
3T(e) or, in the case of a building, identi-
fying the building structure or building
systems under § 1.263(a)-3T(e)(2) for
purposes of making the change to deduct-
ing the amounts;

(vi) A change to capitalizing amounts
paid or incurred for improvements to tan-
gible property in accordance with
§ 1.263(a)-3T and, if depreciable, to de-
preciating such property under § 167 or
§ 168, including a change, if any, in iden-
tifying the unit of property under
§ 1.263(a)-3T(e) or, in the case of a build-
ing, identifying the building structure or
building systems under § 1.263(a)-
3T(e)(2) for purposes of making the
change to capitalizing the amounts;

(vii) A change by a dealer in property
to deduct amounts paid or incurred for
commissions and other costs that facilitate

the sale of property in accordance with
§ 1.263(a)-1T(d);

(viii) A change by a non-dealer in
property to capitalizing amounts paid or
incurred for commissions and other costs
that facilitate the sale of property in ac-
cordance with § 1.263(a)-1T(e);

(ix) A change to capitalizing amounts
paid or incurred to acquire or produce
property in accordance with § 1.263(a)-
2T, and if depreciable, to depreciating
such property under § 167 or § 168;

(x) A change to deducting amounts
paid or incurred in the process of investi-
gating or otherwise pursuing the acquisi-
tion of real property if the amounts meet
the requirements of § 1.263(a)-2T(f)(2)(iii);

(xi) A change to apply the de minimis
rule under § 1.263(a)-2T(g) to amounts
paid or incurred to acquire or produce a
unit of property; and

(xii) A change to the optional regula-
tory accounting method in accordance
with § 1.263(a)-3T(k) to determine
whether amounts paid or incurred to re-
pair, maintain, or improve tangible prop-
erty are treated as deductible expenses or
capital expenditures.

(4) Manner of making change.

(a) Form 3115. In addition to the other
information required on line 12 of Form
3115, the taxpayer must include the fol-
lowing:

(i) The citation to the paragraph of the
final tangible property regulations or tem-
porary tangible property regulations that
provides for the proposed method, or
methods, of accounting to which the tax-
payer is changing (for example, § 1.162-
3(a), § 1.263(a)-3(i), § 1.263(a)-3(k));
and

(ii) If the taxpayer is changing any
unit(s) of property under § 1.263(a)-3(e)
(or § 1.263(a)-3T(e)) or, in the case of a
building, is changing the identification of
any building structure(s) or building sys-
tem(s) under § 1.263-3(e)(2) (or § 1.263-
3T(e)(2)) for purposes of determining
whether amounts are deducted as repair
and maintenance costs under section
§ 1.162-4 (or § 1.162-4T) or capitalized
as improvement costs under § 1.263(a)-3
(or § 1.263(a)-3T), the taxpayer must in-
clude a detailed description of the unit(s)
of property, building structure(s), or
buildings system(s) used under its present
method of accounting and a detailed de-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

scription of the unit(s) of property, build-
ing structure(s), and building system(s)
under its proposed method of accounting,
together with a citation to the paragraph of
the final regulation or temporary regula-
tion under which the unit of property is
permitted.

(iii) A taxpayer changing its method of
accounting under this section 10.11 to
capitalizing amounts paid or incurred and
to depreciating such property under § 167
or § 168, as applicable, must complete
Schedule E of Form 3115.

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115:

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 11, 13,
14, 15, and 17;

(v) Part II, line 13, if the change is to
depreciating property;

(vi) Part IV, lines 25 and 26; and

(vii) Schedule E, if applicable.

(5) Concurrent automatic change.

(a) A taxpayer making two or more
changes in method of accounting pursuant
to this section 10.11 should file a single
Form 3115 for all of these changes and
must enter the designated automatic ac-
counting method change numbers for all
of these changes on the appropriate line
on the Form 3115.

(b) A taxpayer making both one or
more changes in method of accounting
pursuant to this section 10.11 and a
change to a UNICAP method under sec-
tion 11 of this revenue procedure (as ap-
plicable) for the same year of change
should file a single Form 3115 that in-
cludes all of these changes and must enter
the designated automatic accounting
method change numbers for all of these
changes on the appropriate line on that
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes. For example, a qual-
ified small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, must
include on the single Form 3115 the in-

formation required by section 10.11(4)(b)
of this revenue procedure for this change
and the information required by the lines
on Form 3115, applicable to the UNICAP
method change, including Part II lines 12
and 13, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 4b, 5c, 12,
and, as applicable for this change, Part IV)
for which the taxpayer's response is dif-
ferent for this change and the change to a
UNICAP method.

(6) Section 481(a) adjustment.

(a) In general. Except as provided in
section 10.11(6)(b) of this revenue proce-
dure, a taxpayer changing to a method of
accounting provided in this section 10.11
must apply § 481(a) and take into account
any applicable § 481(a) adjustment in the
manner provided in section 7.03 of Rev.
Proc. 2015-13.

(b) Limited adjustment for certain
changes.

(i) Final tangible property regulations.
A taxpayer changing to a method of account-
ing under § 1.162-3 (except § 1.162-3(e)),
§ 1.263(a)-2(f)(2)(iii), § 1.263(a)-2(f)(3)(ii),
§ 1.263(a)-3(m), § 1.263A-1(e)(2)(i)(A),
and § 1.263A-1(e)(3)(ii)(E) is required to
calculate a § 481(a) adjustment as of the
first day of the taxpayer's taxable year of
change that takes into account only
amounts paid or incurred in taxable years
beginning on or after January 1, 2014.
Optionally, a taxpayer may take into ac-
count amounts paid or incurred in taxable
years beginning on or after January 1,
2012.

(ii) Temporary tangible property regu-
lations. A taxpayer changing to a method
of accounting under § 1.162-3T (except
§ 1.162-1T(e)), § 1.263(a)-2T(f)(2)(iii),
§ 1.263(a)-2T(f)(3)(ii), § 1.263(a)-2T(g),
§ 1.263(a)-3T(k), § 1.263A-1T(e)(2)(i)(A),
and § 1.263A-1T(e)(3)(ii)(E) is required
to calculate a section § 481(a) adjustment
as of the first day of the year of change
that takes into account only amounts paid
or incurred in taxable years beginning on
or after January 1, 2012, for a year of
change beginning on or after January 1,
2012, and ending before January 1, 2014.
For guidance on computing a § 481(a)
adjustment see sections 11.03 and 11.04
of Rev. Proc. 2015-13.

(c) Itemized listing on Form 3115. A
taxpayer changing to a method of ac-
counting provided in this section 10.11
must include on Form 3115, Part IV, line
25, the total § 481(a) adjustment for each
change in method of accounting being
made. If the taxpayer is making more than
one change in method of accounting under
the final tangible property regulations, the
taxpayer (including a qualified small tax-
payer) must include on an attachment to
Form 3115:

(i) The information required by Part
IV, line 25 for each change in method of
accounting (including the amount of the
§ 481(a) adjustment for each change in
method of accounting, which includes the
portion of the § 481(a) adjustment attrib-
utable to UNICAP);

(ii) The information required by Part II,
line 12 of Form 3115 for each change; and

(iii) The citation to the paragraph of the
final tangible property regulations or tem-
porary tangible property regulations that
provides for each proposed method of ac-
counting.

(d) Repair allowance property. A tax-
payer changing to a method of accounting
provided by § 1.263(a)-3 of the final tangi-
ble property regulations or § 1.263(a)-3T of
the temporary tangible property regula-
tions under this section 10.11 must not
include in the § 481(a) adjustment any
amount attributable to property for which
the taxpayer elected to apply the repair
allowance under § 1.167(a)-11(d)(2) for
any taxable year in which the repair al-
lowance election was made.

(e) Statistical Sampling. Except for any
change in accounting method for which a
taxpayer is required to compute a § 481(a)
adjustment under section 10.11(6)(b) of
this revenue procedure, a taxpayer chang-
ing its method of accounting under this
section 10.11 may use statistical sampling
in determining the § 481(a) adjustment by
following the guidance provided in Rev.
Proc. 2011-42, 2011-37 I.R.B. 318.

(7) Designated automatic accounting
method change number. See the following
table for the designated automatic ac-
counting method change numbers (DCN)
for the changes in method of accounting
under this section 10.11.

(a) Changes under the final tangible
property regulations.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Description of Change

DCN

Citation

A change to deducting amounts paid or incurred for repair and mainte- nance or a change to capitalizing amounts paid or incurred for improve- ments to tangible property and, if depreciable, to depreciating such prop- erty under § 167 or § 168. Includes a change, if any, in the method of identifying the unit of property, or in the case of a building, identifying the building structure or building systems for the purpose of making this change.

184

§§ 1.162-4, 1.263(a)-3

Change to the regulatory accounting method.

185

§ 1.263(a)-3(m)

Change to deducting non-incidental materials and supplies when used or consumed.

186

§§ 1.162-3(a)(1), (c)(1)

Change to deducting incidental materials and supplies when paid or in- curred.

187

§§ 1.162-3(a)(2), (c)(1)

Change to deducting non-incidental rotable and temporary spare parts when disposed of.

188

§ 1.162-3(a)(3), (c)(2)

Change to the optional method for rotable and temporary spare parts.

189

§ 1.162-3(e)

Change by a dealer in property to deduct commissions and other costs that facilitate the sale of property.

190

§ 1.263(a)-1(e)(2)

Change by a non-dealer in property to capitalizing commissions and other costs that facilitate the sale of property.

191

§ 1.263(a)-1(e)(1)

Change to capitalizing acquisition or production costs and, if depreciable, to depreciating such property under § 167 or § 168.

192

§ 1.263(a)-2

Change to deducting certain costs for investigating or pursuing the acqui- sition of real property (whether and which).

193

§ 1.263(a)-2(f)(2)(iii)

### (b) Changes under the temporary tangible property regulations.

Description of Change

DCN

Citation

A change to deducting amounts paid or incurred for repair and mainte- nance or a change to capitalizing amounts paid or incurred for improve- ments to tangible property and, if depreciable, to depreciating such prop- erty under § 167 or § 168. Includes a change, if any, in the method of identifying the unit of property, or in the case of a building, identifying the building structure or building systems for the purpose of making this change.

162

§§ 1.162-4T, 1.263(a)-3T

Change to the regulatory accounting method.

163

§ 1.263(a)-3T(k)(2)

Change to deducting non-incidental materials and supplies when used or consumed.

164

§§ 1.162-3T(a)(1), (c)(1)

Change to deducting incidental materials and supplies when paid or in- curred.

165

§§ 1.162-3T(a)(2), (c)(1)

Change to deducting non-incidental rotable and temporary spare parts when disposed of.

166

§ 1.162-3T(a)(3), (c)(2)

Change to the optional method for rotable and temporary spare parts.

167

§ 1.162-3T(e)

Change by a dealer in property to deduct commissions and other costs that facilitate sales.

168

§ 1.263(a)-1T(d)(1)

Change to applying the de minimis rule

169

§§ 1.263(a)-2T(g), 1.263A-1T(b)(14)

Change to deducting certain costs for investigating or pursuing the acqui- sition of real property.

170

§ 1.263(a)-2T(f)(2)(iii)

Change by non-dealer in property to capitalizing commissions and other costs that facilitate sales.

172

§ 1.263(a)-1T(d)(1)

Change to capitalizing acquisition or production costs and, if depreciable, to depreciating such property under § 167 or § 168.

173

§1.263(a)-2T

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(8) Contact information. For further infor-
mation regarding a change under this sec-
tion, contact Lewis Saideman at (202)
317-5100 (not a toll-free number).

.12 Railroad track structure expendi-
tures.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for railroad track
structures to:

(a) the safe harbor method provided in
Rev. Proc. 2002-65, 2002-2 C.B. 700; or

(b) the safe harbor method provided in
Rev. Proc. 2001-46, 2001-2 C.B. 263.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.12 is "213."

(3) Contact information. For further in-
formation regarding a change under this
section contact Gwen Turner at (202) 317-
7003 (not a toll-free number).

SECTION 11. UNIFORM
CAPITALIZATION (UNICAP)
METHODS (§ 263A)

.01 Certain uniform capitalization
(UNICAP) methods used by resellers and
reseller-producers.

(1) Description of change.

(a) Applicability. This change applies
to:

(i) a small reseller of personal property
that wants to change from a permissible
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 pro-
duction and resale activities under
§ 1.263A-3(a)(4) (resellers with de mini-
mis production 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 reg-
ulations and includes any necessary
changes in the identification of costs sub-
ject to § 263A that will be accounted for
using the proposed method in any taxable
year, other than the first taxable year, that
it does not qualify as a small reseller; or

(vii) a reseller or reseller-producer that
wants to change from not capitalizing a
cost subject to § 263A to capitalizing that
cost under a UNICAP method (or meth-
ods) specifically described in the regula-
tions that the reseller or reseller-producer
is already using.

(b) Inapplicability.

(i) Self-constructed assets. This change
does not apply to a taxpayer that wants to
use either the simplified service cost
method 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 simpli-
fied resale method (see § 1.263A-
3(d)(4)(iii)(B)), including a taxpayer us-
ing the simplified resale method with an
historic absorption ratio that wants to
change to a UNICAP method specifically
described in the regulations that does not
include the historic absorption ratio. How-
ever, this change applies to a small re-
seller that wants to change from the his-
toric absorption ratio with the simplified
resale method to a permissible non-
UNICAP inventory capitalization method
under section 11.01(1)(a)(i) of this reve-
nue procedure.

(iii) Interest capitalization. This change
does not apply to a taxpayer that wants to
change its method of accounting for inter-
est capitalization.

(iv) Recharacterizing costs under the
simplified resale method. This change
does not include a change for purposes of
recharacterizing "section 471 costs" as
"additional § 263A costs" (or vice versa)
under the simplified resale method.

(2) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to the changes
described in §§ 11.01(1)(a)(i) and (ii) of
this revenue procedure.

(3) Definitions.

(a) "Reseller" means a taxpayer that
acquires real or personal property de-
scribed 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 re-
seller.

(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
90-10 de minimis rule to allocate a mixed
service department's costs to resale activ-
ities (§ 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 90-10 de minimis rule
to allocate a dual-function storage facili-
ty'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 standard cost method
(§ 1.263A-1(f)(3)), the direct reallocation
method (§ 1.263A-1(g)(4)(iii)(A)), the
step-allocation method (§ 1.263A-
1(g)(4)(iii)(B)), the simplified service cost

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

method (§ 1.263A-1(h)) (with a labor-
based allocation ratio), and the simplified
resale method without the historic absorp-
tion ratio election (§ 1.263A-3(d)), but
does not include any other reasonable al-
location method within the meaning of
§ 1.263A-1(f)(4).

(h) "Special reseller cost allocation
rule" means the 90-10 de minimis rule to
allocate a mixed service department's
costs to property acquired for resale
(§ 1.263A-1(g)(4)(ii)), the 1/3 - 2/3 rule
to allocate labor costs of personnel to purchas-
ing activities (§ 1.263A-3(c)(3)(ii)(A)), and
the 90-10 de minimis rule to allocate a
dual-function storage facility's costs to
property acquired for resale (§ 1.263A-
3(c)(5)(iii)(C)).

(i) "Permissible non-UNICAP inven-
tory capitalization method" means a
method of capitalizing inventory costs
that is permissible under § 471.

(4) Section 481(a) adjustment period.
Beginning with the year of change, a tax-
payer changing its method of accounting
for costs pursuant to sections 11.01(1)(a)(i),
11.01(1)(a)(iii), or 11.01(1)(a)(iv) of this
revenue procedure generally must take
any applicable net positive § 481(a) ad-
justment for such change into account rat-
ably over the same number of taxable
years, not to exceed four, that the taxpayer
used its former method of accounting. A
taxpayer changing its method of account-
ing for costs pursuant to sections
11.01(1)(a)(ii), 11.01(1)(a)(v), or
11.01(1)(a)(vi) of this revenue procedure
must take any applicable net positive
§ 481(a) adjustment for such change into
account as provided in section 7.03 of
Rev. Proc. 2015-13.

(5) Multiple changes. A taxpayer mak-
ing both this change and another change
in method of accounting for the same year
of change must comply with the ordering
rules of § 1.263A-7(b)(2).

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.01 is "22."

(7) Example. The following example
illustrates the principles of this section
11.01 for small resellers and formerly
small resellers.

Assume X, a corporate reseller of personal prop-
erty, incorporated January 2, 2005, adopted a taxable

year ending December 31. In determining whether X
is a small reseller, as provided in section 11.01(3)(b)
of this revenue procedure, X calculates its average
annual gross receipts for the three taxable years (or
fewer, if applicable) immediately preceding the tax-
able year being analyzed. For each of the taxable
years 2005 through 2014, X calculates the corre-
sponding average annual gross receipts for the three
immediately preceding taxable years (or fewer, if
applicable). The results are shown in the table below:

Current Taxable Year

Average Annual Gross Receipts for the Three Taxable Years Immediately Preceding the Current Taxable Year

2005

$ 0

2006

5,000,000

2007

6,000,000

2008

7,000,000

2009

11,000,000

2010

11,000,000

2011

9,000,000

2012

8,000,000

2013

11,000,000

2014

12,000,000

Furthermore, X which adopted the dollar-
value LIFO inventory method, has the fol-
lowing LIFO inventory balances deter-
mined without considering the effects of
the UNICAP method:

Beginning

Ending

2009

$1,000,000

$1,100,000

2010

1,100,000

1,200,000

2011

1,200,000

1,300,000

2012

1,300,000

1,400,000

2013

1,400,000

1,500,000

2014

1,500,000

1,600,000

X was required by § 263A to change to the
UNICAP method for 2009 because its av-
erage annual gross receipts for the three
taxable years immediately preceding 2009
were $11,000,000, which exceeded the
$10,000,000 ceiling permitted by the
small reseller exception. Assume that X
was required to capitalize $80,000 of "ad-
ditional § 263A costs" to the cost of its
2009 beginning inventory because of this
change in inventory method. In addition,
X was required to include one-fourth of
the § 481(a) adjustment when computing
taxable income for each of the four tax-

able years beginning with 2009. Thus, X
was required to include a $20,000 positive
§ 481(a) adjustment in its 2009 taxable
income.

X elected to use the simplified resale
method without an historic absorption ra-
tio election under § 1.263A-3(d)(3) for
determining the amount of additional
§ 263A costs to be capitalized to each
LIFO layer. Assume that X was required
to add $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) $1,000,000

2009 Increment
100,000

Additional § 263A
Costs in Beginning
Inventory
80,000

Additional § 263A

Costs in 2009 Increment
10,000

Total 2009 Ending
Inventory
$1,190,000

X's Unamortized 2009 § 481(a) Ad-
justment:

2009 § 481(a) Adjustment
$80,000
Amount included in
2009 Taxable Income
<20,000>

Unamortized 2009 § 481(a)
Adjustment-12/31/09

$60,000

Because X failed to satisfy the small
reseller exception for 2010, X was re-
quired to continue using the UNICAP
method for its inventory costs. Further-
more, X was required to include $20,000
of the unamortized 2009 positive § 481(a)
adjustment in 2010 taxable income. As-
sume that X was 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.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

X's 2010 Ending Inventory:

Beginning Inventory (With UNICAP costs)

$1,190,000

2010 Increment

100,000

Additional § 263A

Costs in 2010 Increment

10,000

Total 2010 Ending Inventory

$1,300,000

X's Unamortized 2009 §

481(a)

Adjustment:

Unamortized 2009 § 481(a)

Adjustment-12/31/09

$60,000

Amount Included in 2010 Taxable Income

&lt;20,000&gt;

Unamortized 2009 § 481(a)

Adjustment-12/31/10

$40,000

Because X satisfied the small reseller
exception for 2011, X may change volun-
tarily from the UNICAP method to a per-
missible non-UNICAP inventory capital-
ization method (such a change for a
current taxable year is provided in section
11.01 of this revenue procedure). To re-
flect the removal of the additional § 263A
costs from the cost of its 2011 beginning
inventory, X must compute a corresponding
§ 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
of X's taxable income for 2011. In addi-
tion, X must include $20,000 of the unam-
ortized 2009 § 481(a) adjustment in 2011
taxable income.

X's 2011 Ending Inventory:

Beginning Inventory
(With UNICAP costs)
$1,300,000

2011 Increment
100,000

2011 § 481(a)

Adjustment

<100,000>

Total 2011 Ending
Inventory
$1,300,000

X's Unamortized 2009 § 481(a)

Adjustment:

Unamortized 2009

§ 481(a)

Adjustment-12/31/10

$40,000

Amount included in 2011 Taxable

Income

&lt;20,000&gt;

Unamortized 2009

§ 481(a)

Adjustment-12/31/11

$20,000

X's Unamortized

2011 § 481(a)

Adjustment:

2011 § 481(a)

Adjustment

&lt;Negative&gt;

$&lt;100,000&gt;

Amount included in 2011 Taxable

Income

100,000

Unamortized 2011

§ 481(a)

Adjustment-12/31/11

$ 0

X also satisfies the small reseller excep-
tion for 2012 and, therefore, is not re-
quired to return to the UNICAP method
for 2012. X, however, must include
$20,000 of the unamortized 2009 positive
§ 481(a) adjustment in its 2012 taxable
income.

X's 2012 Ending Inventory:

Beginning Inventory
(Without UNICAP
costs)
$1,300,000

2012 Increment
100,000

Total 2012 Ending
Inventory
$1,400,000

X's Unamortized 2009 § 481(a)
Adjustment:

Unamortized 2009
§ 481(a)

Adjustment-12/31/11
$20,000

Amount in 2012

Taxable Income
<20,000>

Unamortized 2009

§ 481(a)
Adjustment-12/31/12

$ 0

In 2013, X fails to satisfy the small
reseller exception and, therefore, must re-
turn to the UNICAP method (such a
change for a current taxable year is pro-
vided in section 11.01 of this revenue
procedure). X changes to the simplified

resale method without a historic absorp-
tion ratio election under § 1.263A-
3(d)(3). Assume that X must capitalize
$120,000 of additional § 263A costs to
the cost of its 2013 beginning inventory
because of this change in inventory
method. Because X used a non-UNICAP
method for two taxable years prior to
2013, 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 computing taxable in-
come for 2013 and 2014. Assume that X
must add $10,000 of additional § 263A
costs to the cost of its 2013 ending in-
ventory because of the $100,000 incre-
ment for 2013.

X's 2013 Ending Inventory:

Beginning Inventory
(Without UNICAP costs) $1,400,000

2013 Increment
100,000

Additional § 263A
costs in Beginning
Inventory
120,000

Additional § 263A

costs in 2013 Increment
10,000

Total 2013 Ending
Inventory
$1,630,000

X's Unamortized 2013
§
481(a)
Adjustment:

2013 § 481

Adjustment
$ 120,000

Amount included in
2013 Taxable Income
<60,000>

Unamortized 2013

§ 481(a)

Adjustment-12/31/13
$ 60,000

Because X fails to satisfy the small
reseller exception for 2014, X must con-
tinue using the UNICAP method for its
inventory costs. Furthermore, X is re-
quired to include $60,000 of the unamor-
tized 2013 positive § 481(a) adjustment in
2014 taxable income. Assume that X is
required to add $10,000 of additional
§ 263A costs to the cost of its 2014 ending
inventory because of the $100,000 incre-
ment for 2014.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

X's 2014 Ending Inventory:

Beginning Inventory

(With UNICAP costs)

$1,630,000

2014 Increment

100,000

Additional

§ 263A

Costs in 2014 Increment

10,000

Total 2014 Ending

Inventory

$1,740,000

X's unamortized 2013 § 481(a) adjustment:

Unamortized 2013 § 481(a)

Adjustment-12/31/13

$ 60,000

Amount included in 2014 Taxable

Income

&lt;60,000&gt;

Unamortized 2013 § 481(a)

Adjustment-12/31/14

$ 0

(8) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call, at
(202) 317-7007 (not a toll-free number).

.02 Certain uniform capitalization
(UNICAP) methods used by producers
and reseller-producers.

(1) Description of change.

(a) Applicability. This change applies
to a producer (as defined in section
11.01(3)(d) of this revenue procedure) or
a reseller-producer (as defined in section
11.01(3)(e) of this revenue procedure) that
wants to change to a UNICAP method (or
methods) specifically described in the reg-
ulations, including any necessary changes
in the identification of costs subject to
§ 263A that will be accounted for using the
proposed 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 under a
UNICAP method (or methods) specifically
described in the regulations that the pro-
ducer or reseller-producer is already using.

(b) Inapplicability.

(i) Self-constructed assets. This change
does not apply to a taxpayer that wants to
use either the simplified service cost
method 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 simpli-
fied production method (see § 1.263A-
2(b)(4)(iii)(B)), including a taxpayer us-
ing the simplified production method with
an historic absorption ratio changing to a
UNICAP method specifically described in
the regulations that does not include the
historic absorption ratio.

(iii) Interest capitalization. This
change does not apply to a taxpayer that
wants to change its method of accounting
for interest capitalization.

(iv) Recharacterizing costs under the
simplified production method. This
change does not include a change for pur-
poses of recharacterizing "section 471
costs" as "additional § 263A costs" (or
vice versa) under the simplified produc-
tion method.

(2) Definition. A "UNICAP method
specifically described in the regulations"
includes the 90-10 de minimis rule to
allocate a mixed service department's
costs to production or resale activities
(§ 1.263A-1(g)(4)(ii)), the 1/3 - 2/3 rule
to allocate labor costs of personnel to pur-
chasing activities (§ 1.263A-3(c)(3)(ii)(A)),
the 90-10 de minimis rule to allocate a
dual-function storage facility's costs to
property acquired for resale (§ 1.263A-
3(c)(5)(iii)(C)), 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-allocation
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 ra-
tio), and the simplified production
method without the historic absorption
ratio election (§ 1.263A-2(b)), but does
not include any other reasonable alloca-
tion method within the meaning of
§ 1.263A-1(f)(4).

(3) Multiple changes. A taxpayer mak-
ing both this change and another change
in method of accounting in the same year
of change must comply with the ordering
rules of § 1.263A-7(b)(2).

(4) Designated automatic accounting
method change number. The designated

automatic accounting method change
number for a change under this section
11.02 is "23."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang, at (202)
317-7007 (not a toll-free number).

.03 Reserved.

.04 Impact fees.

(1) Description of change. This change
applies to a taxpayer that incurs impact
fees as defined in Rev. Rul. 2002-9,
2002-1 C.B. 614, in connection with the
construction of a new residential rental
building that wants to capitalize the costs
to the building under §§ 263(a) and 263A.
See Rev. Rul. 2002-9 for further informa-
tion.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.04 is "25."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.05 Change to capitalizing environ-
mental remediation costs under § 263A.

(1) Description of change. This change
applies to a taxpayer that wants to
change its method of accounting for en-
vironmental remediation costs from a
method that does not comply with the
holding in Rev. Rul. 2004-18, 2004-1
C.B. 509, to capitalizing them to inven-
tory under § 263A.

(2) Concurrent automatic changes. A
taxpayer making both this change and an-
other automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
change numbers for both changes on the
appropriate line on that Form 3115, and
complies with the ordering rules of
§ 1.263A-7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, for information on making concur-
rent changes.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.05 is "77."

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

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).

.06 Change in allocating environmen-
tal 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 fur-
ther information.

(2) Concurrent automatic changes. A
taxpayer making both this change and an-
other automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115, and complies with the
ordering rules of § 1.263A-7(b)(2). See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.06 is "92."

(4) Contact information. For further in-
formation regarding a change under this
section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).

.07 Safe harbor methods under § 263A
for certain dealerships of motor vehicles.

(1) Description of change. This change
applies to a motor vehicle dealership, as
defined in section 4 of Rev. Proc. 2010-
44, 2010-49 I.R.B. 811, that is within the
scope of section 3 of Rev. Proc. 2010-44
and wants to change its method of ac-
counting to (1) treat its sales facility as a
retail sales facility or (2) be treated as a
reseller without production activities, as
described in section 5 of Rev. Proc. 2010-
44. A motor vehicle dealership that wants
to make an automatic change in method of
accounting to use one or both safe harbor
methods described in section 5 of Rev.
Proc. 2010-44 may make any corre-
sponding changes in the identification of
costs subject to § 263A that will be ac-

counted for using the proposed method
(for example, to remove internal profit
from inventory costs) or to no longer in-
clude negative amounts as additional
§ 263A costs in the numerator of the sim-
plified resale method formula or the sim-
plified production method formula. How-
ever, except as provided in the preceding
sentence, a change under this section does
not include a change for purposes of re-
characterizing "§ 471 costs" as "addi-
tional § 263A costs" (or vice versa) under
the simplified resale method or the sim-
plified production method.

(2) Concurrent automatic changes. A
motor vehicle dealership making an auto-
matic change to one or both safe harbor
methods described in section 5 of Rev.
Proc. 2010-44 and another automatic
change under § 263A for the same taxable
year may file one Form 3115 to make both
changes, provided the dealership enters
the designated automatic change numbers
for all such changes in Part I on that Form
3115, and complies with the ordering
rules of § 1.263A-7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, for information on making
concurrent changes.

(3) Multiple adjustments. In the event
that a motor vehicle dealership is taking
into account a § 481(a) adjustment from
another accounting method change in ad-
dition to the § 481(a) adjustment required
by a change to a safe harbor method de-
scribed in section 5 of Rev. Proc. 2010-
44, the § 481(a) adjustments must be
taken into account separately. For exam-
ple, a motor vehicle dealership that
changed to comply with § 263A in 2009
and was required to take its § 481(a) ad-
justment into account over four years
must continue to take into account that
adjustment over the remainder of that four
year § 481(a) adjustment period even
though the dealership changed to a safe
harbor method described in section 5 of
Rev. Proc. 2010-44 in 2010 and has an
additional § 481(a) adjustment required
by that change.

(4) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change to treat certain sales
facilities as retail sales facilities as 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."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.08 Change to not apply § 263A to one
or more plants removed from the list of
plants that have a preproductive period in
excess of 2 years.

(1) Description of change. This
change, as described in Rev. Proc. 2013-
20, 2013-14 I.R.B. 744, applies to a tax-
payer that is not a corporation, partner-
ship, or tax shelter required to use an
accrual method of accounting under § 447
or § 448(a)(3), and either (a) wants to not
apply § 263A, pursuant to § 263A(d)(1)
and § 1.263A-4(a)(2), to the production
of one or more plants that the IRS and the
Treasury Department have removed from
the list of plants that have a nationwide
weighted average preproductive period in
excess of 2 years, or (b) properly elected,
pursuant to § 263A(d)(3) and § 1.263A-
4(d), to not apply § 263A to the produc-
tion of a plant or plants that have been
removed from the list of plants that have a
nationwide weighted average preproduc-
tive period in excess of 2 years, and
wishes to revoke its § 263A(d)(3) election
with respect to those plants. See Notice
2013-18, 2013-14 I.R.B. 742, or its suc-
cessor.

(2) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer that wants to make the change
for its first or second taxable year ending
after February 15, 2013.

(3) Audit protection. If a taxpayer cur-
rently does not apply § 263A to its black-
berry, raspberry, or papaya plants in a
manner that complies with the require-
ments of § 263A(d)(1) and § 1.263A-
4(a)(2), the IRS will not raise such method
of accounting for a taxable year that ends
on or before February 15, 2013. Also, if
the use of such a method of accounting by
a taxpayer is an issue under consideration
(within the meaning of section 3.08 of
Rev. Proc. 2015-13) for taxable years in
examination, before an Appeals office, or

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

before the U.S. Tax Court in a taxable
year that ends on or before February 15,
2013, the IRS will not further pursue that
issue.

(4) Manner of making change. A
change under this section 11.08 is made
with any necessary adjustments under
§ 481(a). For example, the revocation of
an election under § 263A(d)(3) results in a
§ 481(a) adjustment that must take into
account the change in depreciation from
the alternative depreciation system to the
general depreciation system included
within such revocation.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.08 is "181."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Patrick M. Clinton at
(202) 317-7005 (not a toll-free number).

.09 Change to a reasonable allocation
method described in § 1.263A-1(f)(4) for
self-constructed assets.

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-16, 2014-9
I.R.B. 606, applies to a producer (as de-
fined in section 11.01(3)(d) of this reve-
nue procedure) or a reseller-producer (as
defined in section 11.01(3)(e) of this rev-
enue procedure) that wants to change to a
reasonable allocation method within the
meaning of § 1.263A-1(f)(4), other than
the methods specifically described in
§ 1.263A-1(f)(2) or (3), for self-
constructed assets produced during the
taxable year, including any necessary
changes in the identification of costs sub-
ject to § 263A that will be accounted for
using the proposed method. This section
11.09 also includes a change from not
capitalizing a cost subject to § 263A to
capitalizing that cost for a producer or
reseller-producer under a reasonable allo-
cation method within the meaning of
§ 1.263A-1(f)(4) that the producer or
reseller-producer is already using for self-
constructed assets, other than the methods
specifically described in § 1.263A-1(f)(2)
or (3). See section 11.02 of this revenue
procedure for a producer or reseller-
producer that wants to change to a method
described in § 1.263A-1(f)(2) or (3).

(b) Inapplicability. This change does
not apply to an allocation method based
on the number of units produced or an
allocation method that does not allocate
costs to the units of property produced.
This change does not apply to a change
described in another section of this rev-
enue procedure or in other guidance
published in the Internal Revenue Bul-
letin. For example, this change does not
apply to a change described in section
11.01 or 11.02 of this revenue proce-
dure.

(2) No ruling on reasonableness of
method. The consent granted in section 9
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, for this change is not a determination
by the Commissioner that the taxpayer is
using a reasonable allocation method for
costs subject to § 263A and does not cre-
ate any presumption that the proposed al-
location method is permissible. The direc-
tor will ascertain whether the taxpayer's
allocation method is reasonable within the
meaning of § 1.263A-1(f)(4).

(3) Multiple changes. A taxpayer mak-
ing both this change and another change
in method of accounting under section
10.11 of this revenue procedure for the
same year of change must comply with
the ordering rules of § 1.263A-7(b)(2).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.09 is "194."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.10 Real property acquired through
foreclosure.

(1) Applicability. This change, as de-
scribed in Rev. Proc. 2014-16, 2014-9
I.R.B. 606, applies to a taxpayer that cap-
italizes costs under § 263A(b)(2) and
§ 1.263A-3(a)(1) to real property ac-
quired through foreclosure, or similar
transaction, where the taxpayer wants to
change its method of accounting to an
otherwise permissible method of account-
ing under which the acquisition and hold-
ing costs for real property acquired
through foreclosure, or similar transac-
tion, are not capitalized under
§ 263A(b)(2) and § 1.263A-3(a)(1). To

qualify for this change in method of ac-
counting, a taxpayer must:

(a) originate, or acquire and hold for
investment, loans that are secured by real
property; and

(b) acquire the real property that se-
cures the loans at a foreclosure sale, by
deed in lieu of foreclosure, or in another
similar transaction.

(2) Inapplicability. This change does
not apply to costs capitalized under
§ 263A(b)(1) and § 1.263A-2(a)(1) by the
taxpayer to the acquired real property as a
result of production activities.

(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
taxpayer that makes this change for its
first or second taxable year ending after
December 31, 2012.

(4) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
11.10 is "195."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Roy Hirschhorn at (202)
317-7007 (not a toll-free number).

.11 Sales-Based Royalties.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
33, 2014-22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of accounting for sales-based royalties (as
described in § 1.263A-1(e)(3)(ii)(U)(2))
that are properly allocable to inventory
property:

(a) From not capitalizing sales-based
royalties to capitalizing these costs and
allocating them entirely to cost of goods
sold under a taxpayer's method of ac-
counting;

(b) From not capitalizing sales-based
royalties to capitalizing these costs and
allocating them to inventory property un-
der a taxpayer's method of accounting;

(c) From capitalizing sales-based roy-
alties and allocating these costs to inven-
tory property to allocating them entirely to
cost of goods sold; or

(d) From capitalizing sales-based roy-
alties and allocating these costs entirely to
cost of goods sold to allocating them to
inventory property.

(2) Limitations.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(a) A taxpayer may not make a change
in method of accounting under this section
11.11 if the taxpayer wants to change to
capitalizing sales-based royalties and allo-
cating them to inventory property using an
other reasonable allocation method within
the meaning of § 1.263A-1(f)(4).

(b) A taxpayer making the changes de-
scribed in section 11.11(1)(a) or
11.11(1)(c) of this revenue procedure that
uses a simplified method to determine the
additional § 263A costs allocable to in-
ventory property on hand at year end must
remove sales-based royalties allocated to
cost of goods sold from the formulas used
to allocate additional § 263A costs to end-
ing inventory in the same manner that the
taxpayer included these amounts in the
formulas.

(c) A taxpayer making a change in
method of accounting under this section
11.11 that uses a simplified method with
an historic absorption ratio election (see
§§ 1.263A-2(b)(4) and 1.263A-3(d)(4))
and currently includes, or is changing its
method to include, sales-based royalties in
any part of its historic absorption ratio
must revise its previous and current his-
toric absorption ratios. To revise its his-
toric absorption ratios, the taxpayer must
apply its proposed method of accounting
during the test period, during all recom-
putation years, and during all updated test
periods to determine the § 471 costs and
additional § 263A costs that were in-
curred. The revised historic absorption ra-
tios must be used to revalue beginning
inventory and must be accounted for in
the taxpayer's § 481(a) adjustment. The
taxpayer must use a method described in
§ 1.263A-7(c) to revalue beginning in-
ventory.

(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to this
change for a taxpayer's first and second
taxable years ending on or after January
13, 2014.

(4) Concurrent automatic changes. A
taxpayer making a change under this sec-
tion 11.11 and one or more automatic
changes in method of accounting under
§ 263A for the same year of change may
file a single Form 3115 for all changes,
provided the taxpayer enters the desig-
nated automatic change numbers for all

changes on the appropriate line on the
Form 3115 and complies with the order-
ing rules of § 1.263A-7(b)(2). See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of account-
ing under this section 11.11 is "201."

(6) Contact information. For further in-
formation regarding a change under this
section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).

.12 Treatment of Sales-Based Vendor
Chargebacks under a Simplified Method.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
33, 2014-22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of accounting to no longer include cost
adjustments for sales-based vendor
chargebacks described in § 1.471-3(e)(1)
in the formulas used to allocate additional
§ 263A costs to ending inventory under a
simplified method.

#### (2) Limitations.

(a) A taxpayer making this change that
uses a simplified method to determine the
additional § 263A costs allocable to in-
ventory property on hand at year end must
remove sales-based vendor chargebacks
from the formulas used to allocate addi-
tional § 263A costs to ending inventory in
the same manner that the taxpayer in-
cluded these amounts in the formulas.

(b) A taxpayer making a change in
method of accounting under this section
11.12 that uses a simplified method with
an historic absorption ratio election (see
§§ 1.263A-2(b)(4) and 1.263A-3(d)(4))
and currently includes sales-based vendor
chargebacks in any part of its historic ab-
sorption ratio must revise its previous and
current historic absorption ratio(s). To re-
vise its historic absorption ratios, the tax-
payer must apply its proposed method of
accounting during the test period, during
all recomputation years, and during all
updated test periods to determine the
§ 471 costs and additional § 263A costs
that were incurred. The revised historic
absorption ratios must be used to revalue
beginning inventory and must be ac-
counted for in the taxpayer's § 481(a)
adjustment. The taxpayer must use a

method described in § 1.263A-7(c) to re-
value beginning inventory.

(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to this
change for a taxpayer's first and second
taxable years ending on or after January
13, 2014.

(4) Concurrent automatic changes. A
taxpayer making both this change and one
or more automatic changes under § 263A,
or both this change and the change de-
scribed in section 21.15 of this revenue
procedure for the same taxable year of
change may file a single Form 3115 for
both changes, provided the taxpayer en-
ters the designated automatic change
numbers for all changes on the appropri-
ate line on the Form 3115 and complies
with the ordering rules of § 1.263A-
7(b)(2). See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of account-
ing under this section 11.12 is "202".

(6) Contact information. For further in-
formation regarding a change under this
section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).
.13 U.S. ratio method.

(1) Change to the U.S. ratio method.

(a) Description of change. This change
applies to a foreign person, as defined in
Notice 88-104, 1988-2 C.B. 443, as
modified by Notice 89-67, 1989-1 C.B.
723, that is required to capitalize costs
under § 263A and wants to change its
method of accounting to the U.S. ratio
method, as described in Notice 88-104.

(b) Manner of making change. A tax-
payer requesting a change on behalf of a
foreign person under section 11.13(1) of
this revenue procedure must attach a state-
ment to the Form 3115 providing the fol-
lowing information:

(i) Foreign person requirement. A rep-
resentation that the foreign person is a
qualified business unit (QBU), as defined
in § 1.989(a)-1(b), of a foreign person, or
the foreign branch of a U.S. person that
constitutes a separate QBU, within the
meaning of Notice 88-104. If the tax-
payer is requesting a change in method of

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

accounting on behalf of multiple foreign
persons, please provide a representation
that each foreign person is a QBU, as
defined in § 1.989(a)-1(b), of a foreign
person or the foreign branch of a U.S.
person that constitutes a separate QBU,
within the meaning of Notice 88-104;

(ii) Description of trade or business.
The name and employer identification
number (if applicable) for each foreign
person and an explanation of each trade or
business, as defined in § 1.446-1(d), for
which a request to change to the U.S. ratio
method is being made under this section
11.13(1);

(iii) Applicable U.S. trade or business
requirement. The identity of the "applica-
ble U.S. trade or business," as defined in
Notice 88-104, that the foreign person
wishes to use and an explanation of how
this U.S. trade or business is "the same as,
or most similar to" the trade or business
conducted by the foreign person. If the
taxpayer is requesting a change in method
of accounting for multiple foreign per-
sons, the taxpayer must identify the "ap-
plicable U.S. trade or business" for each
foreign person, and explain how the re-
spective U.S. trade or business is "the
same as, or most similar to" the trade or
business conducted by the foreign person;
and

(iv) Relationship requirement. An ex-
planation of how the "applicable U.S.
trade or business" identified in section
11.13(1)(b)(iii) of this revenue procedure
is a trade or business conducted in the
United States by a "related person," as
defined in Notice 88-104, with respect to
the foreign person requesting a change
under this section. If the taxpayer is re-
questing a change in method of account-
ing for multiple foreign persons, the tax-
payer must explain how the "applicable
U.S. trade or business" identified in sec-
tion 11.13(1)(b)(iii) of this revenue proce-
dure is a trade or business conducted in
the United States by "related person" for
purposes of Notice 88-104 for each for-
eign person requesting a change in
method of accounting. Use §§ 267(b) or
707(b), as applicable, to explain the rela-
tionship.

(c) Additional requirements.

(i) A foreign person must continue to
use the U.S. ratio of the applicable U.S.
trade or business identified in section

11.13(1)(b)(iii) of this revenue procedure
unless consent of the Commissioner is
obtained to use the U.S. ratio of a different
applicable U.S. trade or business under
§ 446(e) (see section 11.13(2) of this rev-
enue procedure);

(ii) In the case of a controlled foreign
corporation, the controlling U.S. share-
holder, or in the case of a foreign branch
of a U.S. person, the U.S. person, must
maintain records of the U.S. ratio used by
each foreign person to calculate the addi-
tional § 263A costs capitalized to property
produced and property acquired for resale
for the year of change and for subsequent
taxable years for each foreign person re-
questing a change in method of account-
ing under this section 11.13. In the case of
a controlled foreign partnership, the U.S.
partner must maintain records of the U.S.
ratio used by each foreign person to cal-
culate the additional § 263A costs capital-
ized to property produced and property
acquired for resale for the year of change
and for subsequent taxable years for each
foreign person requesting a change in
method of accounting under this section
11.13.

(iii) The § 481(a) adjustment is com-
puted in the manner provided in Notice
88-104;

(iv) The U.S. ratio is determined, and
the ratio is applied to the costs of property
produced or property acquired for resale
incurred by the foreign person, in accor-
dance with Notice 88-104; and

(v) If any foreign person is unable to
obtain a U.S. ratio from the applicable
U.S. trade or business identified in section
11.13(2)(b)(iii) of this revenue procedure,
or is otherwise no longer eligible to use
the U.S. ratio method, the foreign person
is no longer permitted to use the U.S. ratio
method. However, the foreign person is
not ineligible to use the U.S. ratio method
if the foreign person is able to obtain a
U.S. ratio from a different applicable U.S.
trade or business, and changes the appli-
cable U.S. trade or business pursuant to
section 11.13(2) of this revenue procedure
or under the non-automatic change proce-
dures of this revenue procedure, as appli-
cable. If a foreign person is no longer
eligible to use the U.S. ratio method, it is
required to change its method of account-
ing to a method that complies with
§§ 263A and 471 using either the auto-

matic change procedures of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, and sections
11.01, 11.02, or 11.09, as applicable, of
this revenue procedure or the non-
automatic change procedures of Rev.
Proc. 2015-13.

(2) Change within U.S. ratio method.
This change applies to a foreign person
currently using the U.S. ratio method that
wants to use the U.S. ratio of a different
applicable U.S. trade or business for pur-
poses of applying the U.S. ratio method as
described in section 11.13(2)(a) or
11.13(2)(b) of this revenue procedure.

(a) Required change in the applicable
U.S. trade or business.

(i) In general. A foreign person is per-
mitted to change its method of accounting
under this section 11.13(2)(a) to use the
U.S. ratio of a different applicable U.S.
trade or business, as defined in Notice
88-104, if the foreign person is no longer
able to obtain the U.S. ratio from the
applicable U.S. trade or business previ-
ously identified and if: (A) the U.S. person
or related person in which the applicable
U.S. trade or business is conducted termi-
nates its existence; (B) the foreign person
is no longer related, within the meaning of
§ 267(b) or § 707(b), to the U.S. person or
related person in which the applicable
U.S. trade or business is conducted; or (C)
the U.S. person or related person ceases to
conduct the applicable U.S. trade or busi-
ness.

(ii) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 does not
apply to the change described in section
11.13(2)(a) of this revenue procedure.

(iii) Manner of making change. A for-
eign person making a change in method of
accounting under this section 11.13(2)(a)
must make the change in accordance with
the requirement set forth in section
11.13(2)(c) of this revenue procedure.

(b) Other changes in the applicable
U.S. trade or business.

(i) In general. If the foreign person
cannot make the change in method of ac-
counting described in section 11.13(2)(a)
of this revenue procedure, or there is more
than one U.S. trade or business that can
reasonably be considered the "same as, or
most similar to" the foreign person's trade
or business, the foreign person is permit-
ted to change its method of accounting

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

under this section 11.13(2)(b) to use the
U.S. ratio of a different applicable U.S.
trade or business.

(ii) Manner of making change. A for-
eign person making a change in method of
accounting under this section 11.13(2)(b)
must make the change in accordance with
the requirement set forth in section
11.13(2)(c) of this revenue procedure.

(c) Short Form 3115 in lieu of a Form
3115. In accordance with § 1.446-
1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived
and pursuant to section 6.02(2) of Rev.
Proc. 2015-13, a short Form 3115 is au-
thorized for a change described in section
11.13(2)(a) or 11.13(2)(b) of this revenue
procedure. The short Form 3115 must in-
clude the following information:

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

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

(iii) Part I, line 1(a);

(iv) the information required under
section 11.13(1)(b) of this revenue proce-
dure; and

(v) a statement that the change in
method of accounting is made under sec-
tion 11.13(2)(a) or 11.13(2)(b) of Rev.
Proc. 2015-14, as applicable.

(3) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
11.13 is "214."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Karla M. Meola, at (202)
317-7005 (not a toll-free number).

.14 Depletion.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for depletion to
treat these amounts as an indirect cost that
is only properly allocable to property that
has been sold (that is, for purposes of
determining gain or loss on the sale of the
property) under § 1.263A-1(e)(3)(ii)(J).

(2) Limitation.

(a) A taxpayer making this change in
method of accounting that uses a simpli-
fied method to determine the additional
§ 263A costs allocable to inventory prop-
erty on hand at year end must remove
depletion allocated to cost of goods sold
from the formulas used to allocate addi-

tional § 263A costs to ending inventory in
the same manner that the taxpayer in-
cluded these amounts in the formulas.

(b) A taxpayer making this change in
method of accounting that uses a simpli-
fied method with an historic absorption
ratio election (see §§ 1.263A-2(b)(4) and
1.263A-3(d)(4)) and currently includes
depletion in any part of its historic absorp-
tion ratio must revise its previous and
current historic absorption ratios. To re-
vise its historic absorption ratios, the tax-
payer must apply its proposed method of
accounting during the test period, during
all recomputation years, and during all
updated test periods to determine the
§ 471 costs and additional § 263A costs
that were incurred. The revised historic
absorption ratios must be used to revalue
beginning inventory and must be ac-
counted for in the taxpayer's § 481(a)
adjustment. The taxpayer must use a
method described in § 1.263A-7(c) to re-
value beginning inventory

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(4) Concurrent automatic changes. A
taxpayer making both this change and an-
other automatic change under § 263A for
the same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
change numbers for both changes on the
appropriate line on that Form 3115 and
complies with the ordering rules of
§ 1.263A-7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015-13 for information on
making concurrent changes.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of ac-
counting under this section 11.14 is
"215."

(6) Contact information. For further in-
formation regarding a change under this
section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).

SECTION 12. LOSSES, EXPENSES
AND INTEREST WITH RESPECT TO
TRANSACTIONS BETWEEN
RELATED TAXPAYERS (§ 267)

.01 Change to comply with § 267.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of § 267,
which disallows or defers certain deduc-
tions attributable to transactions between
related taxpayers. However, this change
does not apply to a change for original
issue discount (OID), including stated in-
terest that is OID because it is not quali-
fied stated interest (as defined in
§ 1.1273-1(c)). See section 5.02 of this
revenue procedure for a change to comply
with § 163(e)(3) for OID on an obligation
held by a related foreign person.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.01 is "26."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free number). For further
information regarding a change to comply
with § 267(a)(3), contact Joseph Vetting
at (202) 317-4960 (not a toll-free num-
ber).

.02 Reserved.

## SECTION 13. DEFERRED COMPENSATION (§ 404)

.01 Reserved.

.02 Deferred compensation.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
change its method of accounting to treat
bonuses or vacation pay as follows (see
§ 404(a)(5) and § 1.404(b)-1T, Q&A 2):

(a) Applicability.

(i) Bonuses.

(A) Bonuses not subject to capitaliza-
tion under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
a bonus and the amount of the liability can
be determined with reasonable accuracy
(see § 1.446-1(c)(1)(ii)), and the bonus is
otherwise deductible, but the bonus is re-
ceived by the employee after the 15th day
of the 3rd calendar month after the end of
that taxable year, to treat the bonus as
deductible in the taxable year of the em-
ployer in which or with which ends the
taxable year of the employee in which the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

bonus is includible in the gross income of
the employee; or

(B) Bonuses that are subject to capi-
talization under § 2634. If by the end of
the taxable year all the events have oc-
curred that establish the fact of the liabil-
ity to pay a bonus and the amount of the
liability can be determined with reason-
able accuracy (see § 1.446-1(c)(1)(ii)),
and the bonus is otherwise deductible
(without regard to § 263A), but the bonus
is received by the employee after the 15th
day of the 3rd calendar month after the end
of that taxable year, to treat the bonus as
capitalizable (within the meaning of
§ 1.263A-1(c)(3)) in the taxable year of
the employer in which or with which ends
the taxable year of the employee in which
the bonus is includible in the gross income
of the employee.

### (ii) Vacation pay.

(A) Vacation pay not subject to capi-
talization under § 2634. If by the end of
the taxable year all the events have oc-
curred that establish the fact of the liabil-
ity to pay vacation pay and the amount of
the liability can be determined with rea-
sonable accuracy (see § 1.446-
1(c)(1)(ii)), and the vacation pay is other-
wise deductible but the vacation pay is
received by the employee after the 15th
day of the 3rd calendar month after the end
of that taxable year, to treat the vacation
pay as deductible in the taxable year of the
employer in which the vacation pay is
paid to the employee; or

(B) Vacation pay that is subject to cap-
italization under § 263A. If by the end of
the taxable year all the events have oc-
curred that establish the fact of the liabil-
ity to pay vacation pay and the amount of
the liability can be determined with rea-
sonable accuracy (see § 1.446-
1(c)(1)(ii)), and the vacation pay is other-
wise deductible (without regard to
§ 263A), but the vacation pay is received
by the employee after the 15th day of the
3rd calendar month after the end of that
taxable year, to treat the vacation pay as
capitalizable (within the meaning of
§ 1.263A-1(c)(3)) in the taxable year of
the employer in which the vacation pay is
paid to the employee.

(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect

to which the taxpayer wants to change its
method of accounting under this section
13.02 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
13.02 is "28."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Maryellen Furr at (202)
317-5600 (not a toll-free number).

.03 Grace period contributions.

(1) Description of change. This change
applies to a taxpayer that wants to cease
deducting contributions made during the
§ 404(a)(6) grace period to a qualified
cash or deferred arrangement within the
meaning of § 401(k) or to a defined con-
tribution plan as matching contributions
with the meaning of § 401(m) when the
contributions are attributable to compen-
sation earned by plan participants after the
end of a taxable year as required by Rev.
Rul. 2002-46, 2002-2 C.B. 117, as mod-
ified by Rev. Rul. 2002-73, 2002-2 C.B.
805.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
13.03 is "29."

(3) Contact information. For further in-
formation regarding a change under this
section, contact David Ziegler at (202)
317-8629 or Carlton Watkins at (202)
317-8631 (not toll-free calls).

## SECTION 14. METHODS OF ACCOUNTING (§ 446)

.01 Change in overall method from the
cash method to an accrual method.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
overall method of accounting from the
cash receipts and disbursements method
(cash method) (as defined in section
14.01(2)(a) of this revenue procedure) to
an accrual method (as defined in section
14.01(2)(b) of this revenue procedure). A

change under this section 14.01 applies to
(1) a taxpayer required to make this
change by § 448, any other section of the
Code or regulations, or in other guidance
published in the Internal Revenue Bulletin
(IRB), as well as (2) a taxpayer that wants to
make this change but is not required to do so
by § 448, any other section of the Code or
regulations, or in other guidance published
in the IRB. A taxpayer changing to an over-
all accrual method because it is prohibited
from using the overall cash method under
§ 448 may use this section 14.01 regardless
of whether the year of change is the first
taxable year that the taxpayer is required by
§ 448 to change from the cash method ("the
first § 448 year"), or is a taxable year other
than the taxpayer's first § 448 year.

Additionally, a taxpayer qualifies to
change its overall method of accounting
from the cash method to an accrual
method using this section 14.01 even if
the taxpayer is also making one or more of
the following changes in method of ac-
counting for the same year of change:

(i) adopting the recurring item excep-
tion (as defined in section 14.01(2)(c) of this
revenue procedure) for one or more types of
recurring items (see § 1.461-5(d));

(ii) adopting or changing to a permis-
sible inventory method of accounting and
is either adopting this inventory method or
qualifies to change to this inventory
method using the automatic change pro-
cedures of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, and a section of this revenue
procedure, or the change can be made auto-
matically under any section of the Code or
regulations, or other guidance published in
the IRB (see Rev. Rul. 90-38, 1990-1 C.B.
57 (regarding when a taxpayer may adopt a
method of accounting));

(iii) adopting or changing to a permis-
sible § 263A method of accounting and is
either adopting this § 263A method or
qualifies to change to this § 263A method
using the automatic change procedures of
Rev. Proc. 2015-13 and a section of this
revenue procedure, or the change can be
made automatically under any section of
the Code or regulations, or other guidance
published in the IRB (see Rev. Rul. 90-38
(regarding when a taxpayer may adopt a
method of accounting)); or

(iv) adopting or changing to any other
special method of accounting (as defined
in section 14.01(2)(d) of this revenue pro-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

cedure) and is either adopting this special
method or qualifies to change to this spe-
cial method using the automatic change
procedures of Rev. Proc. 2015-13 and a
section of this revenue procedure, or the
change can be made automatically under
any section of the Code or regulations, or
other guidance published in the IRB (see
Rev. Rul. 90-38 (regarding when a tax-
payer may adopt a method of accounting));

Also, a taxpayer qualifies to use this
section 14.01 when that taxpayer, in the
taxable year immediately preceding the
year of change, has used a permissible
inventory method for that year, and, if that
taxpayer was subject to § 263A for that
year, has also used a permissible § 263A
method for that year, and the method(s)
continue to be used for the year of change.

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

(i) a taxpayer that is making a change
from a hybrid method of accounting (as
defined in section 14.01(2)(e) of this rev-
enue procedure);

(ii) a taxpayer that is changing its
method of accounting for one or more
items of income or expense, but not its
overall method of accounting. See section
14.09 of this revenue procedure for a de-
scription of accounting method changes
from the cash method to an accrual
method for specific items that are to be
made using the automatic change proce-
dures of Rev. Proc. 2015-13 and that sec-
tion 14.09;

(iii) a taxpayer that is required by the
Code, regulations, or other guidance pub-
lished in the IRB to use a special method
(for example, an inventory method, a
§ 263A method, or a long-term contract
method) in the year of change and fails to
adopt or change to that method;

(iv) a taxpayer that is engaged in two or
more trades or businesses, unless that tax-
payer makes this change for each trade or
business so that the identical accrual
method is used for each trade or business
beginning with the year of change;

(v) a taxpayer that is required by § 447
to change to an accrual method when the
year of change is the first taxable year that
taxpayer is required by § 447 to change to
that method;

(vi) a cooperative organization de-
scribed in §§ 501(c)(12), 521, or 1381; or

(vii) an individual taxpayer, except for
activities conducted as a sole proprietor-
ship.

(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). For purposes of this sec-
tion 14.01, the cash method also includes
the overall cash method with inventori-
able items treated as either inventory or as
non-incidental materials and supplies un-
der § 1.162-3 as permitted by Rev. Proc.
2001-10, 2001-1 C.B. 272, as modified
by Rev. Proc. 2011-14, 2011-4 I.R.B.
330, or Rev. Proc. 2002-28, 2002-1 C.B.
815, as modified by Rev. Proc. 2011-14.

(b) Accrual method of accounting is a
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 exception is the
method described in § 461(h)(3) and
§ 1.461-5.

(d) Special method of accounting
within the meaning of this section 14.01 is
a method of accounting, other than the
cash method, expressly permitted or re-
quired by the Code, regulations, or in
other guidance published in the IRB that
deviates from the tax accrual accounting
rules of §§ 446, 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
under § 460, and the deferral method of
Rev. Proc. 2004-34, 2004-1 C.B. 991, as
clarified and modified by Rev. Proc.
2011-18, 2011-5 I.R.B. 443, and Rev.
Proc. 2013-29, 2013-33 I.R.B. 141, and
as modified by Rev. Proc. 2011-14, are
special methods of accounting. In con-
trast, application of the all-events test un-
der a specific set of facts is not a special
method of accounting. See, for example,
Rev. Rul. 69-314, 1969-1 C.B. 139 (con-
cerning the treatment of retainages).

(e) Hybrid method of accounting is a
combination of the cash and accrual meth-
ods under which one or more items of
income or expense are reported on the
cash method and one or more items of
income or expense are reported on an ac-
crual method. For purposes of this section
14.01, a hybrid method of accounting in-

cludes, for example, a taxpayer that uses
an accrual method with respect to pur-
chases and sales of inventories and uses
the cash method in computing all other
items of income and expense.

(3) Manner of making change.

(a) Section 481(a) adjustment. A tax-
payer changing its method of accounting
under this section 14.01 must compute a
§ 481(a) adjustment. This adjustment
must reflect the account receivables, ac-
count payables, inventory, and any other
item determined to be necessary in order
to prevent items from being duplicated or
omitted. However, the adjustment does
not include any item of income accrued
but not received that was worthless or
partially worthless (within the meaning of
§ 166(a)) on the last day of the year im-
mediately prior to the year of change.

(b) Prior change eligibility rule inap-
plicable. Any prior change to the overall
cash method that the taxpayer imple-
mented using the provisions of Rev. Proc.
2001-10, as modified by Rev. Proc. 2011-
14, or Rev. Proc. 2002-28, as modified by
Rev. Proc. 2011-14, is disregarded for
purposes of section 5.01(1)(e) of Rev.
Proc. 2015-13.

(c) Adoption of recurring item excep-
tion. The taxpayer must attach to its Form
3115 a statement describing the types of
liabilities for which the recurring item ex-
ception will be used.

(d) Concurrent automatic change to a
special method.

(i) Generally only one Form 3115 re-
quired. Except as provided in section
14.01(3)(d)(ii) of this revenue procedure,
a taxpayer that is changing from the over-
all cash method to an overall accrual
method under this section 14.01 and
changing to a special method, as permitted
under section 14.01(1)(a)(ii), (iii), or (iv),
must timely file a single Form 3115 for
both changes and must enter the desig-
nated automatic accounting method
change numbers for both changes on the
appropriate line of that Form 3115. For
example, a taxpayer making both a change
from the overall cash method to an overall
accrual method under this section 14.01
and an automatic change to the deferral
method for advance payments under Rev.
Proc. 2004-34 (see section 15.07 of this
revenue procedure) must timely file a sin-
gle Form 3115 for both changes and enter

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(ii) Two Forms 3115 required when a
concurrent change is being implemented
under section 33.01 of this revenue pro-
cedure for short-term obligations. When a
taxpayer subject to § 1281 is changing its
method of accounting for interest income
on short-term obligations as part of the
change to an overall accrual method under
this section 14.01, that taxpayer must re-
quest the change for the interest income
under section 33.01 of this revenue pro-
cedure. The taxpayer must timely file in-
dividual Forms 3115 for each change re-
quested. This section 14.01 will govern
the change to an overall accrual method.

(e) Concurrent change in accounting
method not permitted to be implemented
using the automatic change procedures of
Rev. Proc. 2015-13 and a section of this
revenue procedure, any section of the
Code or regulations, or other guidance
published in the IRB. A taxpayer that does
not qualify to change from the overall
cash method to an overall accrual method
under this section 14.01 because that tax-
payer is concurrently changing to a
method of accounting that may not be
implemented using the automatic change
procedures of Rev. Proc. 2015-13 and a
section of this revenue procedure, any sec-
tion of the Code or regulations, or other
guidance published in the IRB, must
timely request both changes using the
non-automatic change procedures in Rev.
Proc. 2015-13. See Rev. Proc. 2015-1,
2015-1 I.R.B. 1 (or successor), for more
information on whether one Form 3115 is
required to implement the changes, and
for information on the appropriate user
fee.

(4) Change made in the first § 448
year.

(a) In general. If the year of change is
the first § 448 year for a taxpayer and that
taxpayer qualifies to make the change
from the cash method under the provi-
sions of §§ 1.448-1(g) and (h) as well as
this section 14.01, that taxpayer may
choose to make the change using this sec-
tion 14.01. However, that taxpayer must
still comply with the requirements and

provisions of §§ 1.448-1(g) and (h) in
addition to the requirements and provi-
sions of this section 14.01. For example, if
the taxpayer is a hospital, defined in
§ 1.448-1(g)(2)(ii)(B), and that taxpayer
chooses to make its change from the cash
method for the first § 448 year using this
section 14.01, the applicable § 481(a) ad-
justment period is provided by § 1.448-
1(g)(2)(ii). If a taxpayer chooses not to
implement its change from the cash
method using this section 14.01, that tax-
payer must make the change under the
provisions of §§ 1.448-1(g) and (h).

(b) Prior change eligibility rule inap-
plicable. For a taxpayer making a change
from the cash method in the first § 448
year, any prior change to the overall cash
method is disregarded for purposes of sec-
tion 5.01(1)(e) of Rev. Proc. 2015-13.

(5) Designated automatic accounting
method change number.

(a) Change made in the first § 448
year. The designated automatic account-
ing method change number for a change
from the cash method in the first § 448
year is "123." Entering designated auto-
matic accounting method change number
"123" on the appropriate line on the Form
3115 fulfills the requirement of § 1.448-
1(h)(2)(i) to type or print "Automatic
Change to Accrual Method - Section 448"
at the top of page 1 of the Form 3115.

(b) All other changes from the cash
method to an overall accrual method. The
designated automatic accounting method
change number for all other changes from
the cash method under this section 14.01
is "122."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Cheryl Oseekey, at (202)
317-7007 (not a toll-free number).

.02 Multi-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 con-
sumer goods that wants to change its
method of accounting for insurance costs
paid or incurred to insure its risks under
multi-year service warranty contracts to
the method described in section 14.02(2)
of this revenue procedure. Multi-year ser-
vice warranty contracts to which this
change applies include only those sepa-

rately priced contracts sold by a manufac-
turer, wholesaler, or retailer also selling
the motor vehicles or other durable con-
sumer goods underlying the contracts (to
the ultimate customer or to an intermedi-
ary). The classification of goods as "dura-
ble consumer goods" for purposes of this
change depends on the common usage of
the goods, rather than the purchaser's ac-
tual 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 tax-
payer purchases a multi-year service war-
ranty insurance policy (in connection with
its sale of multi-year service warranty
contracts to customers) by paying a lump-
sum premium in advance, the taxpayer
must capitalize the amount paid or in-
curred and may only obtain deductions for
that amount by prorating (or amortizing) it
over the life of the insurance policy
(whether the cash method or an accrual
method of accounting is used to account
for service warranty transactions).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.02 is "31."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Erika Reigle, at (202)
317-5100 (not a toll-free number).

.03 Taxpayers changing to overall cash
method.

(1) Description of change. This change
applies to either:

(a) a "qualifying taxpayer" that quali-
fies to make the change to the overall cash
receipts and disbursements (cash) method
under Rev. Proc. 2001-10, 2001-1 C.B.
272, (other than a taxpayer described in
§ 448(a)(3) or a bank described in section
14.12(2)(a) of this revenue procedure)
with "average annual gross receipts" (as
defined in section 5.01 of Rev. Proc.
2001-10) of $1,000,000 or less that wants
to change to the overall cash method of
accounting as provided in Rev. Proc.
2001-10, as modified by Announcement
2004-16, 2004-1 C.B. 668 (regarding
placement of § 481(a) adjustment on the
Form 3115), and Rev. Proc. 2011-14,

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

2011-4 I.R.B. 330 (removing § 6.02(1)(a)
of Rev. Proc. 2001-10); or

(b) a "qualifying small business tax-
payer" that qualifies to make a change to
the overall cash receipts and disburse-
ments (cash) method under Rev. Proc.
2002-28, 2002-1 C.B. 815, (other than a
taxpayer prohibited from using the cash
method under § 448 or a bank described in
section 14.12(2)(a) of this revenue proce-
dure) with "average annual gross receipts"
(as defined in section 5.02 of Rev. Proc.
2002-28) of $10,000,000 or less that
wants to change the overall method of
accounting for an "eligible trade or busi-
ness" (as defined in section 4.01 of Rev.
Proc. 2002-28) to the overall cash method
of accounting as provided in Rev. Proc.
2002-28, as modified by Announcement
2004-16 (regarding placement of
§ 481(a) adjustment on the Form 3115),
and Rev. Proc. 2011-14 (removing
§ 7.02(1)(a) of Rev. Proc. 2002-28).

(2) 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.

(3) Concurrent automatic change to
treat inventoriable items as nonincidental
materials and supplies under Rev. Proc.
2001-10 or Rev. Proc. 2002-28. A tax-
payer making both a change to the overall
cash method under this section 14.03 and
a change to treat inventoriable items as
materials and supplies that are not inci-
dental pursuant to § 1.162-3 under section
21.03 of this revenue procedure for the
same year of change may file a single
Form 3115 for both changes, provided the
taxpayer enters the designated automatic
accounting method change numbers for
both changes on the appropriate line on
that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
for information on making concurrent
changes.

(4) Banks changing to overall cash/
hybrid method. This change does not ap-
ply to a bank described in section
14.12(2)(a) of this revenue procedure.
However, such a bank may be eligible to
change to the overall cash/hybrid method
under section 14.12 of this revenue pro-
cedure if it meets the requirements of that
section.

(5) Farming businesses changing to
overall cash method. A farming business
may be eligible to make this change under
section 14.03(1)(a) of this revenue proce-
dure. However, a farming business is not
eligible to make this change under section
14.03(1)(b) of this revenue procedure. A
farming business that is not eligible under
this section 14.03 may still be eligible to
change to the overall cash method under
section 14.13 of this revenue procedure if
it meets the requirements of that section.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
14.03(1)(a) of this revenue procedure is
"32." The designated automatic account-
ing method change number for a change
under section 14.03(1)(b) of this revenue
procedure is "33."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.04 Nonaccrual-experience method.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to make one or
more of the changes in method of ac-
counting to, from, or within a nonaccrual-
experience (NAE) method of accounting
that are described in sections 3.01(1)
through (5) of Rev. Proc. 2006-56,
2006-2 C.B. 1169, as modified by Rev.
Proc. 2011-14, 2011-4 I.R.B. 330, and as
modified and amplified by Rev. Proc.
2011-46, 2011-42 I.R.B. 518.

(b) Inapplicability. This change does
not apply to a taxpayer within the scope of
section 3.01(6) through 3.01(8) of Rev.
Proc. 2006-56, as modified and amplified
by Rev. Proc. 2011-46.

(2) Manner of making the change.

(a) Changes made with a § 481 (a) ad-
justment. A change in method of account-
ing described in section 3.01(1), (2), (3),
or (5) of Rev. Proc. 2006-56, as modified
and amplified by Rev. Proc. 2011-46, is
made with a § 481(a) adjustment.

(b) Changes made on a cut-off basis.

(i) In general. A change described in
section 3.01(4) of Rev. Proc. 2006-56 is
made on a cut-off basis and the new ap-
plicable period applies only to the taxpay-
er's NAE calculation of its uncollectible
amount for the year of change and for

subsequent years. Moreover, a change de-
scribed in sections 5.02 and 5.03 of Rev.
Proc. 2011-46 is made on a cut-off basis
and the proposed method applies only to
accounts receivable earned on or after the
first day of the year of change. Accord-
ingly, a § 481(a) adjustment is neither
permitted nor required for a change de-
scribed in section 3.01(4) of Rev. Proc.
2006-56 or in section 5.02 or 5.03 of Rev.
Proc. 2011-46.

(ii) Special filing rules for changes
made under section 5.02 and 5.03 of Rev.
Proc. 2011-46, as modified by this reve-
nue procedure.

(A) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to a change in
method of accounting made under section
5.02 or 5.03 of Rev. Proc. 2011-46, as
modified by this revenue procedure.

(B) Filing rules. In accordance with
§ 1.446-1(e)(3)(ii), the requirement of
§ 1.446-1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Not-
withstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015-13, the
statement in lieu of a Form 3115 that is
permitted under section 5.02 or 5.03 of
Rev. Proc. 2011-46 and this section 14.04
is considered a Form 3115 for purposes of
the automatic consent procedures of Rev.
Proc. 2015-13. However, the requirement
to file the Ogden copy, under section
6.03(1)(a) of Rev. Proc. 2015-13, is
waived. See section 5.02 or 5.03 of Rev.
Proc. 2011-46, as applicable, for what
information is required to be provided on
the statement.

(3) Concurrent change to overall ac-
crual method and a NAE method of ac-
counting. A taxpayer making both an au-
tomatic change to, from, or within a NAE
method of accounting under this section
14.04 and an automatic change to an over-
all accrual method under section 14.01 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 complete all applicable sec-
tions 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 auto-
matic accounting method change numbers

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

for both changes on Form 3115. See sec-
tion 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes.

A taxpayer making both an automatic
change to, from, or within a NAE method
of accounting under this section 14.04 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 this reve-
nue procedure or chooses to make the
change to an overall accrual method using
the procedures 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 taxpayer must follow the auto-
matic change procedures of Rev. Proc.
2015-13 and this section 14.04 for the
NAE change, and the procedures of
§ 1.448-1(h)(2) for the change to an over-
all accrual method (except that entering
the designated automatic accounting
method change number "34" on the Form
3115 fulfills the requirement of § 1.448-
1(h)(2) to type or print "Automatic
Change to Accrual - Section 448" at the
top of page 1 of the Form 3115). The
taxpayer must complete all applicable sec-
tions of Form 3115, including sections
that apply to the change to an overall
accrual method and to the change to the
NAE method and must enter the desig-
nated 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 this
section 14.04 is "35."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Karla M. Meola, at (202)
317-7005 (not a toll-free number).

.05 Interest accruals on short-term
consumer loans-Rule of 78's method.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting from the Rule of
78's method to the constant yield method
for stated interest (including stated inter-
est that is original issue discount) on
short-term consumer loans described in
Rev. Proc. 83-40, 1983-1 C.B. 774,

which was obsoleted by Rev. Proc. 97-37,
1997-2 C.B. 455.

(2) Background.

(a) A short-term consumer loan is de-
scribed in Rev. Proc. 83-40, provided:

(i) the loan is a self-amortizing loan
that requires level payments, at regular
intervals at least annually, over a period
not in excess of five years (with no bal-
loon payment at the end of the loan term);
and

(ii) the loan agreement between the
borrower and the lender provides that in-
terest is earned, or upon the prepayment of
the loan interest is treated as earned, in
accordance with the Rule of 78's method.

(b) In general, the Rule of 78's method
allocates interest over the term of a loan
based, in part, on the sum of the periods'
digits for the term of the loan. See Rev.
Rul. 83-84, 1983-1 C.B. 97, for a de-
scription 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 generally 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), taxpay-
ers generally must account for stated in-
terest and original issue discount on a debt
instrument (loan) by using a constant
yield method. As a result, the Rule of 78's
method is no longer an acceptable method
of accounting for federal income tax pur-
poses.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.05 is "71."

(4) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

.06 Film producer's treatment of cer-
tain 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 tax-
payer 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 this section
14.06 is "85."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Bernard Harvey at (202)
317-7005 (not a toll-free number).

.07 Deduction of incentive payments to
health care providers.

(1) Description of change. This change
applies to a taxpayer that wants to change
to the method of accounting for provider
incentive payments under which those
payments are included in discounted un-
paid losses without regard to § 404, as
provided in Rev. Proc. 2004-41, 2004-2
C.B. 90. A payment by a taxpayer to a
health care provider is a "provider incen-
tive payment," and thus eligible for this
treatment, if (a) the taxpayer is taxable as
an insurance company under Part II of
subchapter L; (b) the payment is made
pursuant to a written agreement the pur-
pose of which is to encourage participat-
ing health care providers to provide qual-
ity health care to the taxpayer's
subscribers in a cost-efficient manner; (c)
the taxpayer's liability for the payment is
dependent on the attainment of one or
more preestablished goals during a perfor-
mance period consisting of not more than
12 consecutive months; (d) the terms of
the arrangement pursuant to which the
payment is made are established unilater-
ally by the taxpayer, and are not negoti-
ated with the health care providers; (e) the
taxpayer normally makes payments to
health care providers under the arrange-
ment within 12 months after the close of
the performance period; (f) deferring the
receipt of income by the health care pro-
vider or otherwise providing a tax benefit
to the provider is not a principal purpose
of the arrangement; (g) the taxpayer re-
cords a liability for the payment on its

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

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 pro-
vider is not an employee, and is not pro-
viding health care as an agent, of the tax-
payer. See Rev. Proc. 2004-41.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.07 is "90."

(2) Contact information. For further in-
formation regarding a change under this
section, contact David Remus, at (202)
317-6995 (not a toll-free number).

.08 Change by bank for uncollected
interest.

(1) Description of change. This change
applies to a "bank" as defined in § 1.166-
2(d)(4)(i) that: (a) uses an overall accrual
method of accounting to determine its tax-
able income for federal income tax pur-
poses; (b) is subject to supervision by
Federal authorities, or by state authorities
maintaining substantially equivalent stan-
dards; (c) has uncollected interest other
than interest described in § 1.446-2(a)(2);
and (d) has six or more years of collection
experience. Under the safe harbor method
of accounting provided by section 4 of
Rev. Proc. 2007-33, 2007-1 C.B. 1289, a
bank determines for each taxable year the
amount of uncollected interest (other than
interest described in § 1.446-2(a)(2)) for
which it is considered to have a reason-
able expectancy of payment by multiply-
ing: (a) the total accrued (determined un-

der § 1.446-2) but uncollected interest for
the year, by (b) 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 reason-
able expectancy of payment for the ex-
cess, if any, of the accrued but uncollected
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
acquires the major portion of a trade or
business of another person (predecessor)
or the major portion of a separate unit of a
trade or business of a predecessor, then in
applying Rev. Proc. 2007-33 for any tax-
able year ending on or after the acquisi-
tion, the data from preceding taxable years
of the predecessor attributable to the por-
tion of the trade or business acquired, if
available, must be used in determining the
bank's recovery percentage. If a bank dis-
poses 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 infor-
mation necessary for the computations re-
quired by Rev. Proc. 2007-33, then in
applying the revenue procedure for any
taxable year ending on or after the dispo-
sition, the data from preceding taxable
years attributable to the disposed portion
of the trade or business may not be used in
determining the bank's recovery percent-
age.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.08 is "108."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Timothy Sebastian at
(202) 317-6945 (not a toll-free number).

.09 Change from the cash method to an
accrual method for specific items.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that uses an overall accrual
method of accounting but has identified a
specific item or items of income or ex-
pense (or both) that are being accounted
for on the cash method of accounting.
This change does not apply to a taxpayer

that is changing its overall method of ac-
counting from cash to accrual. Such a
taxpayer may be eligible to change to an
overall accrual method using section
14.01 of this revenue procedure.

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

(i) a taxpayer that will not have all
items of income and expense on an ac-
crual method subsequent to the change
under this section 14.09;

(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);

(vi) a change in the method of account-
ing for interest that is not taken into ac-
count under § 1.446-2; and

(vii) any change that is specifically
provided in another section of this reve-
nue procedure.

(2) Definitions.

(a) "Cash method of accounting" is the
method identified by § 446(c)(1) and
§§ 1.446-1(c)(1)(i), 1.451-1(a), and
1.461-1(a)(1).

(b) "Accrual method of accounting" is
the method identified by § 446(c)(2) and
§§ 1.446-1(c)(1)(ii), 1.451-1(a), and
1.461-1(a)(2).

(3) Additional requirements. To
change a method of accounting under this
section 14.09, a taxpayer must attach to its
completed Form 3115 a full and complete
description of each specific item for which
the change in method of accounting is
being made and how the accrual method
of accounting applies to each item, and list
the § 481(a) adjustment, if any, for each
item associated with the change. The
change is fully and completely described
if each income and expense item is de-
scribed with specificity and how the all-
events test (and the economic perfor-
mance requirement, if applicable) applies
to each item is described under the facts
and circumstances of the taxpayer's trade

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

or business. For example, a taxpayer that
merely states that it is changing its ac-
counting 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 of accounting to an
accrual method of accounting, describes
all of the relevant facts related to the print
advertising expenses, and explains how
the all-events test applies to those facts
and when economic performance occurs
has fully and completely described the
item and the change. See section 6.03 of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
for additional filing requirements.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.09 is "124."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free number).

.10 Multi-year service warranty con-
tracts.

(1) Description of change.

(a) Applicability. This change applies
to a manufacturer, wholesaler, or retailer
of motor vehicles or other durable con-
sumer goods that uses an overall accrual
method of accounting, and wants to
change to the service warranty income
method described in section 5 of Rev.
Proc. 97-38, 1997-2 C.B. 479. Under the
service warranty income method, a quali-
fying taxpayer may, in certain specified
and limited circumstances, include a por-
tion of an advance payment related to the
sale of a multi-year service warranty con-
tract in gross income generally over the
life of the service warranty obligation.

(b) Inapplicability. This change does
not apply to a taxpayer not within the
scope of Rev. Proc. 97-38.

(2) Manner of making change and des-
ignated automatic accounting method
change number.

(a) This change is made on a cut-off
basis and applies only to qualified ad-

vance payments for multi-year service
warranty contracts on or after the begin-
ning of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(b) In accordance with § 1.446-
1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived
and pursuant to section 6.02(2) of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, a short
Form 3115 is authorized for this change.
The short Form must include the follow-
ing information:

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

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

(iii) Part I, line 1(a); and

(iv) the information required under
section 6.03 of Rev. Proc. 97-38, except
that the statement under section 6.03(2)
(that the taxpayer agrees to all of the terms
and conditions of the revenue procedure)
also should refer to Rev. Proc. 2015-13.

(3) Additional requirement. A taxpayer
changing to the service warranty income
method of accounting under this section
14.10 must satisfy the annual reporting
requirement set forth in section 6.04 of
Rev. Proc. 97-38.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.10 is "125."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Erika Reigle at (202) 317-
5100 (not a toll-free number).

.11 Overall 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 the following definitions ap-
ply:

(a) Specified transportation industry
taxpayer. A specified transportation in-
dustry taxpayer is a taxpayer that satisfies
the following criteria for the year of
change:

(i) The taxpayer reasonably identifies
its "business" (as defined in section
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 Transpor-
tation, 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 sub-
sector 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 transporting
air cargo and then subsequently trucking
the cargo throughout a metropolitan area
to warehouses and wholesale/retail stores.
However, each activity within a taxpay-
er's business must individually satisfy the
description of a NAICS subsector code in
section 14.11(2)(a)(i)(A) or (B) of this
revenue procedure. For example, a sight-
seeing bus operator that sells box lunches
in connection with its tours is not a "spec-
ified transportation industry taxpayer" be-
cause one of the two activities of its busi-
ness (food sales) does not satisfy the
description of a NAICS subsector code in
section 14.11(2)(a)(i)(A) or (B) of this
revenue procedure. While the sightseeing
transportation activity satisfies the de-
scription of the NAICS subsector code in
section 14.11(2)(a)(i)(A) of this revenue
procedure, the food sales activity does not
satisfy the description of any NAICS sub-
sector code in section 14.11(2)(a)(i)(A) or
(B) of this revenue procedure, and thus,
the taxpayer's business fails to meet the
criteria of section 14.11(2)(a)(i). Simi-
larly, a train operator who operates a din-
ing car where meals are served is not a
"specified transportation industry tax-
payer" because one of the two activities of
its business (food service) does not satisfy

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

the description of a NAICS subsector
code in section 14.11(2)(a)(i)(A) or (B) of
this revenue procedure. While the rail
transportation activity satisfies the de-
scription of a NAICS subsector code in
section 14.11(2)(a)(i)(A) of this revenue
procedure, the food service activity does
not satisfy the description of any NAICS
subsector code in section 14.11(2)(a)(i)(A) or
(B) of this revenue procedure, and thus,
the taxpayer'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
period ending with the applicable prior
taxable year are more than $10,000,000
and do not exceed $50,000,000. If a tax-
payer has not been in existence for three
prior taxable years, the taxpayer must de-
termine its average annual gross receipts
for the number of years (including short
taxable years) that the taxpayer has been
in existence. See § 448(c)(3)(A).

(d) Gross receipts. Gross receipts is
defined consistent with § 1.448-
1T(f)(2)(iv). Thus, gross receipts for a
taxable year equal all receipts that must be
recognized under the method of account-
ing actually used by the taxpayer for that
taxable year for federal income tax pur-
poses. See also § 448(c)(3)(C).

(e) Aggregation of gross receipts. For
purposes of computing gross receipts un-
der section 14.11(2)(d) of this revenue
procedure, all taxpayers treated as a single
employer under § 52(a) or (b) or § 414(m)
or (o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as a
single taxpayer. However, when transac-
tions occur between taxpayers that are
treated as a single taxpayer by the previ-
ous sentence, gross receipts arising from
these transactions will not be treated as
gross receipts for purposes of the average
annual gross receipts limitation. See
§ 448(c)(2) and § 1.448-1T(f)(2)(ii).

(f) Treatment of short taxable year. In
the case of a short taxable year, a taxpay-
er'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. Any ref-
erence to a taxpayer in this section 14.11
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 this section
14.11 is "126."

(4) Example. Taxpayer X is an LLC and taxed for
federal income tax purposes as a partnership. Tax-
payer X does not have any C corporations as partners
and Taxpayer X is not a tax shelter within the mean-
ing of § 448(d)(3). Taxpayer X's business consists of
short-haul trucking among various cities within State
Y, which satisfies the description of the NAICS sub-
sector code 484. Taxpayer X determines that its
3-year average annual gross receipts for each prior
taxable year ending on or after December 31, 2006,
have been more than $10,000,000 and not in excess
of $50,000,000. Taxpayer X qualifies to change to
the overall cash method using this section 14.11.

(5) Contact information. For further in-
formation regarding a change under this
section, contact Megan M. Kirmil at (202)
317-7007 (not a toll-free number).

.12 Change 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 revenue procedure that wants to
change to an overall cash/hybrid method
described in section 14.12(2)(b) of this
revenue procedure.

(b) Inapplicability. A bank's change to
an overall cash/hybrid method under this
section 14.12 does not include any change
in the accounting treatment of an item for
which the bank uses a special method (as
described in section 14.12(2)(b) of this
revenue procedure) before the change, or
is required to use a special method, or will
use a special method after the change. A
bank may not change the accounting treat-
ment of such an item under this section
14.12. Any change in the accounting treat-
ment of such an item must be made under
an applicable section of this revenue pro-
cedure, under the non-automatic change
procedures of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, or under another guid-

ance published in the Internal Revenue
Bulletin, as appropriate.

(2) Definitions. The following defini-
tions apply for purposes of this section
14.12.

(a) Bank. A bank is described in this
section 14.12(2)(a) if the bank:

(i) is a bank as defined in § 581;

(ii) is an S corporation as defined in
§ 1361(a)(1), or a qualified subchapter S
subsidiary as defined in § 1361(b)(3)(B);
and

(iii) has average annual gross receipts
(computed as described in section
14.12(5) of this revenue procedure) not in
excess of $50,000,000.

(b) Overall cash/hybrid method. An
overall cash/hybrid method is the use of a
combination of accounting methods under
which some items of income or expense
are reported on the cash receipts and 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. A few of the spe-
cial methods typically used by banks in-
clude those provided for the accounting
treatment of the following items: securi-
ties held by a dealer in securities as de-
fined in § 475(c)(1) (the mark-to-market
method of § 475); securities held by a
dealer in securities as defined in § 1.471-5
(inventories maintained under § 471 and
§ 1.446-1(c)(2)(i)); hedging transactions
(§ 1.446-4); contracts to which § 1256
applies (§ 1256); original issue discount
on debt instruments (§§ 163(e) and 1271-
1275); interest income (including acquisi-
tion discount and original issue discount)
on short-term obligations (§§ 1281-
1283); and stripped debt instruments
(§ 1286). For example, a bank that regu-
larly purchases or originates mortgages in
the ordinary course of its business and en-
gages in more than negligible sales of those
mortgages generally is a dealer in securities
under § 475(c)(1) and § 1.475(c)-1(c) and
thus must use the mark-to-market method
of § 475 for mortgages and any other
securities (as defined in § 475(c)(2)) held
by the bank.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(3) Additional condition of change. To
change to an overall cash/hybrid method
under this section 14.12, a bank must
comply with the following additional con-
dition. In addition to complying with the
terms and conditions set forth in section 7
of Rev. Proc. 2015-13, the bank must
keep its books and records for the year of
change and for subsequent taxable years
on an overall cash/hybrid method allowed
by this section 14.12. This condition is
considered satisfied if the bank reconciles
the results obtained under the method
used in keeping its books and records and
those obtained under the method used for
federal income tax purposes pursuant to
this section 14.12 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, a bank must in-
clude with its completed Form 3115 a
description of each specific item of the
bank's income or expense that is affected
by the change under this section 14.12
and, for each such item, identify the fol-
lowing: the method of accounting under
which the bank reports that item for fed-
eral income tax purposes immediately be-
fore the change; and the amount of the
§ 481(a) adjustment associated with
changing that item to the cash method
under this section 14.12.

(5) Computation of average annual
gross receipts. For purposes of section
14.12(2)(a)(iii) of this revenue procedure,
a bank's average annual gross receipts are
computed as described in this section
14.12(5).

(a) Average annual gross receipts. A
bank has average annual gross receipts not
in excess of $50,000,000 if, for each prior
taxable year ending on or after December
31, 2006, the bank's average annual gross
receipts for the three prior taxable-year
period ending with the applicable prior
taxable year do not exceed $50,000,000. If
a bank has not been in existence for three
prior taxable years, the bank must deter-
mine its average annual gross receipts for
the number of years (including short tax-
able years) that the bank has been in ex-
istence. See § 448(c)(3)(A).

(b) Gross receipts. Gross receipts is
defined 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 account-
ing actually used by the bank for that
taxable year for federal income tax pur-
poses. 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 revenue
procedure, all taxpayers treated as a single
employer under § 52(a) or (b) or § 414(m)
or (o) (or that would be treated as a single
employer under these sections if the tax-
payers had employees) will be treated as a
single taxpayer (that is, a single bank).
However, when transactions occur be-
tween taxpayers that are treated as a single
taxpayer by the previous sentence, gross
receipts arising from these transactions
will not be treated as gross receipts for
purposes of the average annual gross re-
ceipts 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. Any
reference to a bank or taxpayer in section
14.12(5) of this revenue procedure in-
cludes a reference to any predecessor of
that bank or taxpayer. See § 448(c)(3)(D).

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.12 is "127."

(7) Contact information. For further in-
formation regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free number).

.13 Change 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 farming is
a farming business as defined by
§ 263A(e)(4) and the regulations thereun-
der.

(3) Manner of making change. Gener-
ally, a taxpayer changing its method of
accounting under this section 14.13, must
compute a § 481(a) adjustment. However,
if the taxpayer is changing from the crop
method, that portion of the change is made
using a cut-off basis under which ex-
penses reported on the crop method and
not deducted 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 this section
14.13 is "128."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Maxine Woo-Garcia at
(202) 317-7011 or Renay France at (202)
317-7003 (not a toll-free number).

.14 Nonshareholder 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 accounting
for payments received from customers as
customer connection fees, which are not
contributions to the capital of the regu-
lated public utility within the meaning of
§ 118(c), from excluding the payments
from gross income as nontaxable contri-
butions 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 accounting
for payments or property received that are

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

contributions in aid of construction under
§ 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 income as 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 ac-
counting for payments or property re-
ceived (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 revenue procedure) that do not
constitute contributions to the capital of
the taxpayer within the meaning of § 118
and the regulations thereunder, from ex-
cluding the payments or the fair market
value of the property from gross income
as nontaxable contributions to capital un-
der § 118 to including the payments or the
fair market value of the property in gross
income under § 61.

(2) Additional requirement. A taxpayer
that is making a change described in sec-
tion 14.14(1)(a)(i) or (1)(b) must complete
Schedule E of Form 3115 for the depre-
ciable property to which the change re-
lates (as well as all other relevant portions
of the Form 3115).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.14 is "129."

(4) Contact information. For further in-
formation regarding a change under this
section, contact David H. McDonnell at
(202) 317-4137 (not a toll-free number).
.15 Debt issuance costs.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for capitalized
debt issuance costs to comply with
§ 1.446-5, which provides rules for allo-
cating the costs over the term of the debt.
This change also applies to a taxpayer that
wants to change its method of accounting
for capitalized debt issuance costs from
one permissible method to another per-
missible method under the last sentence in
§ 1.446-5(b)(2) if the total original issue
discount determined for purposes of
§ 1.446-5 is de minimis.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
14.15 is "148."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles W. Culmer at
(202) 317-6945 (not a toll-free number).

## SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451)

.01 Accrual of interest on nonperform-
ing loans.

(1) Description of change.

(a) This change applies to a taxpayer
using an overall accrual method of ac-
counting 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 overdue
by a certain length of time, such as 90
days, even if a federal, state, or other
regulatory authority having jurisdiction
over the taxpayer permits or requires that
the overdue interest not be accrued for
regulatory purposes.

(c) Under § 451 and § 1.451-1(a), a
taxpayer must continue accruing qualified
stated interest on any nonperforming loan
until either (i) the loan is worthless under
§ 166 and charged off as a bad debt, or (ii)
the interest is determined to be uncollect-
ible. In order for interest to be determined
uncollectible, the taxpayer must substan-
tiate, taking into account all the facts and
circumstances, that it has no reasonable
expectation of payment of the interest.
This substantiation requirement is applied
on a loan by loan basis.

(d) A taxpayer that changes its method
of accounting under this section 15.01
must do so for all of its loans.

(2) Section 481(a) adjustment. In gen-
eral, the § 481(a) adjustment for a method

change under this section 15.01 represents
the amount of qualified stated interest on
the taxpayer's nonperforming loans out-
standing as of the beginning of the year of
change that should have been accrued un-
der § 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 this section
15.01 is "36."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Timothy Sebastian at
(202) 317-6945 (not a toll-free number).
.02 Advance rentals.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for advance rent-
als (other than advance rentals subject to
§ 467 and the regulations thereunder) to
include such advance rentals in gross in-
come in the taxable year received. See
§ 1.61-8(b).

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.02 is "37."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 (not a toll-free number).

.03 State or local income or franchise
tax refunds.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that receives a
state or local income or franchise tax re-
fund and wants to accrue the refund in the
taxable year the taxpayer receives pay-
ment or notice that the claim has been
approved, whichever is earlier, as pro-
vided in Rev. Rul. 2003-3, 2003-1 C.B.
252.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.03 is "38."

(3) Contact information. For further in-
formation regarding a change under this

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

section, contact Sandra Cheston at (202)
317-7011 (not a toll-free number).

.04 Capital Cost Reduction Payments.

(1) Description of change. This change
applies to a taxpayer that purchases motor
vehicles subject to leases and assumes the
associated leases from the vehicles' deal-
ers and wants to use the safe harbor
method of accounting for capital cost re-
duction (CCR) payments specified in Rev.
Proc. 2002-36, 2002-1 C.B. 993.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.04 is "39."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Arvind Ravichandran at
(202) 317-4718 (not a toll-free number).

.05 Credit card annual fees.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for credit card
annual fees as described in Rev. Rul.
2004-52, 2004-1 C.B. 973, either to a
method that satisfies the all events test in
accordance with Rev. Rul. 2004-52 or to
the Ratable Inclusion Method for Credit
Card Annual Fees that is described in 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
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 reve-
nue 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 ad-
vances.

(2) Manner of making change. In com-
pleting its Form 3115 to make this change,
a taxpayer must identify the specific
method to which the taxpayer is changing.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.05 to a method that satisfies the all
events test in accordance with Rev. Rul.
2004-52 is "80." The designated auto-
matic accounting method change number
for a change under this section 15.05 to
the Ratable Inclusion Method for Credit
Card Annual Fees is "81."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Jon Silver at (202) 317-
7053 (not a toll-free number).

.06 Credit 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 avail-
able only to a taxpayer that issues credit
cards allowing cardholders to access a re-
volving 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 con-
sideration for the sale or exchange of
property (within the meaning of § 1274)
or debt that is deferred payment for prop-
erty (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. A tax-
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 tax-
payer is separately stated on the cardhold-
er's account when that fee is imposed; and

(b) under the applicable credit card
agreement governing each cardholder's
use of the credit card, no amount identi-
fied 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. Any audit protec-
tion provided in connection with this
change is not a determination by the Com-
missioner that the taxpayer is properly
accounting for any OID income on that

pool of credit card loans. Thus, for exam-
ple, the IRS is not precluded from pursu-
ing the issue of whether a taxpayer is
properly accounting for its OID income
(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 this section
15.06 is "82."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Jon Silver at (202) 317-
7053 (not a toll-free number).

.07 Advance payments.

(1) Description of change.

(a) Applicability. This change applies
to:

(i) a taxpayer using or changing to an
overall accrual method of accounting that
receives advance payments, as defined in
Rev. Proc. 2004-34, 2004-1 C.B. 991, as
modified and clarified by Rev. Proc.
2011-18, 2011-5 I.R.B. 443, and Rev.
Proc. 2013-29, 2013-33 I.R.B. 141, and
as modified by Rev. Proc. 2011-14,
2011-4 I.R.B. 330, and wants to change
to either the full inclusion or deferral
method, as described in Rev. Proc. 2004-
34, other than a taxpayer changing to a
method described in section 15.11 of this
revenue procedure. See also Announce-
ment 2004-48, 2004-1 C.B. 998.

(ii) a taxpayer using an overall accrual
method of accounting that receives ad-
vance payments, as defined in § 1.451-
5(a)(1), and wants to change to the
method of including advance payments in
income in the taxable year of receipt. See
§ 1.451-5(b)(1).

(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
described in section 5.02(4)(c) of Rev.
Proc. 2004-34) or for payments for which
a method under section 5.02(3)(b)(i) or
(iii) of Rev. Proc. 2004-34 applies. The
taxpayer must request any such change in
method of accounting using the non-
automatic change procedures in Rev.
Proc. 2015-13, 2015-5 I.R.B. 419. See
section 8.03 of Rev. Proc. 2004-34.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(2) Concurrent automatic change to an
overall accrual method. A taxpayer mak-
ing both a change to its method of ac-
counting for advance payments under this
section 15.07 and a change to an overall
accrual method under section 14.01 of this
revenue procedure for the same year of
change must file a single Form 3115 for
both changes and enter the designated au-
tomatic accounting method change num-
bers for both changes on the appropriate
line on that Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for in-
formation on making concurrent changes.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
15.07(1)(a)(i) of this revenue procedure to
use the full-inclusion method is "83." The
designated automatic accounting method
change number for a change under section
15.07(1)(a)(i) of this revenue procedure to
use the deferral method is "84." The des-
ignated automatic accounting method
change number for a change under section
15.07(1)(a)(ii) of this revenue procedure
is "216."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Peter Ford at (202) 317-
7011 (not a toll-free number).

.08 Credit 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 estab-
lished by the taxpayer both to make credit
card purchase transactions and to obtain
cash advances and that, for federal income
tax purposes, does not treat the credit card
purchase transactions of its cardholders as
creating debt that is given in consideration
for the sale or exchange of property. See
Rev. Proc. 2005-47, 2005-2 C.B. 269, for
additional guidance relating to this
change.

(2) Other requirements. A taxpayer
making this change must be able to dem-
onstrate 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
cardholder's account when that fee is im-
posed; 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 ser-
vices performed by the taxpayer for the
benefit of the cardholder.

(3) Audit protection. Any audit protec-
tion applicable to this change under sec-
tion 8 of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, is not a determination by the
Commissioner that the taxpayer is prop-
erly accounting for any OID income on
that pool of credit card loans. Thus, for
example, the IRS is not precluded from
pursuing the issue of whether, under
§ 1272(a)(6), a taxpayer is correctly ac-
counting for its OID income (including
any OID income attributable 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
is "94."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Jon Silver at (202) 317-
7053 (not a toll-free number).

.09 Reserved.

.10 Retainages.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for 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 this
section 15.10 must treat all retainages,
that is both receivables and payables, in
the same manner.

(b) Inapplicability. This change does
not apply to retainages (receivables and
payables) for long-term contracts that
must be accounted for under the
percentage-of-completion method (PCM)
under § 460. Nor does this change apply
to long-term contracts otherwise ac-
counted for under the PCM or long-term
contracts accounted for under exempt

percentage-of-completion method or the
completed contract method. For the treat-
ment of retainages under such methods,
see Treas. Reg. §§ 1.460-4(b)(4)(i)(A)
and 1.460-4(d)(3).

(2) Manner of making change.

(a) Except as provided in section
15.10(2)(b) of this revenue procedure, a
taxpayer changing its method of account-
ing under this section 15.10 must take into
account a § 481(a) adjustment.

(b) For retainages received and paid in
connection with long term contracts that
are exempt construction contracts (as de-
fined in § 1.460-3(b)(1)) accounted for
using the taxpayer's overall accrual
method of accounting, this change is made
on a cut-off basis and applies only to
long-term contracts entered into on or af-
ter the beginning of the year of change.
See § 1.460-1(c)(2) for a description of
when a contract is treated as "entered
into." Accordingly, a § 481(a) adjustment
is neither permitted nor required.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.10 for retainages not received under
long-term contracts is "130." The desig-
nated automatic method change number
for a change under this section 15.10 for
retainages received under long-term con-
tracts is "217." A taxpayer making a
change under this section 15.10 that has
both types of retainages must file a single
Form 3115 and enter both change num-
bers on the appropriate line on Form 3115.

(4) Contact information. For further in-
formation regarding a change under this
section, contact Peter Cohn at (202) 317-
7011 (not a toll-free number).

.11 Advance payments - change in ap-
plicable 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, as modified and clarified by
Rev. Proc. 2011-18, 2011-5 I.R.B. 443,
and Rev. Proc. 2013-29, 2013-33 I.R.B.
141, and as modified by Rev. Proc. 2011-
14, 2011-4 I.R.B. 330, (B) uses the de-
ferral method described in section
5.02(3)(a) of Rev. Proc. 2004-34 for in-
cluding those advance payments in gross

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

income in accordance with its applicable
financial statement (AFS), (C) changes the
manner in which it recognizes advance
payments in revenues in its AFS, and (D)
wants to change its method of accounting
to use its proposed method of recognizing
advance payments in revenues in its AFS
for determining the extent to which ad-
vance 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
requirement of section 15.11(1)(a)(i)(B)
and may change its method of accounting
under this section if it is otherwise eligi-
ble.

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

(i) a taxpayer that uses a present
method of accounting for advance pay-
ments that is not the deferral method de-
scribed in section 5.02(3)(a) of Rev. Proc.
2004-34. For example, this change does
not apply to a taxpayer that uses the full
inclusion method under section 5.01 of
Rev. Proc. 2004-34;

(ii) a taxpayer that wants to change its
method for allocating payments under
section 5.02(4) of Rev. Proc. 2004-34.

(2) Manner of making change and des-
ignated automatic accounting method
change number.

(a) This change is made on a cut-off
basis and applies only to advance pay-
ments received on or after the beginning
of the year of change. Any advance pay-
ments received prior to the year of change
are accounted for under the taxpayer's
former method of accounting (that is, ac-
cording to its former AFS). Accordingly,
a § 481(a) adjustment is neither permitted
nor required.

(b) In accordance with § 1.446-
1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived
and a statement in lieu of a Form 3115 is
authorized for this change. Notwithstand-
ing the definition of Form 3115 in section

3.07 of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, the statement in lieu of a Form
3115 that is permitted under this section
15.11 is considered a Form 3115 for pur-
poses of the automatic consent procedures
of Rev. Proc. 2015-13. However, the re-
quirement to file the Ogden copy, under
section 6.03(1)(a) of Rev. Proc. 2015-13,
is waived. The statement attached to the
taxpayer's return for the year of change
must include the following information:

(i) the designated automatic accounting
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 be-
ginning 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 reflected on the federal tax return
for the year of change; and

(vi) a detailed description of the basis
used for deferral (that is, the method the
taxpayer uses in its applicable financial
statement or how the taxpayer determines
amounts earned, as applicable) both be-
fore and after the change in the revenue
recognition policy for the applicable fi-
nancial statement.

(3) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) Rev. Proc. 2015-13 does not
apply to this change.

(4) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(5) Special rule.

(a) Background. Under § 446(e), a tax-
payer that changes its book method of
accounting must secure the Commission-
er'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 un-
der § 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 IRS recognizes that some taxpayers
took the position that consent under
§ 446(e) was not required in these circum-
stances and changed their method of ac-
counting without properly obtaining con-
sent. The safe harbor described below in
section 15.11(5)(b) of this revenue proce-
dure is provided to reduce controversy in
this area.

(b) Safe harbor. If before January 10,
2011, a taxpayer: (i) received advance
payments, as defined in Rev. Proc. 2004-
34; (ii) used the deferral method described
in section 5.02(3)(a) of Rev. Proc.
2004-34 for including those advance pay-
ments in gross income in accordance with
its AFS; (iii) changed the manner in which
advance payments are recognized in rev-
enues in its AFS; and (iv) used its new
AFS method with respect to a timely filed
original federal income tax return in de-
termining the amount of advance pay-
ments included in gross income under the
deferral method of Rev. Proc. 2004-34
without securing the consent of the Com-
missioner to that change in accordance
with § 446(e) and § 1.446-1(e)(2)(i), the
IRS 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.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.11 is "153."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Ronald Goldstein at (202)
317-7003 (not a toll-free number).

SECTION 16. OBLIGATIONS ISSUED
AT DISCOUNT (§ 454)

.01 Series E, EE or I U.S. savings
bonds.

(1) Description of change. This change
applies to a taxpayer that uses the overall

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

cash receipts and disbursements (cash)
method of accounting and that wants to
change its method of accounting for inter-
est income on Series E, EE, or I U.S.
savings bonds. However, this change only
applies to a taxpayer that previously made
an election under § 454 to report as inter-
est 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 des-
ignated automatic accounting method
change number.

(a) This change is made on a cut-off
basis and is effective for any increase in
redemption price occurring after the be-
ginning of the year of change for all Series
E, EE and I U.S. savings bonds held by
the taxpayer on or after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(b) In accordance with § 1.446-
1(e)(3)(ii), the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115 is waived
and a statement in lieu of a Form 3115 is
authorized for this change. Notwithstand-
ing the definition of Form 3115 in section
3.07 of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, the statement in lieu of a Form
3115 that is permitted under this section
16.01 is considered a Form 3115 for pur-
poses of the automatic consent procedures
of Rev. Proc. 2015-13. However, the re-
quirement to file the Ogden copy, under
section 6.03(1)(a) of Rev. Proc. 2015-13,
is waived. The statement must include the
following information:

(i) the designated automatic accounting
method change number for this change,
which is "131";

(ii) the taxpayer's name and employer
identification number or social security
number, as applicable;

(iii) the year of change (both the be-
ginning and ending dates);

(iv) the Series E, EE or I U.S. savings
bonds for which this change in accounting
method is requested;

(v) a statement that the taxpayer will
report all interest on any U.S. savings
bonds acquired during or after the year of
change when the interest is realized upon

disposition, redemption, or final maturity,
whichever is earliest; and

(vi) a statement that the taxpayer will
report all interest on the U.S. savings
bonds acquired before the year of change
when the interest is realized upon dispo-
sition, 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 in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

.02 Reserved.

## SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455)

.01 Prepaid subscription income.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
change its method of accounting for pre-
paid subscription income to the method
described in § 455 and the regulations
thereunder, including an eligible taxpayer
that wants to make the "within 12
months" election under § 1.455-2.

(2) Manner of making change and des-
ignated automatic accounting method
change number.

(a) This change is made on a cut-off
basis and applies only to prepaid subscrip-
tion income received on or after the be-
ginning of the year of change. The tax-
payer must continue to account for
prepaid subscription income received
prior to the year of change under the tax-
payer's present method of accounting. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(b) In accordance with § 1.446-
1(e)(3)(ii), the requirement in § 1.455-6
to file a statement requesting consent is
satisfied by filing a short Form 3115 for a
change under this section 17.01. The short
Form 3115 must include the following
information:

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

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

(iii) Part I, line 1(a);

(iv) the information described in
§ 1.455-6(a), as required by § 1.455-
6(b); and

(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 in section 9 of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
satisfies the consent required under
§ 455(c)(3) and § 1.455-6(b).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
17.01 is "132."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Patrick M. Clinton at
(202) 317-7005 (not a toll-free number).
.02 Reserved.

## SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

.01 Change to percentage-of-completion
method (PCM).

(1) Description of change. This change
applies to a taxpayer that wants to, or is
required to, change its method of account-
ing for its long-term contracts as defined
in § 460(f) to the percentage-of-
completion method described in § 1.460-
4(b) (the PCM).

(2) Inapplicability. This change does
not apply in the first taxable year a tax-
payer must begin use of the PCM to ac-
count for long-term construction contracts
because it does not meet the gross receipts
test in § 1.460-3(b)(3) (the first taxable
year). The taxpayer must generally use the
PCM to account for long-term construc-
tion contracts entered into during the first
taxable year and any subsequent taxable
year the taxpayer does not meet the gross
receipts test in § 1.460-3(b)(3). The tax-
payer must continue to use its present
method of accounting for long-term con-
tracts in progress as of the beginning of
the first taxable year. Use of the PCM in
the first taxable year is not a change in
method of accounting, and, therefore,
does not require the Commissioner's con-
sent (see Rev. Rul. 92-28, 1992-1 C.B.
153). A taxpayer who fails to use the PCM
for the first taxable year may amend its
return for that year prior to failing to use
the PCM for the succeeding taxable year.
A taxpayer who fails to use the PCM for
the first taxable year and the succeeding

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

taxable year is within the scope of this
section 18.01.

(3) Manner of making change. This
change is made on a cut-off basis and
applies only to long-term contracts en-
tered into on or after the beginning of the
year of change. Accordingly, a § 481(a)
adjustment is neither permitted nor re-
quired.

(4) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, in connection with this
change. See section 8.02(2) of Rev. Proc.
2015-13.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
18.01 is "41."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Lore Cavanaugh at (202)
317-7006 (not a toll-free number).
.02 Reserved.

## SECTION 19. TAXABLE YEAR INCURRED (§ 461)

In general. Applicable provisions of
the Code, regulations and other guidance
published in the Internal Revenue Bulletin
may prescribe the manner in which a tax-
payer takes into account a liability that has
been incurred. For example, for a taxpayer
with inventories and subject to § 263A,
the taxpayer must include direct and indi-
rect costs in inventory costs, which may
be recovered through cost of goods sold.
See § 1.263A-1(e)(2)(i)(B). A taxpayer
may not rely on any provision in this
section 19 to take a current year deduction
if another applicable provision requires
the taxpayer to take the liability into ac-
count in a year other than the year in-
curred.

.01 Timing of incurring liabilities for
employee compensation.

(1) Self-insured employee medical ben-
efits.

(a) Description of change.

(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for self-
insured liabilities (including any amounts
not covered by insurance, such as a "de-
ductible" amount under an insurance pol-

icy) 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 taxable
year in which the employee files the claim
with the employer. See United States v.
General Dynamics Corp., 481 U.S. 239
(1987), 1987-2 C.B. 134.

(B) If the taxpayer has a liability to pay
a 3rd party for medical services provided
to its employees, the taxpayer will treat
the liability as incurred in the taxable year
in which the services are provided.

(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.01(1) 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(1)(a)(ii) of this revenue pro-
cedure under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for informa-
tion on making concurrent changes.

(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(1) is "42."

(2) Bonuses.

(a) Description of change.

(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to treat
bonuses as incurred in the taxable year in
which all events have occurred that estab-
lish 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 tax-
payer may change its method of account-
ing under this section 19.01(2) to one of
the following methods:

(A) If all the events that establish the
fact of the liability to pay a bonus have
occurred by the end of the taxable year in
which the related services are provided,
and the bonus is received by the employee
no later than the 15th day of the 3rd calen-
dar month after the end of the taxable year
in which the related services are provided,
the taxpayer will treat the bonus liability
as incurred in that taxable year. See Rev.
Rul. 55-446, 1955-2 C.B. 531, as modi-
fied 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
liability as incurred in such subsequent
taxable year.

(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.01(2) 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(2)(a)(ii) of this revenue pro-
cedure under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(2) is "133."

(3) Vacation pay, sick pay, and sever-
ance pay.

(a) Description of change.

(i) Applicability. This change applies to
a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to treat
vacation pay, sick pay, and severance pay
as incurred in the taxable year in which all
events have occurred that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay and the
amount of the liability can be determined
with reasonable accuracy (see § 1.446-
1(c)(1)(ii)). Specifically, a taxpayer may
change its method of accounting under
this section 19.01(3) to one of the follow-
ing methods:

(A) If all the events that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay have occurred
by the end of the taxable year in which the
related services are provided, the vacation
pay, sick pay, and severance pay vests in
the taxable year the related services are
provided, and the vacation pay, sick pay,
and severance pay is received by the em-
ployee no later than the 15th day of the 3rd
calendar month after the end of the tax-
able year in which the related services are
provided, the taxpayer will treat the vaca-
tion pay, sick pay, and severance pay lia-
bility as incurred in the taxable year in
which the related services are provided.

(B) If all the events that establish the
fact of the liability to pay vacation pay,
sick pay, and severance pay occur in the
taxable year subsequent to the taxable
year in which the related services are pro-
vided, the taxpayer will treat the vacation
pay, sick pay, and severance pay liability
as incurred in such subsequent taxable
year.

(ii) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its

method of accounting under this section
19.01(3) 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.01(3)(a)(ii) of this revenue pro-
cedure under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.01(3) is "134."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Sandra Cheston at (202)
317-7011 (not a toll-free number).

.02 Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state fran-
chise taxes.

(1) Background. A taxpayer using an
overall accrual method of accounting gen-
erally incurs a liability in the taxable year
that all the events have occurred that es-
tablish the fact of the liability, the amount
of the liability can be determined with
reasonable accuracy, and economic per-
formance has occurred with respect to the
liability. See § 1.446-1(c)(1)(ii). Under
§ 1.461-4(g)(6), if the liability of the tax-
payer is to pay a tax, economic perfor-
mance occurs as the tax is paid to the
government authority that imposed the
tax.

(2) Description of change.

(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting to:

(i) treat liabilities (for which the all
events test of § 461(h)(4) is otherwise

met) for real property taxes, personal
property taxes, state income taxes, or state
franchise taxes as incurred in the taxable
year in which the taxes are paid, under
§ 461 and § 1.461-4(g)(6);

(ii) account for real property taxes, 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 sub-
ject 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 if
the taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in con-
junction with a change to a UNICAP
method under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable).

(3) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.02(2)(b)(ii) of this revenue pro-
cedure under section 11.01, 11.02, 11.09,
or 11.13 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for informa-
tion on making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.02 is "43."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Erika Reigle at (202) 317-
5100 (not a toll-free number).

.03 Timing of incurring liabilities under
a workers' compensation act, tort, breach of
contract, or violation of law.

(1) Description of change.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for self-
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
contract, or violation of law, to treating
the liability for the workers' compensa-
tion, tort, breach of contract, or violation
of law as being incurred in the taxable
year in which all the events have occurred
that establish the fact of the liability, the
amount of the liability can be determined
with reasonable accuracy, and payment is
made to the person to which the liability is
owed. See § 461 and § 1.461-4(g)(1) and
(2). If the taxpayer has self-insured liabil-
ities resulting from medical services pro-
vided to employees who have filed claims
under a workers compensation act, the
taxpayer may change its method of ac-
counting for those liabilities under section
19.01(1) of this revenue procedure (if the
taxpayer is otherwise eligible).

(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.03 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(2) Concurrent automatic change. A
taxpayer making both this change and
change to either a method provided in
section 19.01(1) of this revenue procedure
for self-insured employee medical ex-
penses or a UNICAP method described in
section 19.03(1)(b) of this revenue proce-
dure under section 11.01, 11.02, 11.09, or
11.13 of this revenue procedure (as appli-
cable) for the same year of change should
file a single Form 3115, in which case the
taxpayer must enter the designated auto-
matic accounting method change numbers
for each change on the appropriate line on
that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,

for information on making concurrent
changes.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.03 is "44."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Erika Reigle at (202) 317-
5100 (not a toll-free number).

.04 Timing of incurring certain liabil-
ities for payroll taxes.

(1) Description of change.

(a) Applicability. This change applies
to:

(i) an employer using an overall ac-
crual method of accounting that wants to
change its method of accounting for:

(A) FICA and FUTA taxes to a method
consistent with the holding in Rev. Rul.
96-51, 1996-2 C.B. 36. Rev. Rul. 96-51
permits an accrual method employer to
take into account in Year 1, under the all
events test of § 461, its otherwise deduct-
ible FICA and FUTA taxes imposed with
respect to year-end wages properly ac-
crued in Year 1, but paid in Year 2, if the
requirements of the recurring item excep-
tion are met; and

(B) state unemployment taxes and, in
the event the taxpayer is an employer
within the meaning of the Railroad Retire-
ment Tax Act (RRTA) (see § 3231(a)),
RRTA taxes to a method under which the
taxpayer may take into account in Year 1
its otherwise deductible state unemploy-
ment taxes and railroad retirement taxes
(if applicable) imposed with respect to
year-end wages properly accrued in Year
1, but paid in Year 2, if the requirements
of the recurring item exception are met
(including the requirement that, as of the
end of the taxable year, all events have
occurred that establish the fact of the lia-
bility and the amount of the liability can
be determined with reasonable accuracy,
see § 1.461-5(b));

(ii) an accrual method employer that
utilizes a method of accounting for FICA
and FUTA taxes that is consistent with the
holding in Rev. Rul. 96-51 and wants to
change its method of accounting for state
unemployment taxes and, in the event the
employer is an employer within the mean-
ing of RRTA (see § 3231(a)), RRTA taxes
to a method under which the taxpayer may

take into account in Year 1 its otherwise
deductible state unemployment taxes and
railroad retirement taxes (if applicable)
imposed with respect to year-end wages
properly accrued in Year 1, but paid in
Year 2, if the requirements of the recur-
ring item exception are met (including the
requirement that, as of the end of the
taxable year, all events have occurred that
establish the fact of the liability and the
amount of the liability can be determined
with reasonable accuracy, see § 1.461-
5(b)); or

(iii) a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for FICA
and FUTA taxes to the safe harbor method
provided in Rev. Proc. 2008-25, 2008-1
C.B. 686. Rev. Proc. 2008-25 provides
that for purposes of the recurring item
exception, a taxpayer will be treated as
satisfying the requirement in § 1.461-
5(b)(1)(i) for its payroll tax liability in the
same taxable year in which all events have
occurred that establish the fact of the re-
lated compensation liability and the
amount of the related compensation liabil-
ity can be determined with reasonable ac-
curacy.

(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
19.04 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,
11.02, 11.09, or 11.13 of this revenue
procedure (as applicable).

(2) Recurring item exception. A tax-
payer that previously has not changed to
or adopted the recurring item exception
for FICA taxes, FUTA taxes, state unem-
ployment taxes, and RRTA taxes (if ap-
plicable) must change to the recurring
item exception method for FICA taxes,
FUTA taxes, state unemployment taxes,
and RRTA taxes (if applicable) as speci-
fied in § 461(h)(3) as part of this change.

(3) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 19.04(1)(b) of this revenue proce-
dure under section 11.01, 11.02, 11.09, or

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

11.13 of this revenue procedure (as appli-
cable) for the same year of change should
file a single Form 3115 for both changes,
in which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section
19.04(1)(a)(i) or (ii) of this revenue pro-
cedure is "45." The designated automatic
accounting method change number for a
change under section 19.04(1)(a)(iii) of
this revenue procedure is "113."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 (not a toll-free number).

.05 Cooperative advertising.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
change its method of accounting for co-
operative advertising costs to a method
consistent with the holding in Rev. Rul.
98-39, 1998-2 C.B. 198. Rev. Rul.
98-39 generally provides that, under the
all events test of § 461, an accrual method
manufacturer's liability to pay a retailer
for cooperative advertising services is in-
curred in the year in which the services
are performed, provided the manufacturer
is able to reasonably estimate this liability,
and even though the retailer does not sub-
mit the required claim form until the fol-
lowing year.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.05 is "46."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 (not a toll-free number).

.06 Timing of incurring certain liabil-
ities for services or insurance.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that is cur-
rently treating the mere execution of a
contract for services or insurance as estab-

lishing the fact of the liability under § 461
and wants to change from that method of
accounting for liabilities for services or
insurance to comply with Rev. Rul.
2007-3, 2007-1 C.B. 350, that is, all the
events needed to establish the fact of the
liability occur when (a) the event fixing
the liability, whether that be the required
performance or other event occurs or (b)
payment is due, whichever happens earli-
est.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.06 is "106."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free num-
ber).

.07 Rebates and allowances.

(1) Description of change.

(a) Applicability. This change applies
to taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for treat-
ing its liability for rebates and allowances
to the recurring item exception method
under § 461(h)(3) and § 1.461-5.

(b) Inapplicability. This change does
not apply to a taxpayer's liability to pay a
refund.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.07 is "135."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 (not a toll-free number).

.08 Ratable accrual of real property
taxes.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
change its method of accounting for real
property taxes to the method described in
§ 461(c) and § 1.461-1(c)(1) (ratable ac-
crual election). This change applies to real
property taxes that relate to a definite pe-
riod of time. This change does not apply
to a taxpayer's first taxable year in which
the taxpayer incurs real property taxes, in
which case the change is made using the
provisions of § 1.461-1(c)(3)(i).

(2) Manner of making change and des-
ignated 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 property
taxes accrued prior to the year of change
are accounted for under the taxpayer's
former method of accounting. See
§ 1.461-1(c)(6), Examples (2) - (5). Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(b) In accordance with § 1.446-
1(e)(3)(ii), the requirement in § 1.461-
1(c)(3)(ii) for requesting consent is satis-
fied by filing a short Form 3115 for this
change. The taxpayer's short Form 3115
must include all of the following informa-
tion:

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

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

(iii) Part I, line 1(a); and

(iv) the information described in
§ 1.461-1(c)(3)(ii)(a) through (f).

(c) The consent granted under section 9
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, satisfies the consent required under
§ 461(c)(2)(B) and § 1.461-1(c)(3)(ii).

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.08 is "149."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 (not a toll-free number).

.09 California Franchise Taxes.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
change its method of accounting for Cal-
ifornia franchise taxes to a method con-
sistent with the holding in Rev. Rul.
2003-90, 2003-2 C.B. 353. Rev. Rul.
2003-90 provides that for taxable years
beginning on or after January 1, 2000, a
taxpayer that uses an accrual method of
accounting incurs a liability for California
franchise tax for federal income tax pur-
poses in the taxable year following the
taxable year in which the California fran-
chise tax is incurred under the Cal. Rev. &
Tax Code, as amended.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.09 is "154."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003.

.10 Gift cards issued as a refund for
returned goods.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that sells goods at
retail and that wants to change its method
of accounting for gift cards (as defined by
section 4.02 of Rev. Proc. 2011-17,
2011-5 I.R.B. 441) issued as a refund for
returned goods to treat the transaction as
(1) the payment of a cash refund in the
amount of the gift card, and (2) the sale of
a gift card in the amount of the gift card.

(b) Treatment of proceeds of the
deemed sale. A taxpayer must treat the
proceeds of the deemed sale of a gift card
in accordance with the method of account-
ing it otherwise employs for sales of gift
cards.

(2) Concurrent automatic change. A
taxpayer making both this change and an
automatic change to the deferral method
for advance payments under Rev. Proc.
2004-34 (see section 15.07 of this reve-
nue procedure) for the same taxable year
of change must file a single Form 3115 for
both changes and enter the designated au-
tomatic accounting method change num-
bers for both changes on the appropriate
line on that Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, for information on making
concurrent changes.

(3) Concurrent non-automatic change.
A taxpayer making both this change and
change to a permissible method of ac-
counting under § 1.451-5 for the same
taxable year of change on a single Form
3115 must request this change in method
of accounting using the non-automatic
procedures in Rev. Proc. 2015-13 (or any
successor).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.10 is "156."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free num-
ber).

.11 Timing of incurring liabilities un-
der the recurring item exception to the
economic performance rules.

(1) Description of change. This change
applies to a taxpayer using an overall ac-
crual method of accounting that wants to
conform to any of the holdings in Rev.
Rul. 2012-1, 2012-2 I.R.B. 255, which
clarifies the treatment of certain liabilities
under the recurring item exception to the
economic performance requirement under
§ 461(h)(3) by addressing the application
of the "not material" and "better match-
ing" requirements, and distinguishes con-
tracts for the provision of services from
insurance and warranty contracts.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
19.11 is "161."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christina M. Glendening
at (202) 317-7003 (not a toll-free num-
ber).

SECTION 20. RENT (§ 467)

.01 Change from an improper method
of inclusion of rental income or expense to
inclusion in accordance with the rent al-
location.

(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 agree-
ments); and

(ii) wants to change its method of ac-
counting for its fixed rent (as defined in
§ 1.467-1(d)(2)) to the rent allocation
method provided in § 1.467-1(d)(2)(iii).

(b) Inapplicability. This change does
not apply to 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. Any audit
protection under section 8 of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, does not ap-
ply to this change for any § 467 rental
agreement determined by the Commis-
sioner to be a disqualified leaseback or
long-term agreement described in
§ 1.467-(3)(b).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.01 is "136."

(5) Contact information. For further in-
formation regarding a change under this
section, contact William Ruane at (202)
317-4718 (not a toll-free number).

.02 Reserved.

SECTION 21. INVENTORIES (§ 471)

### .01 Cash discounts.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for cash dis-
counts (that is, discounts granted for
timely payment) when they approximate a
fair interest rate, from a method of con-
sistently including the price of the goods
before discount in the cost of the goods
and including in gross income any dis-
counts 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 dis-
counts not taken (the "net invoice
method"), or vice versa. See Rev. Rul.
73-65, 1973-1 C.B. 216.

(2) Computation of § 481(a) adjust-
ment for changes to net invoice method. In
the case of a taxpayer changing from the
gross invoice method to the net invoice
method, a negative § 481(a) adjustment is
required to prevent duplications arising
from the fact that the gross invoice
method reported income upon timely pay-
ment for some or all of the goods that
remain in inventory, and a positive
§ 481(a) adjustment is required to prevent
omissions arising from the fact that the
gross invoice method included the invoice
price, unadjusted for the cash discounts,
of some or all goods in cost of goods sold
and the discount will be earned by pay-
ment in a subsequent taxable year. The net

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

§ 481(a) adjustment is computed by de-
ducting the "Applicable Discount" at the
beginning of the year of change from the
"Available Discount" at the beginning of
the year of change. The Available Dis-
count is equal to the difference between
the accounts payable balance under the
gross invoice method and the net invoice
method. The Applicable Discount is equal
to the difference between the beginning
inventory value under the gross invoice
method and the net invoice method.

Example. Taxpayer's accounts payable balance
at the beginning of the year of change was $1,000
under the gross invoice method and $980 under the
net invoice method. Taxpayer's inventory value was
$3,000 under the gross invoice method and $2,955
under the net invoice method. The Available Dis-
count is $20 ($1,000 - $980) and the Applicable
Discount is $45 ($3,000 - $2,955). Thus, Taxpayer's
net § 481(a) adjustment is a negative $25 ($20 -
$45).

(3) Computation of § 481(a) adjust-
ment for changes to gross invoice method.
In the case of a taxpayer changing from
the net invoice method to the gross in-
voice method, a positive § 481(a) adjust-
ment is required to prevent omissions aris-
ing from the fact that the net invoice
method did not report income upon timely
payment for some or all of the goods that
remain in inventory, and a negative
§ 481(a) adjustment is required to prevent
duplications arising from the fact that the
net invoice method included the invoice
price, adjusted for the cash discounts, of
some or all goods in cost of goods sold
and the discount will be earned by pay-
ment in a subsequent taxable year. The net
§ 481(a) adjustment can be computed by
deducting the "Available Discount" at the
beginning of the year of change from the
"Applicable Discount" at the beginning of
the year of change. The Available Dis-
count is equal to the difference between
the accounts payable balance under the
gross invoice method and the net invoice
method. The Applicable Discount is equal
to the difference between the beginning
inventory value under the gross invoice
method and the net invoice method.

Example. Taxpayer's accounts payable balance
at the beginning of the year of change was $980
under the net invoice method and $1,000 under the
gross invoice method. Taxpayer's inventory value
was $2,955 under the net invoice method and $3,000
under the gross invoice method. The Applicable
Discount is $45 ($3,000 - $2,955) and the Available
Discount is $20 ($1,000 - $980). Thus, Taxpayer's
net § 481(a) adjustment is a positive $25 ($45 - $20).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.01 is "48."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).
.02 Estimating inventory "shrinkage".

(1) Description of change. This change
applies to a taxpayer that wants to change
to a method of accounting for estimating
inventory shrinkage in computing ending
inventory, using:

(a) the "retail safe harbor method" de-
scribed in section 4 of Rev. Proc. 98-29,
1998-1 C.B. 857, as modified by this
revenue procedure; or

(b) a method other than the retail safe
harbor method, provided (i) the taxpayer's
present method of accounting does not
estimate inventory shrinkage, and (ii) the
taxpayer's proposed method of account-
ing (that estimates inventory shrinkage)
clearly reflects income under § 446(b).

(2) Additional requirements. If the tax-
payer 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 proposed method
of estimating inventory shrinkage (includ-
ing, for last-in, first-out (LIFO) taxpayers,
the method of determining inventory
shrinkage for, or allocating inventory
shrinkage to, each LIFO pool). The direc-
tor or national office subsequently may
review whether the proposed method
clearly reflects the taxpayer's income un-
der § 446(b), notwithstanding any provi-
sion of Rev. Proc. 2015-13, 2015-5
I.R.B. 419 (or successor). If the director or
the national office determines that the pro-
posed method of accounting does not
clearly reflect the taxpayer's income, the
taxpayer will be treated as having made
a change in method of accounting with-
out obtaining the consent of the Com-
missioner as required by § 446(e). See
sections 2.01(3) and 2.03 of Rev. Proc.
2015-13.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

number for a change under this section
21.02 is "49."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free number).

.03 Small taxpayer exception from re-
quirement to account for inventories un-
der § 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 (re-
garding placement of § 481(a) adjustment
on the Form 3115), and Rev. Proc.
2011-14 (removing § 6.02(1)(a) of Rev.
Proc. 2001-10)) of $1,000,000 or less or a
qualifying taxpayer (other than a taxpayer
described in § 448) with "average annual
gross receipts" (as defined in section 5.02
of Rev. Proc. 2002-28, as modified by
Announcement 2004-16 (regarding
placement of § 481(a) adjustment on the
Form 3115), and Rev. Proc. 2011-14 (re-
moving § 7.02(1)(a) of Rev. Proc. 2002-
28)) of $10,000,000 or less that wants to
change from a method of accounting for
inventoriable items (including, if applica-
ble, from the method of capitalizing costs
under § 263A) to the method described in
Rev. Proc. 2001-10 and Rev. Proc. 2002-
28, for treating inventoriable items in the
same manner as materials and supplies
that are not incidental under § 1.162-3.

(2) Manner of making change. See
Rev. 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.

(3) Concurrent automatic change to
the overall cash method under Rev. Proc.
2001-10 or Rev. Proc. 2002-28. A tax-
payer making both this change and a
change to the overall cash method under
Rev. Proc. 2001-10 or Rev. Proc.
2002-28 (see section 14.03 of this reve-
nue procedure) 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.
See section 6.03(1)(b) of Rev. Proc.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

2015-13, 2015-5 I.R.B. 419, for informa-
tion on making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.03 for the small taxpayer ($1,000,000)
inventory exception contained in Rev.
Proc. 2001-10 is "50." The designated
automatic accounting method change
number for a change under this section
21.03 for the small taxpayer ($10,000,000)
inventory exception contained in Rev.
Proc. 2002-28 is "51."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.04 Qualifying volume-related trade
discounts.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting to treat qualify-
ing volume-related trade discounts as a
reduction in the cost of merchandise pur-
chased at the time the discount is recog-
nized in accordance with § 1.471-3(b). A
"qualifying volume-related trade dis-
count" 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) adjust-
ment in the case of a change to the net
invoice method of accounting for cash
discounts. See section 21.01(2) of this rev-
enue procedure.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.04 is "53."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.05 Impermissible methods of identifi-
cation and valuation.

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

(a) changing from an impermissible
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 method that is not
in accordance with § 1.471-2(c) for deter-
mining the value of "subnormal" goods;
or

(c) changing from a gross profit
method or from a method of determining
market that is not in accordance with
§ 1.471-4; or

(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 beginning inventory and purchases
and the result is used as the ending inven-
tory.

(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 or-
dinary circumstances, determines the mar-
ket value of purchased merchandise using
judgment factors, and not using the pre-
vailing current bid price on the inventory
date for the particular merchandise in the
volume in which it is usually purchased
by the taxpayer.

(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 other guidance
published in the Internal Revenue Bulle-
tin, or a decision of the United States
Supreme Court for the inventory goods,
and the taxpayer is neither prohibited
from using that method nor required to
use a different inventory method for those
inventory goods. This change does not
apply to a change described in another
section of this revenue procedure or in
other guidance published in the Internal
Revenue Bulletin.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

number for a change under this section
21.05 is "54."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).
.06 Core Alternative Valuation Method.

(1) Description of change.

(a) Applicability. This change applies
to a remanufacturer and rebuilder of mo-
tor vehicle parts and a reseller of reman-
ufactured 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 overhead
related to the cores in raw materials,
work-in-process, and finished goods).

(2) Concurrent automatic change. A
taxpayer making both this change and (i) a
change from the cost method to the LCM
method under section 21.11 of this reve-
nue procedure, 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 revenue procedure for
the same year of change, should file a
single Form 3115 for both changes, pro-
vided the taxpayer enters the designated
automatic accounting method change
numbers for both changes on the appro-
priate line on that Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, for information on making
concurrent changes.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.06 is "55."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

.07 Replacement cost for automobile
dealers' parts inventory.

(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of selling vehicle parts at
retail, that is authorized under an 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,
as modified by Rev. Proc. 2006-14,
2006-1 C.B. 350, for its vehicle parts
inventory. See Rev. Proc. 2002-17 for
further information regarding this change.

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories on or after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.07 is "63."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.08 Replacement cost for heavy equip-
ment dealers' parts inventory.

(1) Description of change. This change
applies to a heavy equipment dealer that is
engaged in the trade or business of selling
heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy 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
applies only to the computation of ending
inventories after the beginning of the year
of change. Accordingly, a § 481(a) adjust-
ment is neither permitted nor required.

(3) Concurrent automatic change. A
taxpayer making both this change and an-
other automatic change in method of ac-
counting under § 263A (see section 11 of
this revenue procedure) 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,
and complies with the ordering rules of
§ 1.263A-7(b)(2).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.08 is "96."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang at (202)
317-7007 (not a toll-free number).

.09 Rotable spare parts.

(1) Description of change. This change
applies to a taxpayer that is using the safe
harbor method of accounting to treat its
rotable spare parts as depreciable assets in
accordance with Rev. Proc. 2007-48,
2007-2 C.B. 110, as modified by this rev-
enue procedure, and wants to change its
method of accounting to treat its rotable
spare parts as inventoriable items. This
change also applies to a taxpayer who is
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
changing its method of accounting for ro-
table spare parts under this section 21.09,
must use a proper inventory method to
identify and value its rotable spare parts.

(2) Eligibility rule inapplicable. The
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to a taxpayer that is re-
quired to make the change in method of
accounting pursuant to section 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 this section
21.09 is "110."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Elizabeth Binder at (202)
317-7003 (not a toll-free number).

.10 Advance 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) Applicability. This change in
method of accounting applies to a tax-
payer using an overall accrual method of
accounting that is required to use an in-
ventory method of accounting, that main-
tains inventories as provided in § 471 and
the regulations thereunder, and that re-
ceives advance trade discounts as defined
in section 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 this section
21.10 is "111."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Neville R. Jiang, at (202)
317-7007 (not a toll-free number).

.11 Permissible methods of identifica-
tion and valuation.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change from
one permissible method of identifying and
valuing inventories to another permissible
method of identifying and valuing inven-
tories. For example, a taxpayer using first-
in, first-out (FIFO) as its inventory-
identification method may change its
inventory-valuation method from cost to
cost or market, whichever is lower
(LCM). (Note, however, a real estate de-
veloper may not value real property or
improvements to the real property at LCM
because real property is not inventoriable
property under § 1.471-1. Also, a tax-
payer who meets the definition of a
"dealer in securities" under both
§ 1.471-5 and § 475 is required to account
for securities, as defined in § 475, under
§ 475 and may not use the rules described
in § 1.471-5 for those securities.) Further-
more, a taxpayer may change to a permis-
sible method of valuing "subnormal"
goods under § 1.471-2(c).

However, this change does not apply to
any change described in another section of
this revenue procedure or in other guid-
ance published in the Internal Revenue
Bulletin, or to any changes within the
last-in, first-out (LIFO) inventory method.
For example, this change does not apply
to a taxpayer that wants to change to a
rolling-average method (but see section
21.14 of this revenue procedure).

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(b) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method (identifi-
cation or valuation, or both) specifically
permitted for inventories by the Code, the
regulations, or other guidance published
in the Internal Revenue Bulletin, or a de-
cision of the United States Supreme
Court. However, an otherwise permissible
inventory method is not permissible under
this section 21.11 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 this section
21.11 is "137."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.12 Change in the official used vehicle
guide utilized in valuing used vehicles.

(1) Description of change. Used vehi-
cles taken in trade as part payment on the
sale of vehicles by a dealer may be valued
for inventory purposes at valuations com-
parable to those listed in an official used
vehicle guide as the average wholesale
prices for comparable vehicles. See Rev.
Rul. 67-107, 1967-1 C.B. 115. This
change applies to:

(a) a taxpayer that wants to change
from not using an official used vehicle
guide to using an official used vehicle
guide for valuing used vehicles; or

(b) a taxpayer that wants to change to a
different official used vehicle guide for
valuing used vehicles.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
21.12 is "138."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.13 Invoiced advertising association
costs for new vehicle retail dealerships.

(1) Description of change. This change
applies to a taxpayer that is engaged in the
trade or business of retail sales of new
automobiles or new light-duty trucks
("dealership") that wants to discontinue

capitalizing certain advertising costs as
acquisition costs under § 1.471-3(b). The
change applies to advertising costs that
meet the following criteria: (a) the dealer-
ship must pay this advertising fee when
acquiring vehicles from the manufacturer;
(b) the advertising costs are separately
coded and included in the manufacturer's
invoice cost of the new vehicle; (c) the
advertising cost is a flat fee per vehicle or
a fixed percentage of the invoice price;
and (d) the fees collected by the manufac-
turer are paid to local advertising associ-
ations that promote and advertise the man-
ufacturer's products in the dealership's
market area. Under the proposed method,
the dealership will exclude advertising
costs that meet the above criteria from the
cost of new vehicles and deduct the ad-
vertising costs under § 162 as the adver-
tising services are provided to the dealer-
ship. 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 this section
21.13 is "139."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.14 Rolling-average method of ac-
counting for inventories.

(1) Description of change. This change
applies to a taxpayer that uses a rolling-
average method to value inventories for
financial accounting purposes and wants
to use the same rolling-average method to
value inventories for federal income tax
purposes in accordance with Rev. Proc.
2008-43, 2008-30 C.B. 186, as modified
by Rev. Proc. 2008-52, 2008-2 C.B. 587
(see section 13).

(2) Manner of making change. This
change is made on a cut-off basis and is
applied only to the computation of ending
inventories after the beginning of the year
of change. However, if the taxpayer's
books and records contain sufficient infor-
mation to compute a § 481(a) adjustment,
the taxpayer may choose to implement the
change with a § 481(a) adjustment as pro-
vided in sections 7.02 and 7.03 of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

number for a change under this section
21.14 is "114."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.15 Sales-Based Vendor Chargebacks.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
33, 2014-22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of accounting to treat sales-based vendor
chargebacks as a reduction in cost of
goods sold in accordance with § 1.471-
3(e)(1).

(2) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to this
change for a taxpayer's first and second
taxable years ending on or after January
13, 2014.

(3) Concurrent automatic changes. A
taxpayer making both this change and the
change described in section 11.12 of this
revenue procedure for the same taxable
year of change may file a single Form
3115 for both changes, provided the tax-
payer enters the designated automatic
change numbers for both changes on the
appropriate line on the Form 3115, and
complies with the ordering rules of
§ 1.263A-7(b)(2). See section 6.03(1)(b)
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, for information on making concur-
rent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of ac-
counting under this section 21.15 is
"203."

(5) Contact information. For further in-
formation regarding a change under this
section, contact John Roman Faron at
(202) 317-7005 (not a toll-free number).

.16 Retail inventory method.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
48, 2014-36 I.R.B. 527, applies to a tax-
payer using the retail inventory method
that wants to make one of the following
changes:

(a) From adjusting to not adjusting the
numerator of the cost complement by the
amount of an allowance, discount, or price

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

rebate that is required under § 1.471-3(e)
to reduce only cost of goods sold;

(b) From adjusting to not adjusting the
denominator of the cost complement for
temporary markups and markdowns;

(c) In the case of a retail LCM tax-
payer, to computing the cost complement
using a method described in § 1.471-
8(b)(3), including changes from a method
described in § 1.471-8(b)(3) to another
method described in § 1.471-8(b)(3);

(d) In the case of a retail cost taxpayer,
from not adjusting to adjusting the de-
nominator of the cost complement for per-
manent markups and markdowns.

(2) Effective date and certain eligibility
rule temporarily inapplicable. This sec-
tion 21.16 is effective for taxable years
beginning after December 31, 2014. The
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply for a taxpayer's first or
second taxable years beginning after De-
cember 31, 2014.

(3) Multiple changes. A taxpayer mak-
ing multiple changes under this section
21.16 for the same year of change should
file a single Form 3115.

(4) Manner of making change. A tax-
payer making a change under this section
21.16 for its first or second taxable year
beginning after December 31, 2014 may
use either a § 481(a) adjustment as pro-
vided in sections 7.02 and 7.03 of Rev.
Proc. 2015-13 or implement the change
on a cut-off basis. If the taxpayer uses a
cut-off basis, the change applies only to
the computation of ending inventories af-
ter the beginning of the year of change,
and a § 481(a) adjustment is neither per-
mitted nor required if a change is made on
a cut-off basis.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of ac-
counting under this section 21.16 is
"204."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Natasha M. Mulleneaux
at (202) 317-7007 (not a toll-free num-
ber).

SECTION 22. LAST-IN, FIRST-OUT
(LIFO) INVENTORIES (§ 472)

.01 Change from the LIFO inventory
method.

(1) Description of change.

(a) In general. This change applies to a
taxpayer that wants to:

(i) change from the LIFO inventory
method for all its LIFO inventory or for
the entire content of one or more dollar-
value pools; and

(ii) change to a permitted method or
methods as determined in section
22.01(1)(b) of this revenue procedure.

(b) Method to be used.

(i) Determining the permitted method
to be used. A taxpayer may change to one
or more non-LIFO inventory methods for
the LIFO inventories that are the subject
of this accounting method change, but
only if the selected non-LIFO method is a
permitted method for the inventory goods
to which it will be applied. For example, a
heavy equipment dealer may change to
the specific identification method for new
heavy equipment inventories and the re-
placement 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 this section 22.01, an inventory
method (identification or valuation, or
both) is a permitted method if it is specif-
ically permitted for the inventory goods
by the Code, the regulations, or other
guidance published in the Internal Reve-
nue Bulletin, or a decision of the United
States Supreme Court and if the taxpayer
is neither prohibited from using that
method nor required to use a different
inventory method for those inventory
goods.

(iii) Determining permitted method.
Whether an inventory method is a permit-
ted method is determined without regard
to the types and amounts of costs capital-
ized under the taxpayer's method of com-
puting 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 eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply for the first

taxable year that the taxpayer does not or
will not comply with the requirements of
§ 472(e)(2) because the taxpayer has ap-
plied or will apply International Financial
Reporting Standards in its financial state-
ments or because the taxpayer has been
acquired by an entity that has not or will
not use the LIFO method in its financial
statements.

(3) Limitation on LIFO election. The
taxpayer may not re-elect the LIFO inven-
tory 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
the non-automatic change procedures in
Rev. Proc. 2015-13. A taxpayer that
wants to re-elect the LIFO inventory
method after a period of five taxable years
(beginning with the year of change) does
not file a Form 3115 using the non-
automatic change procedures in Rev.
Proc. 2015-13, but, rather, must file a
Form 970, Application To Use LIFO In-
ventory Method, in accordance with
§ 1.472-3.

(4) Effect of subchapter S election by
corporation. See section 7.03(4)(b) and
(c) of Rev. Proc. 2015-13.

(5) Additional requirements. The 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 proposed method of identify-
ing [Insert description of inventory goods]
is the [Insert method, as appropriate; that
is, specific identification; FIFO; retail;
etc.] method."

(b) "The proposed method of valuing
[Insert description of inventory goods] is
[Insert method, as appropriate; that is,
cost; LCM; etc.]."

(6) Pool split and partial termination.
If a taxpayer must remove goods from a
LIFO inventory pool because those goods
are not within the scope of that pool (for

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

example, removing resale goods from a
manufacturing pool), and if the taxpayer
wants to change from the LIFO inventory
method for those removed goods, the tax-
payer may split the pool pursuant to sec-
tion 22.10 of this revenue procedure and
then may change from the LIFO method
pursuant to this section 22.01. See section
22.10(2) of this revenue procedure. The
taxpayer must file a separate Form 3115
for each such change.

(7) Section 481(a) adjustment re-
quired.

(a) General rule. A taxpayer changing
from a LIFO inventory method must com-
pute a § 481(a) adjustment for the year of
change. See section 7.02 of Rev. Proc.
2015-13.

(b) Special rule for changes that would
otherwise be implemented on a cut-off ba-
sis. If a taxpayer is changing from the
LIFO inventory method to a method of
accounting that is implemented on a cut-
off basis under another section of this
revenue procedure (see, for example, sec-
tions 21.07, 21.08, and 21.14 of this rev-
enue procedure), the taxpayer's § 481(a)
adjustment is "the LIFO recapture
amount" as defined in § 312(n)(4)(B) and
(C). A taxpayer computing the § 481(a)
adjustment under this special rule must
then compute its ending inventory value
for the year of change using the proposed
method (that is, treat the deemed change
from the first-in, first-out (FIFO) method
to the proposed method on a cut-off ba-
sis).

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.01 is "56."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.02 Determining current-year cost un-
der the LIFO inventory method.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to change its method of
determining current-year cost to:

(i) the actual cost of the goods most
recently purchased or produced (most-
recent-acquisitions method);

(ii) the actual cost of the goods pur-
chased or produced during the taxable
year in the order of acquisition (earliest-
acquisitions method);

(iii) the average unit cost equal to the
aggregate actual cost of all the goods pur-
chased 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, 2008-36 I.R.B. 587 (see
section 13).

(b) Inapplicability. This change does
not apply to a taxpayer using the lower of
cost or market method to determine
current-year cost. A taxpayer using the
lower of cost or market method that val-
ued inventory below cost may not change
to a proper cost valuation under this sec-
tion 22.02.

(2) Manner of making change. This
change is made using a cut-off basis and
applies only to the computations of
current-year cost after the beginning of
the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(3) Concurrent change to a rolling-
average method. A taxpayer making both
a change to a rolling-average method of
determining current-year cost for its LIFO
inventory under this section 22.02 and a
change to a rolling-average method of ac-
counting for non-LIFO inventories under
Rev. Proc. 2008-43 (see section 21.14 of
this revenue procedure) should file a sin-
gle Form 3115 for both changes, in which
case the taxpayer must enter the desig-
nated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.02 is "57."

(5) Contact information. For further in-
formation regarding a change under this

section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.03 Alternative LIFO inventory method
for retail automobile dealers.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer engaged in the trade or busi-
ness of retail sales of new automobiles or
new light-duty trucks ("automobile
dealer") that wants to change to the "Al-
ternative LIFO method" described in sec-
tion 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 computa-
tion (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 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 ac-
cessories, used automobiles, or used light-
duty trucks (other goods) inventory may
incorporate a change, using a cut-off ba-
sis, 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 estab-
lish separate inventory pools for new au-
tomobiles and new light-duty trucks, un-
less the automobile dealer also
concurrently changes to the Vehicle-Pool
Method (see section 22.08 of this revenue
procedure). Further, the automobile dealer
must establish a separate inventory pool
for the parts and accessories. See section
6.03(1)(b) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, for information on making
concurrent changes.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(c) Additional requirements. An auto-
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 under this section
22.03, the automobile dealer also must
attach to its Form 3115 a schedule setting
forth the classes of goods for which the
automobile dealer has elected to use the
LIFO method and the accounting method
changes being made under this section
22.03 for each class of goods.

(3) Concurrent change to the Vehicle-
Pool Method. A taxpayer making both a
change to the Alternative LIFO Method
under this section 22.03 and a change to
the Vehicle-Pool Method under Rev.
Proc. 2008-23 (see section 22.08 of this
revenue procedure) should file a single
Form 3115 for both changes, in which
case the taxpayer must enter the desig-
nated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.03 is "58."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.04 Used vehicle alternative LIFO
method.

(1) Description of change. This change
applies to a taxpayer that sells used 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 An-
nouncement 2004-16, 2004-1 C.B. 668,
and Rev. Proc. 2008-23, 2008-1 C.B.
664.

(2) Additional requirements. A tax-
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. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(b) Bargain purchase. If the taxpayer
has previously improperly accounted for a
bulk bargain purchase, the taxpayer must,
as part of this change, first change its
method of accounting to comply with
Hamilton Industries, Inc. v. Commis-
sioner, 97 T.C. 120 (1991), and compute a
§ 481(a) adjustment for that part of the
change. See Announcement 91-173,
1991-47 I.R.B. 29. Upon examination, if
a taxpayer has properly changed under
this section 22.04 except for complying
with this section 22.04(3)(b), an examin-
ing agent may not deny the taxpayer the
change. However, the taxpayer does not
receive audit protection under section 8.01
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, with respect to the improper method
of accounting for the bargain purchase.
See section 8.02(2) of Rev. Proc. 2015-
13. Accordingly, the examining agent
may make any necessary adjustments in
any year for which the period of limita-
tions on assessment and collection of tax
is open to effect compliance with Hamil-
ton Industries, Inc.

(c) New base year. In effecting a
change to the Used Vehicle Alternative
LIFO Method under this revenue proce-
dure, the taxpayer must retain any LIFO
inventory cost increments previously de-
termined and the value of those incre-
ments. Instead of using the earliest taxable
year for which the taxpayer adopted LIFO
as the base year, the taxpayer must use the
year of change as the new base year in
determining the value of all existing LIFO
cost increments for the year of change and
later taxable years. (The cumulative index
at the beginning of the year of change is
1.00). The taxpayer must restate the base-
year cost of all LIFO cost increments at
the beginning of the year of change in
terms of new base-year costs, using the
year of change as the new base year, and
must recompute the indexes for previ-
ously determined inventory increments
accordingly. The new base-year cost of a

pool is equal to the total current-year cost
of all the vehicles in the pool.

(d) Form 3115. A completed Form
3115 includes the completion of Part I of
Schedule C.

(4) Concurrent change from IPIC
method. A used vehicle dealer using the
IPIC method that also has parts and ac-
cessories, new automobiles, or new light-
duty trucks (other goods) inventory may
incorporate a change, using a cut-off ba-
sis, 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 estab-
lish separate inventory pools for new au-
tomobiles and new light-duty trucks, un-
less the used vehicle dealer also
concurrently changes to the Vehicle-Pool
Method (see section 22.08 of this revenue
procedure). Further, the used vehicle
dealer must establish a separate inventory
pool for the parts and accessories. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes.

(5) Concurrent change to the Vehicle-
Pool Method. A taxpayer making both a
change to the Used Vehicle Alternative
LIFO Method under this section 22.04 and
a change to the Vehicle-Pool Method un-
der Rev. Proc. 2008-23 (see section 22.08
of this revenue procedure) should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.04 is "59."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.05 Determining the cost of used vehi-
cles purchased or taken as a trade-in.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to:

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

(i) determine the cost of used vehicles
acquired by trade-in using the average
wholesale price listed by an official used
vehicle guide on the date of the trade-in.
See Rev. Rul. 67-107, 1967-1 C.B. 115.
The taxpayer must consistently use the
official used vehicle guide selected unless
the taxpayer receives permission to use a
different guide;

(ii) use a different official used vehicle
guide for determining the cost of used
vehicles acquired by trade-in;

(iii) determine the cost of used vehicles
purchased for cash using the actual 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 companies based on vehicles
purchased for cash. The national auto auc-
tion 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 (see section 22.04 of this
revenue procedure).

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to used vehicles acquired on
or after the beginning of the year of
change. Accordingly, a § 481(a) adjust-
ment is neither permitted nor required.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.05 is "60."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Christopher W. Call at
(202) 317-7007 (not a toll-free number).

.06 Change to the inventory price index
computation (IPIC) method.

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

(a) from a non-IPIC LIFO inventory
method to the IPIC method in accordance
with all relevant provisions of § 1.472-
8(e)(3); or

(b) from the IPIC method as described
in T.D. 7814, 1982-1 C.B. 84, (March 15,
1982) (the old IPIC method) to the IPIC
method as described in § 1.472-8(e)(3)
(see T.D. 8976, 2002-1 C.B. 421, (Janu-
ary 8, 2002)) (the new IPIC method),

which includes the following required
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 dollar-
value of a LIFO pool(s);

(ii) from using a weighted arithmetic
mean to using a weighted harmonic mean
to compute an IPI for a dollar-value
pool(s); and

(iii) from using a components-of-cost
method to define inventory items to using
a total-product-cost method to define in-
ventory items.

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories after the beginning of the year
of change. Accordingly, a § 481(a) adjust-
ment 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. See Announcement 91-173,
1991-47 I.R.B. 29. Upon examination, if
a taxpayer has properly changed under
this section 22.06 except for complying
with section 22.06(3) of this revenue pro-
cedure, an examining agent may not deny
the taxpayer the change. However, the
taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, with respect to the
improper method of accounting for the
bargain purchase. See section 8.02(2) of
Rev. Proc. 2015-13. Accordingly, the ex-
amining agent may make any necessary
adjustments in any year for which the
period of limitations on assessment and
collection of tax is open to effect compli-
ance with Hamilton Industries, Inc.

#### (4) Concurrent automatic changes.

(a) A taxpayer making this change and
to change its method of determining
current-year cost under section 22.02 of
this revenue procedure 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.
See section 6.03(1)(b) of Rev. Proc.

2015-13 for information on making con-
current changes.

(b) A taxpayer making this change and
to change its method of pooling to IPIC-
method pools described in § 1.472-
8(b)(4) or § 1.472-8(c)(2) under section
22.07 of this revenue procedure for the
same year of change may file a single
Form 3115, provided the taxpayer enters
the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(c) A taxpayer making this change and
to change its method of pooling under
section 22.10 of this revenue procedure
for the same year of change may file a
single Form 3115, provided the taxpayer
enters the designated automatic account-
ing method change numbers for both
changes on the appropriate line on that
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.06 is "61."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.07 Changes 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-extension
IPIC method to the link-chain IPIC
method, or vice versa. See § 1.472-
8(e)(3)(iii)(E) for principles concerning
the computation of the inventory price
index under the double-extension IPIC
method and the link-chain IPIC method;

(b) change to or from the 10 percent
method. See § 1.472-8(e)(3)(iii)(C) for
principles concerning the assignment of
inventory items to Bureau of Labor Sta-
tistics (BLS) categories under the IPIC
method;

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(c) change to IPIC-method pools de-
scribed in § 1.472-8(b)(4) or § 1.472-
8(c)(2), including a change to begin or
discontinue applying one or both of the 5
percent pooling rules;

(d) change to combine or separate
pools as a result of the application of a 5
percent pooling rule described in § 1.472-
8(b)(4) or § 1.472-8(c)(2);

(e) change its selection of BLS table
from Table 3 (Consumer Price Index for
All Urban Consumers (CPI-U): U.S. city
average, detailed expenditure categories)
of the monthly CPI Detailed Report to
Table 9 (Producer price indexes (PPI) and
percent changes for commodity and ser-
vice groupings and individual items, not
seasonally adjusted) of the monthly PPI
Detailed Report (formerly, Table 6), or
vice versa. See § 1.472-8(e)(3)(iii)(B)(2)
for principles concerning the selection of
a BLS table under the IPIC method;

(f) change the assignment of one or
more inventory items to BLS categories
under either Table 3 (CPI-U): U.S. City
average, detailed expenditure categories)
of the monthly CPI Detailed Report or
Table 9 (PPI and percent changes for
commodity and service groupings and in-
dividual items, not seasonally adjusted) of
the monthly PPI Detailed Report (for-
merly, Table 6). See § 1.472-
8(e)(3)(iii)(C) for principles concerning
the assignment of inventory items to BLS
categories under the IPIC method. As part
of this change, a taxpayer may separate a
reassigned item from an inappropriate
pool and combine the reassigned item
with items in an appropriate pool. See
§ 1.472-8(g)(2) for principles concerning
the manner of combining and separating
dollar-value pools;

(g) change the representative month
when necessitated because of a change in
taxable year or a change in method of
determining current-year cost made pur-
suant to section 22.02 of this revenue pro-
cedure. 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 determin-
ing 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 account-
ing method change numbers for both

changes on the appropriate line on that
Form 3115.

(h) change from using preliminary
BLS price indexes to using final BLS
price indexes to compute an inventory
price index, or vice versa. See § 1.472-
8(e)(3)(iii)(D)(2) for principles concern-
ing the selection of BLS price indexes
under the IPIC method; and

(i) change from using a representative
appropriate month to using an appropriate
month. See § 1.472-8(e)(3)(iii)(B)(3) for
principles concerning the selection of an
appropriate month.

(2) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to the changes
described in sections 22.07(1)(d), (f) in
the case of a taxpayer using the 10 percent
method described in § 1.472-
8(e)(3)(iii)(C)(2), and (g) of this revenue
procedure.

(3) Manner of making change.

(a) Cut-off basis. These changes are
made on a cut-off basis and apply only to
the computation of ending inventories af-
ter the beginning of the year of change.
Accordingly, a § 481(a) adjustment is nei-
ther permitted nor required.

(b) New base year. A taxpayer that
changes pursuant to sections 22.07(1)(a),
(b), and (e) of this revenue procedure must
establish a new base year in the year of
change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.07 is "62."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.08 Changes to the Vehicle-Pool
Method.

(1) Description of change. This change
applies to a retail dealer or wholesale dis-
tributor ("reseller") of cars and light-duty
trucks that wants to change to the
"Vehicle-Pool Method" as described in
Rev. Proc. 2008-23, 2008-1 C.B. 664.

(2) Manner of making change.

(a) Cut-off basis. This change is made
on a cut-off basis and applies only to the
computation of ending inventories after
the beginning of the year of change. Ac-

cordingly, a § 481(a) adjustment is neither
permitted nor required. A reseller that
changes its method of pooling under Rev.
Proc. 2008-23 and this section 22.08
must comply with § 1.472-8(g).

(b) New base year. Instead of using the
earliest taxable year for which the reseller
adopted the LIFO method for any items in
a pool, the reseller must use the year of
change as the base year when determining
the LIFO value of that pool for the year of
change and subsequent taxable years (that
is, the cumulative index at the beginning
of the year of change is 1.00). The reseller
must restate the base-year cost of all lay-
ers of increment in a pool at the beginning
of the year of change in terms of new
base-year cost. For an example of estab-
lishing a new base year, see § 1.472-
8(e)(3)(iv)(B)(1)(ii).

(3) Concurrent change to the Alterna-
tive LIFO Method or the Used Vehicle
Alternative LIFO Method. A reseller mak-
ing both a change to the Vehicle-Pool
Method under this section 22.08 and a
change to the Alternative LIFO Method
under Rev. Proc. 97-36 (see section 22.03
of this revenue procedure) or the Used
Vehicle Alternative LIFO Method under
Rev. Proc. 2001-23 (see section 22.04 of
this revenue procedure) should file a sin-
gle Form 3115 for both changes, in which
case the taxpayer must enter the desig-
nated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.08 is "112."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.09 Changes 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

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

wants to change the particular "official
used vehicle guide" utilized by the tax-
payer in connection with the Used Vehicle
Alternative LIFO Method or any change
in the precise manner of its utilization (for
example, a change in the specific guide
category that a taxpayer uses to represent
vehicles of average condition for purposes
of section 4.02(5)(a) of Rev. Proc. 2001-
23).

(2) Manner of making change.

(a) Cut-off basis. This change is made
on a cut-off basis and applies only to the
computation of ending inventories after
the beginning of the year of change. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(b) New base year. A taxpayer that
changes its method pursuant to this sec-
tion 22.09 must establish a new base year
in the year of change.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.09 is "140."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

.10 Changes to dollar-value pools of
manufacturers.

(1) Description of change. This change
applies to a manufacturer that:

(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 re-
sale pools;

(b) wants to change from using multi-
ple pools described in § 1.472-8(b)(3) to
using natural business unit (NBU) pools
described in § 1.472-8(b)(1), or vice ver-
sa; or

(c) wants to reassign items in NBU
pools described in § 1.472-8(b)(1) into
the same number or a greater number of
NBU pools.

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories after the beginning of the year
of change. Accordingly, a § 481(a) adjust-
ment is neither permitted nor required. A
taxpayer that changes its method of pool-
ing pursuant to this section 22.10 must
combine or separate pools as required by

§ 1.472-8(g). If a taxpayer splits a pool
into two or more permissible pools pursu-
ant to this section 22.10, which must be
implemented on a cut-off basis, the tax-
payer 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
revenue procedure, which must be imple-
mented with a § 481(a) adjustment.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.10 is "141."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Leo Nolan at (202) 317-
7007 (not a toll-free number).

## SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD (§ 475)

.01 Commodities dealers, securities
traders, and commodities traders electing
to use the mark-to-market method of ac-
counting 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 inconsistent
with § 475, the taxpayer is required to
change its method of accounting to com-
ply with the election. A taxpayer that
makes a § 475(e) or (f) election but fails to
change its method of accounting to com-
ply with that election is using an imper-
missible method. See section 4 of Rev.
Proc. 99-17.

(2) Applicability. This change applies
to a taxpayer if all of the following con-
ditions are satisfied:

(a) the taxpayer is a commodities
dealer, securities trader, or commodities
trader that has made a valid election under
§ 475(e) or (f) (see section 5.03(1) of Rev.
Proc. 99-17) and that is required to

change its method of accounting to com-
ply 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) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(4) Election under Rev. Proc. 99-17.
In accordance with section 5.03(1) of Rev.
Proc. 99-17, to make a § 475(e) or (f)
election, a taxpayer must file a statement
satisfying the requirements in section 5.04
of Rev. Proc. 99-17. The taxpayer must
file the statement not later than the due
date (without regard to any extension) of
the original federal income tax return for
the taxable year immediately preceding
the election year and must attach the state-
ment either to that return or, if applicable,
to a request for an extension of time to file
that return. For example, if a calendar year
individual taxpayer wants to make a
§ 475(e) or (f) election for 2014 (the elec-
tion year), the taxpayer must file the state-
ment on or before April 15, 2014, with the
taxpayer's timely filed (without regard to
any extension) federal income tax return
for 2013 or the taxpayer's timely filed
request for an extension of time to file the
2013 federal income tax return. On the
Form 3115 filed for the year of change, a
taxpayer should indicate that the taxpayer
has filed the statement in compliance with
section 5.03(1) of Rev. Proc. 99-17.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.01 is "64."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Eric E. Boody at (202)
317-6945 (not a toll-free number).

.02 Taxpayers requesting to change
their method of accounting from the mark-
to-market method of accounting described
in § 475 to a realization method.

(1) Description of change. This change
applies to any taxpayer requesting permis-
sion to change its method of accounting
for securities or commodities as defined in
§ 475 from the mark-to-market method of
accounting described in § 475 to a real-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ization method of accounting. For exam-
ple, this section 23.02 applies when a tax-
payer is required to change its method of
accounting to a realization method after
revoking an election under § 475(e),
(f)(1), or (f)(2).

(2) Exclusive procedure. The proce-
dure set forth in this section 23.02 is the
exclusive procedure for changing a tax-
payer's method of accounting from the
mark-to-market method described in
§ 475 to a realization method. Thus, filing
the Notification Statement described in
section 23.02(6) of this revenue procedure
is the exclusive manner of revoking a
§ 475(e), (f)(1), or (f)(2) election. More-
over, any taxpayer requesting permission
to change to a realization method must
follow the procedures described in this
section 23.02 and other applicable provi-
sions of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, to request consent to change
its method of accounting for securities
described in § 475(c)(2) (Section 475 Se-
curities), commodities described in
§ 475(e)(2) (Section 475 Commodities),
or both.

(3) Applicability. This change applies
to a taxpayer if all of the following con-
ditions in paragraphs (a) through (c) be-
low are satisfied:

(a) the taxpayer is using, properly or
improperly, the mark-to-market method
of accounting described in § 475;

(b) the taxpayer is requesting permis-
sion to change to a realization method of
accounting and report gains or losses from
the disposition of Section 475 Securities,
Section 475 Commodities, or both, under
§ 1001; and

(c) the taxpayer meets the requirements
of this section 23.02, including the re-
quirement that it timely file the Notifica-
tion Statement described in section
23.02(6) of this revenue procedure.

(4) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13
do not apply to this change.

(5) Manner of making change. This
change is made using a cut-off basis and
applies only to Section 475 Securities,
Section 475 Commodities, or both, that
are accounted for using the mark-to-
market method of accounting described in
§ 475 and for which a change in method is
requested under this section 23.02. Ac-

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

Under the cut-off basis, a taxpayer
must make a final mark of all Section 475
Securities, Section 475 Commodities, or
both, that are being marked to market and
that are the subject of the accounting
method change being requested, on the
last business day of the year preceding the
year of change. As a result of the final
mark, gain or loss attributable to those
securities and commodities is also recog-
nized on the last business day of the year
preceding the year of change. In the case
of any Section 475 Security or Section
475 Commodity that a taxpayer holds on
the first day of the year of change, the
taxpayer must make proper adjustment in
the amount of any subsequently realized
gain or loss to take into account adjust-
ments for the gain or loss recognized prior
to the first day of the year of change
pursuant to the use of the mark-to-market
method of accounting described in § 475
in order to prevent amounts from being
duplicated or omitted. Any change in
value on or after the first day of the year of
change will be taken into account using a
realization method of accounting unless
section 23.02(7) of this revenue procedure
permits the taxpayer to resume a mark-to-
market method and the taxpayer resumes
a mark-to-market method.

(6) Notification Statement required. In
addition to filing the Form 3115 required
under section 6.03(1) of Rev. Proc. 2015-
13, to change to a realization method of
accounting under this section 23.02 of this
revenue procedure, a taxpayer must also
file a Notification Statement that satisfies
the requirements in section 23.02(6) of
this revenue procedure. The Notification
Statement must be filed not later than the
due date (without regard to any extension)
of the original federal income tax return
for the taxable year immediately preced-
ing the year of change and must be at-
tached either to that return or, if applica-
ble, to a request for an extension of time to
file that return.

(a) Notification Statement contents.
The Notification Statement must contain
(1) the name of the taxpayer that will
change its method of accounting (that is,
the applicant), and, if applicable, the filer
(for example, its parent corporation); (2) a
statement that the taxpayer is requesting

to change its method of accounting from
the mark-to-market method of accounting
described in § 475 to a realization method;
(3) the year of change (both the beginning
and ending dates); and (4) the types of
instruments subject to the method change,
that is, Section 475 Securities, Section
475 Commodities, or both. If a taxpayer
has made an election under § 475(e),
(f)(1), or (f)(2), the taxpayer must also
include a statement revoking the taxpay-
er's section 475 election or elections for
the Section 475 Securities, Section 475
Commodities, or both, for which a change
in accounting method is sought.

(b) Effect of filing Notification State-
ment. Once the taxpayer files a Notifica-
tion Statement for the year of change, a
realization method of accounting is the
only permissible method of accounting for
Section 475 Securities, Section 475 Com-
modities, or both, described in the Notifi-
cation Statement for the entire year of
change and all subsequent years (unless
section 23.02(7)(a) of this revenue proce-
dure applies). A taxpayer that files the
Notification Statement described in this
section 23.02 but fails to change its
method of accounting using the proce-
dures described in Rev. Proc. 2015-13
and this section 23.02 is using an imper-
missible method.

(c) Limited § 301.9100 relief. Section
9100 relief for failure to comply with the
requirements of this section 23.02(6) will
be granted only in unusual and compelling
circumstances.

(7) Additional requirements.

(a) Resuming the mark-to-market
method of accounting. A taxpayer may not
use the automatic change procedures in
Rev. Proc. 2015-13 and section 23.01 of
this revenue procedure to resume using
the mark-to-market method of accounting
described in § 475 for the Section 475
Securities, Section 475 Commodities, or
both, that are the subject of the method
change being requested using this section
23.02 during any of the five taxable years
beginning with the year of change. To
resume using the mark-to-market method
of accounting described in § 475 during
this 5-year period, a taxpayer must: (i)
request the change using the non-
automatic change procedures in Rev.
Proc. 2015-13, (ii) request the change by
the date an election would be due under

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

section 5.03 of Rev. Proc. 99-17, 1999-1
C.B. 503, and (iii) include a statement that
satisfies all applicable requirements of
section 5.04 of Rev. Proc. 99-17.

(b) Copy of Notification Statement. A
taxpayer must attach a copy of the Noti-
fication Statement required in section
23.02(6) of this revenue procedure to its
Form 3115 filed under this section 23.02.

(c) No audit protection for valuation. A
taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13
for the method of valuation used by the
taxpayer to determine the fair market
value of the taxpayer's Section 475 Secu-
rities, Section 475 Commodities, or both,
for a taxable year prior to the year of
change, or for a failure to comply with the
requirements in Rev. Proc. 99-17 to prop-
erly elect the mark-to-market method. See
section 8.02(2) of Rev. Proc. 2015-13.

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.02 is "218".

(9) Contact information. For further in-
formation regarding a change under this
section, contact Eric E. Boody at (202)
317-6945 (not a toll-free number).

## SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585)

.01 Changing 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 accounting
for bad debts from the § 585 reserve
method to the § 166 specific charge-off
method.

(b) Inapplicability. This change does
not apply to a large bank as defined in
§ 585(c)(2).

(2) Certain eligibility rule inapplica-
ble. A bank that changed from the § 593
reserve method under § 593(g) to the
§ 585 reserve method is not prohibited
under section 5.01(1)(f) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, from chang-
ing its method of accounting for bad debts
under this section 24.01 solely because of
the § 593(g) change. A bank for which a

Qsub election is filed will not be prohib-
ited under section 5.01(1)(f) of Rev. Proc.
2015-13 from changing its method of ac-
counting for bad debts under this section
24.01 solely because of the deemed liqui-
dation 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 is the amount
of the bank's reserve for bad debts as of
the close of the taxable year immediately
before the year of change. However, the
amount of the § 481(a) adjustment does
not include the amount of a bank's pre-
1988 reserves (as described in
§ 593(g)(2)(A)(ii), without taking into ac-
count § 593(g)(2)(B)) if the bank changed
in a prior year from the § 593 reserve
method to the § 585 reserve method and
§ 593(g) applied to that change. The
deemed liquidation of a bank occurring
solely because its parent makes a Qsub
election does not accelerate the § 481(a)
adjustment. In accordance with section
7.03(4)(a) of Rev. Proc. 2015-13, a bank
that ceases to be a bank under § 581 must
accelerate its § 481(a) adjustment.

(4) Change from § 585 required when
electing S corporation status.

(a) General rule. A bank electing S
corporation status (or a bank for which a
Qsub election is filed) cannot use the
§ 585 reserve method. The filing by a
bank of a Form 2553, Election by a Small
Business Corporation, or the filing by a
bank's parent of Form 8869, Qualified
Subchapter S Subsidiary Election, with
respect to the bank will constitute an
agreement by the bank to change its
method of accounting for bad debts from
the § 585 reserve method to the § 166
specific charge-off method effective as of
the taxable year for which the S corpora-
tion election or Qsub election is effective
(year of change) in accordance with all of
the automatic change procedures of Rev.
Proc. 2015-13 and this section 24.01. The
resulting § 481(a) adjustment is recog-
nized built-in gain under § 1374, unless
the bank elects under § 1361(g) and sec-
tion 24.01(4)(b) of this revenue procedure
to take the § 481(a) adjustment into ac-
count in determining taxable income for
the taxable year immediately preceding
the year of change. See § 1.1374-4(d).

(b) Election to include § 481(a) 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, 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) ad-
justment in determining taxable income
for the taxable year immediately preced-
ing the year of change. To make this elec-
tion, a bank must (1) file an original and
copy of Form 3115 under section 6.03(1)
of Rev. Proc. 2015-13 (and any other
copy required under section 6.03) for the
year of change, (2) file an additional copy
of the Form 3115 with its original (or
amended) federal income tax return for
the taxable year immediately preceding
the year of change filed no later than the
date the original Form 3115 is properly
filed under section 6.03(1) of Rev. Proc.
2015-13 (and any other copy required un-
der section 6.03) and (3) include the
amount of the § 481(a) adjustment in
gross income for the taxable year imme-
diately preceding the year of change. The
bank must attach a statement to the orig-
inal and both copies of Form 3115 stating
that the bank elects under § 1361(g) to
take the § 481(a) adjustment into account
in determining taxable income for the tax-
able year immediately preceding the year
of change.

(ii) Special rule for Qsub banks. In the
case of a Qsub bank, the S corporation
parent must file an original and copy of
Form 3115 under section 6.03(1) of Rev.
Proc. 2015-13 for the year of change. The
Qsub bank must file an additional copy of
the Form 3115 with its original (or
amended) federal income tax return for
the taxable year immediately preceding
the year of change filed no later than the
date the original Form 3115 is properly
filed under section 6.03(1) of Rev. Proc.
2015-13, and include the amount of the
§ 481(a) adjustment in gross income for
the taxable year immediately preceding
the year of change. In the case of a Qsub
bank, the Form 3115 should indicate that
the "filer" is the S corporation parent and
the "applicant" is the Qsub bank.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

(iii) The following example illustrates
the principles of section 24.01(4)(b) of
this revenue procedure.

Example. X, a calendar year taxpayer, is a calen-
dar year bank as defined in § 581 and is not a large
bank as defined in § 585(c)(2). For taxable years
before 2015, X accounted for its bad debts under the
§ 585 reserve method. By March 15, 2015, X prop-
erly filed a Form 2553 electing to be an S corpora-
tion effective January 1, 2015. Pursuant to section
24.01(4)(a) of this revenue procedure, the filing of
the Form 2553 constituted an agreement by X to
change from the § 585 reserve method to the § 166
specific charge-off method for 2015 in accordance
with all of the automatic change procedures of Rev.
Proc. 2015-13, and the applicable provisions of this
section 24.01. Thus, for example, X must file a Form
3115 for this 2015 change in duplicate, in accor-
dance with section 6.03(1) of Rev. Proc. 2015-13,
by attaching the original Form 3115 to X's timely
filed (including any extension) original federal in-
come tax return for 2015 and filing a copy of the
Form 3115 with the Ogden office. The amount of X's
§ 481(a) adjustment for the change is the amount of
X's bad debt reserve as of the close of December 31,
2014. X wishes to elect under § 1361(g) to include
the § 481(a) adjustment in income in the taxable year
ending December 31, 2014, the taxable year imme-
diately preceding the year of change. To make this
election, X must (1) file an original and copy of Form
3115 for the 2015 change under section 6.03(1) of
Rev. Proc. 2015-13, (2) file an additional copy of
that Form 3115 with its original (or amended) fed-
eral income tax return for 2014 filed no later than the
date the original Form 3115 is properly filed under
section 6.03(1) of Rev. Proc. 2015-13, and (3) in-
clude the amount of its § 481(a) adjustment in gross
income in its return for 2014. X must attach a state-
ment to the original and both copies of Form 3115
stating that X elects under § 1361(g) to take the
§ 481(a) adjustment into account in determining
taxable income for 2014, the taxable year immedi-
ately preceding the year of change.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
24.01 is "66."

(6) Contact information. For further in-
formation regarding a change under this
section, contact K. Scott Brown at (202)
317-6945, Laura Fields at (202) 317-6850
or Adrienne Mikolashek at (202) 317-
6850 (not a toll-free number).

.02 Reserved.

## SECTION 25. INSURANCE COMPANIES (§§ 816, 832, 833)

.01 Safe harbor method of accounting
for premium acquisition expenses.

(1) Description of change. Rev. Proc.
2002-46, 2002-2 C.B. 105, sets forth a
safe harbor method of accounting for pre-

mium acquisition expenses of certain non-
life insurance companies. Under this
method, an insurance company is permit-
ted to treat as premium acquisition ex-
penses 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's pro forma premium acquisi-
tion expenses at the end of the taxable
year and the company's pro forma pre-
mium acquisition expenses at the end of
the preceding taxable year. The amount
taken into account as a net increase in the
pro forma premium acquisition expenses,
however, cannot exceed the insurance
company's unearned premium reserve
offset amount for that year. A special rule
applies to premium acquisition expenses
with respect to certain contracts with in-
stallment premiums. See Rev. Proc. 2002-
46.

(2) Applicability. The automatic
change in this section 25.01 applies to any
insurance company that is subject to tax
under § 831(a) and determines its premi-
ums earned for insurance contracts during
the taxable year under § 832(b)(4) in ac-
cordance with the provisions of
§ 1.832-4. The automatic change does not
apply to an existing Blue Cross or Blue
Shield organization or any other organiza-
tion to which § 833 applies.

(3) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, do not apply to this
change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.01 is "67."

(5) Contact information. For further in-
formation regarding a change under this
section, contact David Remus at (202)
317-6995 (not a toll-free number).

.02 Certain changes in method of ac-
counting for organizations to which § 833
applies.

(1) Description of change. This change
applies to an existing Blue Cross or Blue
Shield organization within the meaning of
§ 833(c)(2), or an organization described
in § 833(c)(3), that is required to change
its method of accounting for unearned
premiums by reason of failing to meet the
Medical Loss Ratio (MLR) requirements
of § 833(c)(5), or by reason of meeting the
MLR requirements of § 833(c)(5) after
failing to meet those requirements in a
prior year. See Notice 2011-4, 2011-2
I.R.B. 282.

(2) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, do not apply to this
change.

(3) Accelerated § 481(a) adjustment
period in certain situations. In addition to
the circumstances set forth in section
7.03(4) of Rev. Proc. 2015-13, the § 481
adjustment period provided in section
7.03 of Rev. Proc. 2015-13 will be accel-
erated in the event a taxpayer with a re-
maining balance of a § 481(a) adjustment
that arose by reason of a change in method
of accounting described in this section
25.02 is required to effect another change
in method of accounting described in this
section 25.02. Thus, for example, a tax-
payer that fails to satisfy the requirements
of § 833(c)(5) and as a result has a posi-
tive § 481(a) adjustment, is required to
accelerate the remaining balance, if any,
of that adjustment in a subsequent taxable
year in which the taxpayer meets the re-
quirements of § 833(c)(5).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.02 is "155."

(5) Contact information. For further in-
formation regarding this section, contact
Rebecca L. Baxter at (202) 317-6995 (not
a toll-free number).

.03 Change in qualification as life/non-
life insurance company under § 816(a).

(1) Description of change. This change
applies to a taxpayer that changes its qual-
ification under § 816(a) to move from a
life insurance company taxable under part
I of subchapter L to a non-life insurance
company taxable under part II of subchap-
ter L, or vice versa. Whether an insurance
company is taxed under § 801 as a life

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

insurance company is determined using
the statutory requirements of § 816(a).
This section requires that a company's life
insurance reserves (as defined in
§ 816(b)), plus unearned premiums and
unpaid losses on noncancellable life, ac-
cident, and health insurance contracts not
included in life insurance reserves, be
compared to its total reserves (as defined
in § 816(c)). The comparison mandated by
§ 816(a) is referred to as the qualification
fraction. An insurance company is a life
insurance company if the sum of the life
insurance reserves and unearned premi-
ums and unpaid losses (whether or not
ascertained) on noncancellable life, acci-
dent, or health policies not included in life
insurance reserves comprise more than
50% of total reserves.

(2) Certain eligibility rules inapplica-
ble. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, do not apply to this
change.

(3) No audit protection or ruling on
qualificiation as a life insurance com-
pany. The taxpayer does not receive ei-
ther: (a) any audit protection under section
8.01 of Rev. Proc. 2015-13 or (b) ruling
reliance under section 10 of Rev. Proc.
2015-13 in connection with the consent
granted under section 9 of Rev. Proc.
2015-13 for a change under this section
25.03 regarding whether the taxpayer
qualifies as a life insurance company. The
director will ascertain whether the tax-
payer qualifies as a life insurance com-
pany.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.03 is "219."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free number).

SECTION 26. DISCOUNTED UNPAID
LOSSES (§ 846)

.01 Composite method for discounting
unpaid losses.

(1) Description of change. Section 846
defines "discounted unpaid losses" for
purposes of computing the insurance com-
pany taxable income of certain insurance
companies. Notice 88-100, 1988-2 C.B.

439, section V, sets forth a composite
method for computing unpaid losses with
respect to accident years not separately
stated on the NAIC annual statement.
Rev. Proc. 2002-74, 2002-2 C.B. 980,
section 3.01, clarifies that the composite
method of Notice 88-100, section V, is
permitted, but not required; section 3.02
sets forth an alternative method for those
taxpayers that do not use the composite
method of section 3.01. An insurance
company using a method provided in sec-
tion 3.01 or 3.02 of Rev. Proc. 2002-74 to
compute discounted unpaid losses, must
use the same method to compute dis-
counted estimated salvage recoverable.
An insurance company that currently uses
a permissible method of accounting for
discounted unpaid losses may change its
method of accounting to or from the com-
posite method of Notice 88-100, section
V, without the consent of the Commis-
sioner. This change applies to insurance
companies that are required to discount
unpaid losses under § 846. See Rev. Proc.
2002-74.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
26.01 is "68."

(3) Contact information. For further in-
formation regarding a change under this
section, contact David Remus at (202)
317-6995 (not a toll-free number).
.02 Reserved.

SECTION 27. REAL ESTATE
MORTGAGE INVESTMENT
CONDUIT (REMIC) (§§ 860A-860G)

### .01 REMIC inducement fees.

(1) Description of change. A taxpayer
that receives an inducement fee in connec-
tion with becoming the holder of a non-
economic residual interest in a REMIC
must take that fee into account over the
remaining 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 ac-
counting for such inducement fees to one
of the safe harbor methods provided under
§ 1.446-6(e)(1)-(2). See Rev. Proc.
2004-30, 2004-1 C.B. 950, for additional
guidance relating to this change.

(2) Manner of making change. A tax-
payer making this change must identify

the specific safe harbor method under
§ 1.446-6(e) to which the taxpayer is
changing.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
27.01 is "79."

(4) Contact information. For further in-
formation regarding a change under this
section, contact John W. Rogers, III at
(202) 317-6895 (not a toll-free number).
.02 Reserved.

## SECTION 28. RESERVED

### SECTION 29. FUNCTIONAL CURRENCY (§ 985)

.01 Change in functional currency.

(1) Description of change. This change
applies to a taxpayer that wants to change
its functional currency or the functional
currency of a qualified business unit
(QBU) of the taxpayer. The preceding
sentence does not apply to a QBU of a
taxpayer described in § 1.985-1(b)(1)(iii).

(2) Manner of making change. A tax-
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 this section
29.01 is "70."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Peter Merkel at (202)
317-4919 (not a toll-free number).

.02 Reserved.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

## SECTION 30. RESERVED SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)

.01 De minimis original issue discount
(OID).

(1) Description of change. This change
applies to a taxpayer that wants to change
to the principal-reduction method of ac-
counting described in section 5 of Rev.
Proc. 97-39, 1997-2 C.B. 485. The
principal-reduction method of accounting
is an aggregate method of accounting for
de minimis OID (discount) on certain
loans originated by the taxpayer.

(2) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(3) Description. The principal-
reduction method of accounting is a per-
missible method for use by taxpayers to
account for discount on one or more cat-
egories of loans described in section 4.02
or 4.03 of Rev. Proc. 97-39. If the
principal-reduction method is used to ac-
count for any loans in a category of loans,
the method must be used for the entire
category of loans. The principal-reduction
method applies only to loans described in
section 3 of Rev. Proc. 97-39.

(4) Manner of making change.

(a) This change is made on a cut-off
basis and applies only to loans described
in section 3 of Rev. Proc. 97-39 that were
acquired on or after the beginning of the
year of change. Accordingly, a § 481(a)
adjustment is neither permitted nor re-
quired.

(b) The taxpayer must maintain books
and records sufficient to satisfy the direc-
tor that old and new loans have been ad-
equately segregated.

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

(a) identify the categories of loans to
which the proposed method will apply;
and

(b) describe any "additional catego-
ries" permitted under section 4.03 of Rev.
Proc. 97-39.

(6) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
31.01 is "72."

(8) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

.02 Proportional method of accounting
for OID on a pool of credit card receiv-
ables.

(1) Description of change. This change
applies to a taxpayer that wants to change
to the proportional method of accounting
for OID on a pool of credit card receiv-
ables as described in Rev. Proc. 2013-26,
2013-22 I.R.B. 1160.

(2) Manner of making change. This
change is made on a cut-off basis. Accord-
ingly, a § 481(a) adjustment is neither
required nor permitted. The unaccrued
OID for the pool as of the beginning of the
first period in the year of change is equal
to the unaccrued OID for the pool as of
the end of the preceding year under the
taxpayer's previous method of accounting
for the pool.

(3) Certain eligibility rule temporarily
inapplicable. The eligibility rule in sec-
tion 5.01(1)(f) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to a
change to the proportional method of ac-
counting for OID on a pool of credit card
receivables, as described in section 5 of
Rev. Proc. 2013-26, for the taxpayer's
first or second taxable year ending on or
after December 31, 2012.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
31.02 is "183."

(5) Contact information. For further in-
formation regarding this section, please
contact Charles W. Culmer at (202) 317-
6945 (not a toll-free number).

SECTION 32. MARKET DISCOUNT
BONDS (§ 1278)

.01 Revocation of § 1278(b) election.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market 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 included in
gross income for the taxable years to
which the discount is attributable. See
Rev. Proc. 92-67, 1992-2 C.B. 429, for
the procedures to make a § 1278(b) elec-
tion (including a deemed § 1278(b) elec-
tion). 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 ef-
fective (year of change), and to all market
discount bonds that are subsequently ac-
quired 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 dis-
count as defined in § 1276(b) less any
market discount included in income while
the bond was subject 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. Accordingly, a § 481(a) adjust-
ment 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 ac-
cruing on the bond on and after the first
day of the year of change is included in
income generally upon disposition of the
bond. See § 1276(a). Because a cut-off
basis is prescribed for this change, the
basis of any bond, adjusted for amounts
previously included in income during the
period of the election, is not affected by
the revocation.

(4) Additional requirements. On a
statement attached to the Form 3115, the
taxpayer must provide:

(a) the reason(s) for revoking the
§ 1278(b) election (or deemed § 1278(b)
election);

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

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

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 ac-
quisition.

(5) Audit protection. A taxpayer may
receive audit protection, as provided in
section 8.01 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, in connection with this
change. Any audit protection applicable to
this change under section 8.01 of Rev.
Proc. 2015-13 does not preclude the
Commissioner from examining the
method used by the taxpayer to determine
the amount of accrued market discount
under § 1276(b) for a taxable year prior to
the year of change.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
32.01 is "73."

(7) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).
.02 Reserved.

## SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281)

.01 Interest income on short obliga-
tions.

(1) Description of change.

(a) This change applies to a taxpayer
that wants to change its method of ac-
counting to comply with § 1281 for inter-
est income on short-term obligations.

(b) Under § 1281, a holder of certain
short-term obligations, including a bank
as defined in § 581, must include in gross
income any accrued interest income on
such obligations, regardless of the hold-
er's overall method of accounting. Section
1281 applies to all types of interest in-
come, including acquisition discount,
original issue discount (OID), and stated
interest. See S. Rep. No. 99-313, 99th
Cong., 2d Sess. 903 (1986), 1986-3 (Vol.
3) C.B. 903.

(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
the obligation is held by the holder. See
§ 1283(b), as modified by § 1283(c), to
determine the daily portions of acquisition
discount or OID. In addition, § 1281(a)
requires the holder to include in gross
income any stated interest that is payable
on the short-term obligation (other than
stated interest taken into account to deter-
mine the amount of the acquisition dis-
count 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 this section
33.01 is "74."

(4) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

.02 Stated interest on short-term loans
of cash method banks.

(1) Description of change. This change
applies to a bank that uses the cash re-
ceipts and disbursements (cash) method of
accounting as its overall accounting
method and that wants to change its
method of accounting from accruing
stated interest on short-term loans made in
the ordinary course of business to using
the cash method for that interest. For ex-
ample, see Security State Bank v. Com-
missioner, 214 F.3d 1254 (10th Cir. 2000),
aff'g 111 T.C. 210 (1998), acq., 2001-1
C.B. xix; and Security Bank Minnesota v.
Commissioner, 994 F.2d 432 (8th Cir.
1993), aff'g 98 T.C. 33 (1992), in which
the courts held that § 1281 does not apply
to short-term loans made by a cash
method bank in the ordinary course of its
business.

(2) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to this change.

(3) Section 481(a) adjustment period.
A taxpayer making this change must take
the entire § 481(a) adjustment into ac-
count in computing taxable income for the
year of change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
33.02 is "75."

(5) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free number).

## EFFECTIVE DATE

This revenue procedure is effective for
a Form 3115 filed on or after January 16,
2015, for a year of change ending on or
after May 31, 2014, that is filed under the
automatic change procedures of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419. See
section 15.02 of Rev. Proc. 2015-13 for
the transition rules relating to filing a
Form 3115 under either the automatic
change procedures of Rev. Proc. 2015-13
or making a method change under the
procedures and APPENDIX of Rev. Proc.
2011-14.

## EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure, in con-
junction with Rev. Proc. 2015-13 ampli-
fies, clarifies, and modifies Rev. Proc.
2011-14, 2011-4 I.R.B. 330. Rev. Proc.
2011-14, as amplified, clarified, and mod-
ified is superseded in part. The second
sentences in sections 14.01 and 14.02, and
sections 14.04, 14.05, 14.06, and 14.07 of
Rev. Proc. 2011-14 remain in effect. All
other sections of Rev. Proc. 2011-14 are
superseded.

.02 Rev. Proc. 2014-16, 2014-9 I.R.B.
606, is modified as follows:

(1) Section 3.01(3)(a)(vii) is modified
to remove the term "transaction" from the
paragraph.

(2) Section 3.01(3)(b)(vii) is modified
to remove the term "transaction" from the
paragraph.

(3) The chart in section 3.01(8)(a) is
modified to remove the term "transaction"
from line 13 of the column titled, Descrip-
tion of Change, which pertains to a change
by a dealer in property to deduct commis-
sions and other costs that facilitate the sale
of property.

.03 Rev. Proc. 2011-46, 2011-42
I.R.B. 518, is modified as follows:

(1) Section 5.02(3)(a) is modified to
remove the first two sentences in the Man-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ner of Making Change section and to sub-
stitute the following three new sentences
in its place:

(a) In accordance with § 1.446-
1(e)(3)(ii), the requirement under
§ 1.446-1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Not-
withstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, the statement in lieu of
a Form 3115 that is permitted under this
paragraph 5.02(3)(a) is considered a Form
3115 for purposes of the automatic con-
sent procedures in Rev. Proc. 2015-13.
However, the requirement to file the
Ogden copy, under section 6.03(1)(a) of
Rev. Proc. 2015-13, is waived.

(2) Section 5.02(4) is modified to read
as follows:

(4) Certain eligibility rule inapplica-
ble. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 (or any
successor) does not apply to a change in
method of accounting under section 5.02
of Rev. Proc. 2011-46.

(3) Section 5.03(2)(a) is modified to
remove the first two sentences in the Man-
ner of Making Change section and to sub-
stitute the following three new sentences
in its place:

(a) In accordance with § 1.446-
1(e)(3)(ii), the requirement under
§ 1.446-1(e)(3)(i) to file a Form 3115 is
waived and a statement in lieu of a Form
3115 is authorized for this change. Not-
withstanding the definition of Form 3115
in section 3.07 of Rev. Proc. 2015-13, the
statement in lieu of a Form 3115 that is
permitted under this paragraph 5.03(2)(a)
is considered a Form 3115 for purposes of
the automatic consent procedures in Rev.
Proc. 2015-13. However, the requirement
to file the Ogden copy, under section
6.03(1)(a) of Rev. Proc. 2015-13, is
waived.

.04 Rev. Rul. 2004-62, 2004-1 C.B.
1072, is modified to remove the second
sentence in the CHANGE IN METHOD
OF ACCOUNTING section and to substi-
tute the following new two sentences in its
place:

A taxpayer that wants to change its
method of accounting to comply with this
revenue ruling must follow the automatic
change procedures in Rev. Proc. 2015-13,
2015-5 I.R.B. 419, (or successor) if the

taxpayer is eligible to request such con-
sent under the automatic change proce-
dures therein. The eligibility rules in sec-
tion 5.01(1) of Rev. Proc. 2015-13 (or
successor) apply to a change in method of
accounting described in section 3.04 of
Rev. Proc. 2015-14, 2015-5 I.R.B. 419
(or successor).

.05 Rev. Proc. 2002-12, 2002-1 C.B.
374, is modified to remove section 6.
Thus, the eligibility rules in section
5.01(1) and the audit protection provisions
in section 8 of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, apply to a change in
method of accounting described in section
3.03 of this revenue procedure. Moreover,
the section 481(a) adjustment period for a
change in method of accounting described
in section 3.03 of this revenue procedure
is determined in accordance with section
7.03 of Rev. Proc. 2015-13.

.06 Rev. Rul. 2000-7, 2000-9 C.B.
712, is modified to remove the fourth sen-
tence of the paragraph in the APPLICA-
TION section and to substitute the follow-
ing new fourth sentence:

A taxpayer that wants to change its
method of accounting to conform with the
holding in this revenue ruling must follow
the automatic change procedures in Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, (or
successor) if the taxpayer is eligible to
request such consent under the automatic
change procedures therein, except that the
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 (or successor) does
not apply to a change described in section
10.03 of Rev. Proc. 2015-14, 2015-5
I.R.B. 450.

.07 Rev. Rul. 2000-4, 2000-1 C.B.
331, is modified to remove the second
sentence of the paragraph in the APPLI-
CATION section, and to substitute the
following two new sentences in that para-
graph in its place:

A taxpayer that wants to change its
method of accounting to conform with the
holding in this revenue ruling must follow
the automatic change procedures in Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, (or
successor) if the taxpayer is eligible to
request such consent under the automatic
change procedures therein. The eligibility
rules in section 5.01(1) of Rev. Proc.
2015-13 (or successor) apply to a change
in method of accounting under section

3.02 of Rev. Proc. 2015-14, 2015-5
I.R.B. 450.

.08 Rev. Proc. 98-29, 1998-1 C.B.
857, is modified to remove sections
5.02(1), 5.02(3) and 5.03. Thus, the eligi-
bility rules in section 5.01(1) and other
automatic change procedures of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, (or
successor) apply to a change in method of
accounting made under section 21.02 of
this revenue procedure.

Also, section 5.02(4) of Rev. Proc.
98-29 is modified to read as follows:

(4) In addition to the automatic change
procedures in Rev. Proc. 2015-13 (or suc-
cessor), the following rule applies to a
taxpayer within the scope of this revenue
procedure and eligible under Rev. Proc.
2015-13 (or successor) that changes to a
method other than the retail safe harbor
method of accounting for estimating in-
ventory shrinkage. The taxpayer must pro-
vide a detailed description of all aspects of
the proposed method of estimating inven-
tory shrinkage (including, for LIFO tax-
payers, the method of determining inven-
tory shrinkage for, or allocating inventory
shrinkage to, each LIFO pool) in the Form
3115 filed by the taxpayer for such a
change. The director or national office
subsequently may review whether the pro-
posed method clearly reflects the taxpay-
er's income under § 446(b), notwithstand-
ing any provision of Rev. Proc. 2015-13
(or successor). If the director or the na-
tional office determines that the proposed
method of accounting does not clearly re-
flect the taxpayer's income, the taxpayer
will be treated as having made a change in
method of accounting without obtaining
the consent of the Commissioner as re-
quired by § 446(e). See sections 2.01(3)
and 2.03 of Rev. Proc. 2015-13 (or suc-
cessor).

.09 Rev. Proc. 2007-48, 2007-2 C.B.
110, is modified to remove section 5.06(1)
and to substitute it with the following sen-
tence:

The eligibility rule in section 5.01(1)(f)
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, (or successor) does not apply to a
change in method of accounting described
in section 5.06 of Rev. Proc. 2007-48,
and made under section 21.09 of Rev.
Proc. 2015-14, 2015-5 I.R.B. 450 (or suc-
cessor).

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

## 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 accordance
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
unless the collection of information dis-
plays a valid OMB control number.

The collections of information in this
revenue procedure are in sections 3, 5, 6,
7, 8, 9, 10, 11, 14, 15, 16, 17, 19, 20, 21,
22, 23, 24, 29, 31, and 32. This informa-
tion is necessary and will be used to de-
termine whether the taxpayer properly
changed to a permitted method of ac-
counting. The collections of information
are required for the taxpayer to obtain
consent to change its method of account-
ing. The likely respondents are the follow-
ing: individuals, farms, business or other
for-profit institutions, nonprofit institu-
tions, and small businesses or organiza-
tions.

The estimated total annual reporting
and/or recordkeeping burden is 30,580
hours.

The estimated annual burden per re-
spondent/recordkeeper varies from 1/6
hour to 8 % hours, depending on individ-
ual circumstances, with an estimated av-
erage of 1 1/4 hours. The estimated number
of respondents is 27,336. The estimated
annual frequency of responses is on occa-
sion.

## .SIGNIFICANT CHANGES

.01 Significant changes to the List of
Automatic Changes (formerly known as
the APPENDIX of Rev. Proc. 2011-14)
include:

(1) Section 3.01 relating to advances
made by a lawyer on behalf of clients, is
amplified and modified to include method
changes involving cases handled on a
non-contingent fee basis;

(2) Section 6.01, relating to impermis-
sible to permissible methods of deprecia-
tion or amortization, is clarified to provide
that a taxpayer can make a change under
this section if the asset is depreciable or
amortizable under the taxpayer's present
or proposed method of accounting;

(3) Section 7.01, relating to changes
for research and experimental (R&E) ex-
penditures under § 174, is amplified and
modified. Section 7.01 of this revenue
procedure now applies to a method
change from treating R&E expenditures
under any provision of the Code other
than § 174 (including § 263A) to treating
R&E expenditures under § 174. Section
7.01 of this revenue procedure also now
applies where a taxpayer already has a
valid § 174 election in effect, but fails to
treat a portion of its R&E expenditures in
accordance with its valid election. Under
section 7.01 of this revenue procedure, the
taxpayer may change its method regarding
that portion of its R&E expenditures to
conform to its valid election;

(4) Section 10.11, relating to changes
for tangible property, is modified. Sec-
tions 10.11(3)(a)(vii), 10.11(3)(b)(vii) and
10.11(8)(a) are modified to remove the
term "transaction" in describing costs in
addition to commissions that facilitate the
sale of property by a dealer in property.
This term is removed to eliminate incon-
sistencies in the terms utilized in section
10.11 and to more accurately reflect the
costs described under § 1.263(a)-1(e)(2);

(5) Section 11.01, relating to certain
UNICAP methods used by resellers and
reseller producers, is clarified to provide
that the change does not apply to a reseller
or reseller-producer that wants to change
its method of accounting for interest cap-
italization;

(6) Section 11.09, relating to changes
to a reasonable allocation method de-
scribed in § 1.263A-1(f)(4) for self-
constructed assets, is modified to provide
that a reseller-producer may make this
change, and that a producer or reseller-
producer not capitalizing a cost subject to
§ 263A may make a change to capitalizing
that cost under a reasonable method
within the meaning of section 1.263A-
1(f)(4) (other than the methods specifi-
cally described in § 1.263A-1(f)(2) or (3))
that the producer or reseller-producer is
already using for self-constructed assets;

(7) Section 14.01, relating to overall
change from the cash method to an ac-
crual method, is clarified, amplified, and
modified to provide that a concurrent
change to a special method is permitted to
be made, if such change is also an auto-
matic change under this revenue proce-

dure, a section of the Code, or regulations,
or in other guidance published in the In-
ternal Revenue Bulletin;

(8) Section 14.09, relating to changes
from the cash to an accrual method for
specific items, is modified to provide that
the change does not apply to a change in
method of accounting for interest that is
not taken into account under § 1.446-2;

(9) Section 14.15, relating to debt issu-
ance costs, is modified to include a change
for capitalized debt issuance costs from
one permissible method to another per-
missible method under the last sentence of
§ 1.446-5(b)(2) if the total original issue
discount determined for purposes of
§ 1.446-5 is de minimis;

(10) Section 15.07, relating to advance
payments, is modified to include a change
for advance payments that are defined in
§ 1.451-5(a)(1);

(11) Section 15.10, relating to retain-
ages, is clarified to provide that the change
does not apply to retainages for long-term
contracts that must be accounted for under
the percentage-of-completion method un-
der § 460, or to long-term-contracts ac-
counted for under exempt percentage of
completion method or the completed con-
tract method and is modified to require a
new separate designated automatic ac-
counting method change number for re-
tainages received under long-term con-
tracts;

(12) Section 15.11, relating to advance
payments - changes in applicable finan-
cial statements,(AFS), is modified to pro-
vide that a change under this section is
made without audit protection under sec-
tion 8.01 of Rev. Proc. 2015-13, 2015-5
I.R.B. 419;

(13) Section 16.01, relating to Series E,
EE, or I U.S. savings bonds, is modified to
waive the requirement under section
6.03(1)(a) of Rev. Proc. 2015-13 to file an
Ogden copy (formerly the national office
copy under Rev. Proc. 2011-14) of the
statement required by section 16.01(2)(b)
of this revenue procedure;

(14) Section 18.01, relating to changes
for long-term contracts, is amplified and
modified to include a change made by a
taxpayer that is required to change its
method of accounting for its long-term
contracts as defined in § 460(f) to the
percentage of completion method (PCM)
described in § 1.460-3(b)(2) if the tax-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

payer fails to use the PCM in the first
taxable year and the succeeding taxable
year(s);

(15) Section 19.01(3), relating to
changes involving timing of incurring li-
abilities for vacation pay, is amplified and
modified to include method changes in-
volving sick pay, and severance pay. This
change was previously limited to vacation
pay;

(16) Section 21.16, relating to a change
in computing ending inventory under the
retail inventory method, is modified to
provide that a retail LCM taxpayer may
make a change to computing the cost
complement to comply with § 1.471-
8(b)(3), including a change from an im-
proper method to an alternative method
for computing the cost complement and a
change from one method described in
§ 1.471-8(b)(3) to another method de-
scribed in § 1.471-8(b)(3);

(17) Section 22.07, relating to changes
within the inventory price index compu-
tation (IPIC) method, is modified and am-
plified to include changes from using a
representative appropriate month to using
an appropriate month, and is modified to
provide that the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 is inap-
plicable in the case of a taxpayer using the
10 percent method described in § 1.472-
8(e)(3)(iii)(C)(2) that makes a change un-
der section 22.07(1)(f) of this revenue
procedure;

(18) This revenue procedure clarifies that
the eligibility rule in section 5.01(1)(c) of
Rev. Proc. 2015-13 (relating to § 381(a)
transactions) applies to the method changes
described in the List of Automatic Changes
in a manner consistent with the rules pro-
vided in § 1.381(c)(4)-1(a)(4) or (5) or
§ 1.381(c)(5)-1(a)(4) or (5);

(19) The following sections are added
to the List of Automatic Changes in this
revenue procedure to provide additional
changes in method of accounting to be
made under the automatic change proce-
dures:

(a) Section 4.02, relating to changes for
conformity election by bank after previ-
ous election automatically revoked;

(b) Section 5.02, relating to changes to
comply with § 163(e)(3);

(c) Section 10.12, relating to railroad
track structure expenditures, is added to
the List of Automatic Changes, consistent

with Rev. Proc. 2002-65, 2002-2 C.B.
700, and Rev. Proc. 2001-46, 2001-2
C.B. 263. However, the eligibility rules in
section 5.01(1) of Rev. Proc. 2015-13 ap-
ply to a change under section 10.12 of this
revenue procedure;

(d) Section 11.13, relating to changes
to or within the U.S. ratio method;

(e) Section 11.14, relating to depletion;

(f) Section 23.02, relating to changes
from the mark-to-market method of ac-
counting described in § 475 to a realiza-
tion method of accounting; and

(g) Section 25.03, relating to changes
in qualification as life/nonlife insurance
company under § 816(a).

(20) The following sections are modi-
fied to provide that the eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13
(final year of trade or business) applies to
a taxpayer making a change under the
automatic change procedures:

(a) Section 2.01, relating to treating
amounts received as loans;

(b) Section 3.02, relating to ISO 9000
costs;

(c) Section 3.03, relating to restaurant
or tavern smallwares packages;

(d) Section 3.04, relating to timber
grower fertilization costs;

(e) Section 10.03, relating to removal
costs;

(f) Section 21.02, relating to estimating
inventory "shrinkage";

(g) Section 21.09, relating to rotable
spare parts;

(h) Section 23.01, relating to commod-
ities dealers, securities traders, and com-
modities traders electing to use the mark-
to-market method of accounting under
§ 475(e) or (f);

(i) Section 31.01, relating to de mini-
mis original issue discount (OID); and

(j) Section 33.02, relating to stated in-
terest on short-term loans of cash method
banks.

(21) The following sections are modi-
fied to provide that the eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-13
(5-year item change) applies to a taxpayer
making a change under the automatic
change procedures:

(a) Section 3.02, relating to ISO 9000
costs;

(b) Section 3.03, relating to restaurant
or tavern smallwares packages

(c) Section 3.04, relating to Timber
grower fertilization costs; and

(d) Section 21.02, relating to Estimat-
ing inventory "shrinkage";

(22) The following sections of this rev-
enue procedure are obsolete and are re-
moved from the revenue procedure in
their entirety:

(a) Section 6.12, relating to deprecia-
tion of qualified revitalization building in
the expanded area of a renewal commu-
nity;

(b) Section 6.13, relating to loss disal-
lowance rule upon a disposition of an in-
surance contract acquired in an assump-
tion re-insurance transaction;

(c) Section 6.22, relating to Kansas ad-
ditional first-year depreciation;

(d) Section 11.03, relating to changes
to no longer capitalize research and exper-
imental expenditures under § 263A, is re-
moved because it is now covered by new
section 7.01(2)(a)(iv) of this revenue pro-
cedure, and is therefore obsolete; and

(e) Section 13.01, relating to a change
to comply with § 404(a)(11).

(23) Because the following sections
can also be made under section 6.01 of
this revenue procedure, they are removed
from the revenue procedure in their en-
tirety:

(a) Section 6.04, relating to deprecia-
tion of modern golf course greens;

(b) Section 6.05, relating to deprecia-
tion of original and replacement tire costs;

(c) Section 6.06, relating to deprecia-
tion of gas pump canopies;

(d) Section 6.07, relating to deprecia-
tion of utility assets;

(e) Section 6.18, relating to deprecia-
tion of MACRS property acquired in a
like-kind exchange or as a result of an
involuntary conversion; and

(f) Section 6.21, relating to a change in
treatment of land from depreciable to non-
depreciable property.

(24) Certain method changes described
in the APPENDIX of Rev. Proc. 2011-14
permitted a taxpayer to file a statement in
lieu of a Form 3115. See, for example,
sections 14.10, 15.11, 16.01, 17.01, 19.08,
and certain changes under section 14.04 of
the APPENDIX of Rev. Proc. 2011-14.
Section 6.01 of Rev. Proc. 2015-13 re-
quires taxpayers to file a Form 3115 when
requesting consent under the automatic
change procedures. However, the follow-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

ing sections permit a taxpayer to request
consent for a change on a short Form
3115: 11.13, 14.10, 17.01, and 19.08. See
section 3.07(2) of Rev. Proc. 2015-13 for
the definition of a short Form 3115. Sec-
tions 15.11 and 16.01, and certain changes
under section 14.04 of this revenue pro-
cedure continue to permit a taxpayer to
file a statement in lieu of a Form 3115.

(25) The following sections are modi-
fied to include a reduced filing require-
ment of the Form 3115 by qualified small
taxpayers:

(a) Section 6.01, relating to a change
from an impermissible to permissible
method of accounting for depreciation;

(b) Section 6.02, relating to a change
from a permissible to permissible method
of accounting for depreciation;

(c) Section 6.08, relating to deprecia-
tion of cable TV fiber optics;

(d) Section 6.09, relating to a change in
general asset account treatment due to a
change in the use of MACRS property;

(e) Section 6.10, relating to a change in
method of accounting for depreciation due

to a change in the use of MACRS prop-
erty;

(f) Section 6.11, relating to deprecia-
tion of qualified non-personal use vans
and light trucks;

(g) Section 6.17, relating to a change
from impermissible to permissible method
of accounting for depreciation or amorti-
zation for disposed depreciable or amor-
tizable property;

(h) Section 6.23, relating to tenant con-
struction allowances;

(i) Section 6.26, relating to safe harbor
method of accounting for determining the
depreciation of certain tangible assets
used by wireless telecommunications car-
riers under Rev. Proc. 2011-22; and

(j) Section 10.07, relating to repairable
and reusable spare parts.

## 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) 317-7005 (not a toll-
free number).

For further information regarding a
specific change in method of accounting
in this revenue procedure, contact the in-
dividual listed in the "Contact Person(s)"
section located at the end of each section
of the revenue procedure (telephone calls
are not toll-free) or see the CONTACT
LIST at the end of this revenue procedure.
The contact person is with one of the
following Offices of Associate Chief
Counsel: Corporate (CORP), Financial In-
stitutions and Products (FI&P), Income
Tax & Accounting (IT&A), International
(INTL), Passthroughs and Special Indus-
tries (P&SI), or Tax Exempt and Govern-
ment Entities (TEGE).

## LIST OF AUTOMATIC CHANGES CONTACT LIST

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

1.01

91

William E. Blanchard

(202) 317-3900

FI&amp;P

2.01

1

William Ruane

(202) 317-4718

IT&amp;A

3.01

2

Martin Osborne1

(202) 317-7011

IT&amp;A

3.02

3

Martin Osborne2

(202) 317-7011

IT&amp;A

3.03

4

Martin Osborne3

(202) 317-7011

IT&amp;A

3.04

86

Martin Osborne4

(202) 317-7011

IT&amp;A

3.05

See § 10.11

See § 10.11

See § 10.11

IT&amp;A

3.06

See § 10.11

See § 10.11

See § 10.11

IT&amp;A

3.07

158

Lewis Saideman

(202) 317-5100

IT&amp;A

3.08

159

Lewis Saideman

(202) 317-5100

IT&amp;A

3.09

160

Lewis Saideman

(202) 317-5100

IT&amp;A

3.10

Reserved

Reserved

Reserved

3.11

Reserved

Reserved

Reserved

3.12

Reserved

Reserved

Reserved

3.13

Reserved

Reserved

Reserved

3.14

Reserved

Reserved

Reserved

3.15

Reserved

Reserved

Reserved

3.16

Reserved

Reserved

Reserved

3.17

Reserved

Reserved

Reserved

3.18

Reserved

Reserved

Reserved

3.19

Reserved

Reserved

Reserved

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

3.20

182

Lewis Saideman

(202) 317-5100

IT&amp;A

3.21

208, 209

Merrill Feldstein

(202) 317-5100

IT&amp;A

4.01

5

Renay France

(202) 317-7003

IT&amp;A

4.02

211

Timothy Sebastian

(202) 317-6945

FI&amp;P

5.01

16

William E. Blanchard

(202) 317-3900

FI&amp;P

5.02

212

Joseph Vetting

(202) 317-4960

INTL

6.01

7

Douglas Kim

(202) 317-7005

IT&amp;A

6.02

8

Douglas Kim

(202) 317-7005

IT&amp;A

6.03

10

Edward Schwartz

(202) 317-7006

IT&amp;A

6.04

Reserved

Reserved

Reserved

6.05

Reserved

Reserved

Reserved

6.06

Reserved

Reserved

Reserved

6.07

Reserved

Reserved

Reserved

6.08

15

Charles Magee

(202) 317-7005

IT&amp;A

6.09

87

Charles Magee

(202) 317-7005

IT&amp;A

6.10

88

Charles Magee

(202) 317-7005

IT&amp;A

6.11

89

Bernard Harvey

(202) 317-7005

IT&amp;A

6.12

Reserved

Reserved

Reserved

6.13

Reserved

Reserved

Reserved

6.14

Reserved

Reserved

Reserved

6.15

Reserved

Reserved

Reserved

6.16

Reserved

Reserved

Reserved

6.17

107

Douglas Kim

(202) 317-7005

IT&amp;A

6.18

Reserved

Reserved

Reserved

6.19

Reserved

Reserved

Reserved

6.20

Reserved

Reserved

Reserved

6.21

Reserved

Reserved

Reserved

6.22

Reserved

Reserved

Reserved

6.23

145

Charles Magee

(202) 317-7005

IT&amp;A

6.24

Reserved

Reserved

Reserved

6.25

Reserved

Reserved

Reserved

6.26

157

Charles Magee

(202) 317-7005

IT&amp;A

6.27

175

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.28

176

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.29

177

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.30

178

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.31

179

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.32

180

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.33

196

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.34

197

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.35

198

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.36

199

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.37

200

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.38

205

Patrick M. Clinton

(202) 317-7005

IT&amp;A

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

6.39

206

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.40

207

Patrick M. Clinton

(202) 317-7005

IT&amp;A

6.41

Summary of changes related to dispositions of MACRS property

6.42

210

Charles Magee

(202) 317-7005

IT&amp;A

7.01

17

Grant D. Anderson

(202) 317-7005

IT&amp;A

8.01

Reserved

Reserved

Reserved

8.02

Reserved

Reserved

Reserved

8.03

Reserved

Reserved

Reserved

8.04

152

Jennifer Bernardini

(202) 317-6853

P&amp;SI

9.01

18

Charles Magee

(202) 317-7005

IT&amp;A

9.02

Reserved

Reserved

Reserved

10.01

19

Deena Devereux

(202) 317-7003

IT&amp;A

10.02

20

Deena Devereux

(202) 317-7003

IT&amp;A

10.03

21

Deena Devereux

(202) 317-7003

IT&amp;A

10.04

47

Deena Devereux

(202) 317-7003

IT&amp;A

10.05

78

Deena Devereux

(202) 317-7003

IT&amp;A

10.06

109

Deena Devereux

(202) 317-7003

IT&amp;A

10.07

121

Deena Devereux

(202) 317-7003

IT&amp;A

10.08

Reserved

Reserved

Reserved

10.09

Reserved

Reserved

Reserved

10.10

Reserved

Reserved

Reserved

10.11

162-170, 172-173, 184-193

Lewis Saideman

(202) 317-5100

IT&amp;A

10.12

213

Gwen Turner

(202) 317-7003

IT&amp;A

11.01

22

Christopher W. Call

(202) 317-7007

IT&amp;A

11.02

23

Neville R. Jiang

(202) 317-7007

IT&amp;A

11.03

Reserved

Reserved

Reserved

IT&amp;A

11.04

25

Neville R. Jiang

(202) 317-7007

IT&amp;A

11.05

77

John Roman Faron

(202) 317-7005

IT&amp;A

11.06

92

John Roman Faron

(202) 317-7005

IT&amp;A

11.07

150, 151

Neville R. Jiang

(202) 317-7007

IT&amp;A

11.08

181

Patrick M. Clinton

(202) 317-7005

IT&amp;A

11.09

194

Christopher W. Call

(202) 317-7007

IT&amp;A

11.10

195

Roy Hirschhorn

(202) 317-7007

IT&amp;A

11.11

201

John Roman Faron

(202) 317-7005

IT&amp;A

11.12

202

John Roman Faron

(202) 317-7005

IT&amp;A

11.13

214

Karla M. Meola

(202) 317-7005

IT&amp;A

11.14

215

John Roman Faron

(202) 317-7005

IT&amp;A

12.01

26

Steven Gee

(202) 317-7007

IT&amp;A

Joseph Vetting

(202) 317-4960

INTL

13.01

Reserved

Reserved

Reserved

13.02

28

Maryellen Furr

(202) 317-5600

TEGE

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

13.03

29

David Ziegler

(202) 317-8629

EP

Carlton Watkins

(202) 317-8631

EP

14.01

122, 123

Cheryl Oseekey

(202) 317-7007

IT&amp;A

14.02

31

Erika Reigle

(202) 317-5100

IT&amp;A

14.03

32,33

Neville R. Jiang

(202) 317-7007

IT&amp;A

14.04

34, 35

Karla M. Meola

(202) 317-7005

IT&amp;A

14.05

71

William E. Blanchard

(202) 317-3900

FI&amp;P

14.06

85

Bernard Harvey

(202) 317-7005

IT&amp;A

14.07

90

David Remus

(202) 317-6995

FI&amp;P

14.08

108

Timothy Sebastian

(202) 317-6945

FI&amp;P

14.09

124

Charles Gorham

(202) 317-7003

IT&amp;A

14.10

125

Erika Reigle

(202) 317-5100

IT&amp;A

14.11

126

Megan M. Kirmil

(202) 317-7007

IT&amp;A

14.12

127

K. Scott Brown

(202) 317-6945

FI&amp;P

14.13

128

Maxine Woo-Garcia

(202) 317-7011

IT&amp;A

Renay France

(202) 317-7003

IT&amp;A

14.14

129

David H. McDonnell

(202) 317-4137

P&amp;SI

14.15

148

Charles W. Culmer

(202) 317-6945

FI&amp;P

15.01

36

Timothy Sebastian

(202) 317-6945

FI&amp;P

15.02

37

Daniel Cassano

(202) 317-7011

IT&amp;A

15.03

38

Sandra Cheston

(202) 317-7011

IT&amp;A

15.04

39

Arvind Ravichandran

(202) 317-4718

IT&amp;A

15.05

80, 81

Jon Silver

(202) 317-7053

FI&amp;P

15.06

82

Jon Silver

(202) 317-7053

FI&amp;P

15.07

83, 84, 216

Peter Ford

(202) 317-7011

IT&amp;A

15.08

94

Jon Silver

(202) 317-7053

FI&amp;P

15.09

Reserved

Reserved

Reserved

15.10

130, 217

Peter Cohn

(202) 317-7011

IT&amp;A

15.11

153

Ronald Goldstein

(202) 317-7003

IT&amp;A

16.01

131

William E. Blanchard

(202) 317-3900

FI&amp;P

17.01

132

Patrick M. Clinton

(202) 317-7005

IT&amp;A

18.01

41

Lore Cavanaugh

(202) 317-7006

IT&amp;A

19.01

42, 133, 134

Sandra Cheston

(202) 317-7011

IT&amp;A

19.02

43

Erika Reigle

(202) 317-5100

IT&amp;A

19.03

44

Erika Reigle

(202) 317-5100

IT&amp;A

19.04

45, 113

Mon Lam

(202) 317-5100

IT&amp;A

19.05

46

Mon Lam

(202) 317-5100

IT&amp;A

19.06

106

Christina M. Glendening

(202) 317-7003

IT&amp;A

19.07

135

Mon Lam

(202) 317-5100

IT&amp;A

19.08

149

Daniel Cassano

(202) 317-7011

IT&amp;A

19.09

154

Christina M. Glendening

(202) 317-7003

IT&amp;A

19.10

156

Christina M. Glendening

(202) 317-7003

IT&amp;A

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

19.11

161

Christina M. Glendening

(202) 317-7003

IT&amp;A

20.01

136

William Ruane

(202) 317-4718

IT&amp;A

21.01

48

Christopher W. Call

(202) 317-7007

IT&amp;A

21.02

49

Steven Gee

(202) 317-7007

IT&amp;A

21.03

50,51

Neville R. Jiang

(202) 317-7007

IT&amp;A

21.04

53

Christopher W. Call

(202) 317-7007

IT&amp;A

21.05

54

Christopher W. Call

(202) 317-7007

IT&amp;A

21.06

55

Neville R. Jiang

(202) 317-7007

IT&amp;A

21.07

63

Neville R. Jiang

(202) 317-7007

IT&amp;A

21.08

96

Neville R. Jiang

(202) 317-7007

IT&amp;A

21.09

110

Elizabeth Binder

(202) 317-7003

IT&amp;A

21.10

111

Neville R. Jiang

(202) 317-7007

IT&amp;A

21.11

137

Christopher W. Call

(202) 317-7007

IT&amp;A

21.12

138

Christopher W. Call

(202) 317-7007

IT&amp;A

21.13

139

Christopher W. Call

(202) 317-7007

IT&amp;A

21.14

114

Christopher W. Call

(202) 317-7007

IT&amp;A

21.15

203

John Roman Faron

(202) 317-7005

IT&amp;A

21.16

204

Natasha M. Mulleneaux

(202) 317-7005

IT&amp;A

22.01

56

Leo Nolan

(202) 317-7007

IT&amp;A

22.02

57

Leo Nolan

(202) 317-7007

IT&amp;A

22.03

58

Leo Nolan

(202) 317-7007

IT&amp;A

22.04

59

Leo Nolan

(202) 317-7007

IT&amp;A

22.05

60

Christopher W. Call

(202) 317-7007

IT&amp;A

22.06

61

Leo Nolan

(202) 317-7007

IT&amp;A

22.07

62

Leo Nolan

(202) 317-7007

IT&amp;A

22.08

112

Leo Nolan

(202) 317-7007

IT&amp;A

22.09

140

Leo Nolan

(202) 317-7007

IT&amp;A

22.10

141

Leo Nolan

(202) 317-7007

IT&amp;A

23.01

64

Eric E. Boody

(202) 317-6945

FI&amp;P

23.02

218

Eric E. Boody

(202) 317-6945

FI&amp;P

24.01

66

K. Scott Brown

(202) 317-6945

FI&amp;P

Laura Fields

(202) 317-6850

P&amp;SI

Adrienne Mikolashek

(202) 317-6850

P&amp;SI

25.01

67

David Remus

(202) 317-6995

FI&amp;P

25.02

155

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

25.03

219

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

26.01

68

David Remus

(202) 317-6995

FI&amp;P

27.01

79

John W. Rogers, III

(202) 317-6895

FI&amp;P

28

Reserved

Reserved

Reserved

29.01

70

Peter Merkel

(202) 317-4919

INTL

30.01

Reserved

Reserved

Reserved

31.01

72

William E. Blanchard

(202) 317-3900

FI&amp;P

31.02

183

Charles W. Culmer

(202) 317-6945

FI&amp;P

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

32.01

73

William E. Blanchard

(202) 317-3900

FI&amp;P

33.01

74

William E. Blanchard

(202) 317-3900

FI&amp;P

33.02

75

William E. Blanchard

(202) 317-3900

FI&amp;P

1Before November 1, 2015, please contact Daniel Cassano, at (202) 317-7011 (not a toll-free number). 2Before November 1, 2015, please contact Daniel Cassano, at (202) 317-7011 (not a toll-free number). 3Before November 1, 2015, please contact Daniel Cassano, at (202) 317-7011 (not a toll-free number). 4Before November 1, 2015, please contact Daniel Cassano, at (202) 317-7011 (not a toll-free number).

26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also Part I, §§ 5000A; 1.50004-4.)

## Rev. Proc. 2015-15 SECTION 1. PURPOSE

This revenue procedure provides the
2015 monthly national average premium
for qualified health plans that have a
bronze level of coverage for taxpayers to
use in determining their maximum indi-
vidual shared responsibility payment un-
der § 5000A(c)(1)(B) of the Internal Rev-
enue Code and § 1.5000A-4 of the
Income Tax Regulations.

## SECTION 2. CHANGES

Revenue Procedure 2014-46, 2014-33
I.R.B. 367, describes the methodology used
to determine the monthly national average
bronze plan premium and provides the
premium amount for 2014. This revenue
procedure provides the monthly national
average bronze plan premium for 2015.

## SECTION 3. BACKGROUND

.01 Section 5000A provides that if a
taxpayer, or an individual for whom the
taxpayer is liable, is without minimum
essential coverage for one or more months
in a taxable year, then the taxpayer is
liable for the individual shared responsi-
bility payment when filing his or her fed-
eral income tax return, unless an exemp-
tion applies. See § 5000A(a), (b)(1). In
general, under § 5000A a taxpayer is lia-
ble for any individual who is a dependent,
as defined in § 152, of the taxpayer. See

§§ 5000A(b)(3)(A) and 1.5000A-1(c).
Married individuals who file a joint return
for a taxable year are jointly liable for any
individual shared responsibility payment
for a month included in the taxable year.
See §§ 5000A(b)(3)(B) and 1.5000A-
1(c)(3).

.02 For each taxable year, the individ-
ual shared responsibility payment is the
lesser of (1) the sum of the monthly pen-
alty amounts, or (2) the sum of the
monthly national average bronze plan pre-
miums for the shared responsibility fam-
ily. See § 1.5000A-4(a). The monthly na-
tional average bronze plan premium
means, for a month for which a shared
responsibility payment is imposed, 1/12
of the annual national average premium
for qualified health plans that (1) have a
bronze level of coverage, (2) would pro-
vide coverage for the taxpayer's shared
responsibility family members, and (3) are
offered through Exchanges for plan years
beginning in a calendar year with or
within which the taxable year ends. See
§§ 5000A(c)(1)(B) and 1.5000A-4(c).
Shared responsibility family means, for a
month in a taxable year, all nonexempt
individuals for whom the taxpayer and the
taxpayer's spouse, if the taxpayer is mar-
ried and files a joint return with the
spouse, are liable for the shared responsi-
bility payment under § 5000A for that
taxable year. See § 1.5000A-1(d)(17).

## SECTION 4. MONTHLY NATIONAL AVERAGE BRONZE PLAN PREMIUM FOR 2015

.01 Monthly National Average Bronze
Plan Premium. For purposes of

§ 5000A(c)(1)(B) and § 1.5000A-4, the
monthly national average premium for
qualified health plans that have a bronze
level of coverage and are offered through
Exchanges in 2015 is $207 per individual.

.02 Maximum Monthly National Aver-
age Bronze Plan Premium. For purposes
of § 5000A(c)(1)(B) and § 1.5000A-4,
the maximum monthly national average
premium for qualified health plans that
have a bronze level of coverage and are
offered through Exchanges in 2015 is
$1,035 for a shared responsibility family
with five or more members.

## SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for
taxable years ending after December 31,
2014.

## SECTION 6. EFFECT ON OTHER DOCUMENTS

Revenue Procedure 2014-46 is super-
seded.

## SECTION 7. DRAFTING INFORMATION

The principal author of this revenue
procedure is John B. Lovelace of the Of-
fice of Associate Chief Counsel (Income
Tax and Accounting). For further infor-
mation regarding this revenue procedure,
contact Mr. Lovelace at (202) 317-7006
(not a toll-free number).

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

## Part IV. Items of General Interest

### U.S .- Kazakhstan Agreement on Fiscally Transparent Entities

#### Announcement 2015-4

The following is a copy of the Compe-
tent Authority Agreement ("the Agree-
ment") that was released to the public on
February 2, 2015, by the Competent Au-
thorities of the United States and Kazakh-
stan regarding the eligibility of entities
that are treated as fiscally transparent un-
der the laws of either Contracting State to
benefits under the Convention Between
the Government of the United States of
America and the Government of the Re-
public of Kazakhstan for the Avoidance of
Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on
Income and Capital, signed on October
24, 1993 (the "Treaty").

The text of the Agreement is as fol-
lows:

#### COMPETENT AUTHORITY MUTUAL AGREEMENT

The competent authorities of the
United States and of Kazakhstan hereby
enter into the following mutual agreement
(the "Agreement") regarding the eligibil-
ity of entities that are treated as fiscally
transparent under the laws of either Con-
tracting State to benefit under the Conven-
tion between the Government of the
United States of America and the Govern-
ment of the Republic of Kazakhstan for
the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital, along
with a Protocol, signed on October 24,
1993. The Agreement specifies the cases
where fiscally transparent entities are en-
titled to treaty benefits and clarifies the
procedure for claiming treaty benefits
from one of the Contracting States. The
Agreement is entered into under para-
graph 3 of Article 25 (Mutual Agreement
Procedure).

1\) Eligibility of fiscally transparent en-
tities for treaty benefits

Article 4(1)(b) of the Convention pro-
vides:

For the purposes of this Convention,
the term "resident of a Contracting State"
means any person who, under the laws of
that State, is liable to tax therein by reason
of his domicile, residence, citizenship,
place of management, place of incorpora-
tion, or any other criterion of a similar
nature.

* * * * *

b) In the case of income derived by a
partnership, trust, or estate, residence is
determined in accordance with the resi-
dence of the person liable to tax with
respect to such income.

The competent authorities agree that,
in applying Article 4(1)(b) of the Conven-
tion, it is understood that income from
sources within one of the Contracting
States received by an entity, wherever or-
ganized, that is treated as fiscally transpar-
ent under the laws of either Contracting
State will be treated as income derived by
a resident of the other Contracting State to
the extent that such income is subject to
tax as the income of a resident of the other
Contracting State.

For example, if a resident of the United
States is a member of a limited liability
company ("LLC") that is treated for U.S.
federal tax purposes as a partnership, the
resident of the United States would be
afforded benefits of the Convention on the
income that the resident derives from Ka-
zakhstan through the LLC to the extent of
the resident's share of that income. Simi-
lar rules would apply to a resident of the
United States that is a partner of a part-
nership, a shareholder of a subchapter S
Corporation, an owner of an LLC that is
disregarded as an entity separate from its
owner, or an owner of a grantor trust.

Similarly, if a resident of Kazakhstan is
a member of a simple partnership, a con-
sortium, or other joint venture that is
treated as fiscally transparent under the
laws of Kazakhstan, the resident of Ka-
zakhstan would be afforded benefits of the
Convention on the income that the resi-
dent derives from the United States
through such an arrangement to the extent
of the resident's share of that income.

2\) Appropriate procedures for confirm-
ing U.S. residence

Any fiscally transparent entity, such as
a general or limited partnership, shall re-

quest a certificate of residence on behalf
of its owners that are residents of the
United States. Accordingly, a U.S. LLC or
other entity organized within or without
the United States that is treated as a part-
nership for U.S. federal tax purposes shall
obtain a certificate of residence on Form
6166 in the same manner as a partnership.
For partnerships that are required to file
Form 1065, U.S. Return of Partnership
Income, generally domestic partnerships
and foreign partnerships with U.S. source
income, the Form 6166 confirms the filing
of such form and includes a list of partners
who have filed tax returns as U.S. resi-
dents. Form 6166 will inform the with-
holding agent to contact the partnership
directly to provide information regarding
the allocation of a particular payment to a
specific partner. If a foreign partnership
with U.S. partners is not required to file a
Form 1065, the Form 6166 will confirm
that position and otherwise contain the
same information regarding its U.S. part-
ners.

A U.S. LLC or other entity organized
within or without the United States that is
disregarded as an entity separate from its
owner for U.S. tax purposes shall obtain a
Form 6166 that provides that the LLC or
such other entity is a branch, division, or
business unit of its single member owner
and that such single member owner is a
resident of the United States.

A U.S. resident deriving income
through a U.S. corporation that has made
an election to be treated as an S Corpora-
tion for U.S. tax purposes shall also be
certified in a manner similar to a partner in
a partnership. The S corporation obtains a
Form 6166 certificate of residence that
confirms the filing of an information re-
turn, Form 1120S, U.S. Income Tax Re-
turn for an S Corporation, as required for
a domestic S corporation, and includes a
list of shareholders that are residents of
the United States for purposes of U.S.
taxation.

The competent authorities have agreed
that U.S. persons providing original
Forms 6166 to claim treaty benefits from
Kazakhstan are not required to obtain
apostils to authenticate such forms.

Agreed to by the undersigned compe-
tent authorities:

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

Douglas W. O'Donnell
U.S. Competent Authority

Date

Daulet Yergozhin
Chairman
State Revenue Committee
Ministry of Finance
Republic of Kazakhstan

Date

## Notice of Proposed Rulemaking Notice of Public Hearing Credit for Increasing Research Activities

### REG-153656-3

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Withdrawal of advance notice
of proposed rulemaking; notice of pro-
posed rulemaking and notice of public
hearing.

SUMMARY: This document contains
proposed regulations concerning the ap-
plication of section 41 of the Internal Rev-
enue Code (Code), which provides a
credit for increasing research activities.
The proposed regulations provide guid-
ance on computer software that is devel-
oped by (or for the benefit of) the taxpayer
primarily for internal use by the taxpayer
(internal use software) under section
41(d)(4)(E). These proposed regulations
also include examples to illustrate the ap-
plication of the process of experimenta-
tion requirement to computer software un-
der section 41(d)(1)(C). The regulations
will affect taxpayers engaged in research
activities involving computer software.
This document also provides notice of a
public hearing on these proposed regula-
tions and withdraws the advance notice of
proposed rulemaking published on Janu-
ary 2, 2004.

DATES: Written or electronic comments
must be received by March 23, 2015. Out-
lines of topics to be discussed at the public

hearing scheduled for April 17, 2015,
must be received by March 23, 2015.

ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-153656-03), room
5205, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.

Submissions may be hand-delivered
Monday through Friday between the hours
of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG-153656-03), Courier's Desk, Inter-
nal Revenue Service, 1111 Constitution Av-
enue, NW., Washington, D.C .; or sent ele-
ctronically via the Federal eRulemaking
Portal at www.regulations.gov (IRS REG-
153656-03). The public hearing will be
held in IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, D.C.

## FOR FURTHER INFORMATION CONTACT

Concerning the regulations, Martha
Garcia, (202) 317-6853; concerning sub-
mission of comments, the hearing, and/or
to be placed on the building access list to
attend the hearing, call Oluwafunmilayo
(Funmi) Taylor, (202) 317-6901 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

### Background

This document amends 26 CFR part 1
to provide rules relating to the credit for
increasing research activities (research
credit) under section 41 of the Code. On
January 2, 1997, the Treasury Department
and the IRS published a notice of pro-
posed rulemaking (REG-209494-90, re-
ferred to in this preamble as the 1997
proposed regulations) in the Federal Reg-
ister (62 FR 81) to provide guidance on
internal use software under section
41(d)(4)(E). Final regulations (TD 8930,
referred to in this preamble as the 2001
final regulations), which substantively
modified the 1997 proposed regulations
on internal use software, and also ad-
dressed other aspects of section 41, were
published in the Federal Register (66 FR
280) on January 3, 2001. In response to
taxpayer concerns regarding the 2001 fi-
nal regulations, on January 31, 2001,
Treasury and the IRS published Notice
2001-19 (2001-10 IRB 784) (see

§601.601(d)(2) of this chapter) announc-
ing that Treasury and the IRS would re-
view the 2001 final regulations and recon-
sider comments previously submitted.
Notice 2001-19 also provided that, upon
the completion of this review, Treasury
and the IRS would announce changes to
the regulations, if any, in the form of new
proposed regulations. On December 26,
2001, the Treasury Department and the
IRS published proposed regulations
(REG-112991-01, referred to in this pre-
amble as the 2001 proposed regulations)
in the Federal Register (66 FR 66362)
relating to internal use software and other
aspects of section 41. On January 2, 2004,
the Treasury Department and the IRS pub-
lished final regulations (TD 9104, referred
to in this preamble as the 2004 final reg-
ulations) in the Federal Register (69 FR
22) on the research credit. The 2004 final
regulations finalized the 2001 proposed
regulations' rules relating to the definition
of qualified research under section 41(d),
but did not finalize rules relating to internal
use software under section 41(d)(4)(E). The
2004 final regulations reserve the rules for
internal use software. See §1.41-4(c)(6).

Concurrently with the 2004 final regu-
lations, the Treasury Department and the
IRS issued an advance notice of proposed
rulemaking (2004 ANPRM) (published in
the Federal Register (69 FR 43)). The
2004 ANPRM invited comments from the
public regarding the 2001 proposed regu-
lations relating to internal use software
under section 41(d)(4)(E). The Treasury
Department and the IRS specifically re-
quested comments concerning the defini-
tion of internal use software. In addition,
the Treasury Department and the IRS re-
quested comments on whether final rules
relating to internal use software should
have retroactive effect. Written and elec-
tronic comments responding to the 2004
ANPRM were received. The preamble to
these proposed regulations describes
many of the comments received by the
Treasury Department and the IRS. Al-
though not all of the comments are ad-
dressed in this preamble, the Treasury De-
partment and the IRS have reviewed and
considered all written and electronic com-
ments in the process of preparing these
proposed regulations.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

#### General Overview

Section 41(d)(4)(E) provides that, ex-
cept to the extent provided by regulations,
research with respect to computer soft-
ware that is developed by (or for the ben-
efit of) the taxpayer primarily for internal
use by the taxpayer is excluded from the
definition of qualified research under sec-
tion 41(d). Software that is developed for
use in an activity that constitutes qualified
research and software that is developed
for use in a production process with re-
spect to which the general credit eligibil-
ity requirements are satisfied are not ex-
cluded as internal use software under
section 41(d)(4)(E).

#### Legislative History

The legislative history of the Tax Re-
form Act of 1986, Public Law 99-514
(100 Stat. 2085 (1986)) (1986 Act), states
that "the costs of developing software are
not eligible for the credit where the soft-
ware is used internally, for example, in
general and administrative functions (such
as payroll, bookkeeping, or personnel
management) or in providing noncom-
puter services (such as accounting, con-
sulting, or banking services) except to the
extent permitted by Treasury regulations."
See H.R. Conf. Rep. No. 841, at II-73
(1986 legislative history). The 1986 leg-
islative history further states that Con-
gress intended that regulations would
make the costs of new or improved inter-
nal use software eligible for the credit
only if the research satisfies, in addition to
the general requirements for credit eligi-
bility, an additional three-part high thresh-
old of innovation test (that is, that the
software is innovative, that the software
development involves significant eco-
nomic risk, and that the software is not
commercially available for use by the tax-
payer).

Congress extended the research credit
a number of times since the 1986 Act, but
has not made any changes to the statutory
definition of qualified research or to the
statutory exclusion from that definition for
internal use software in section
41(d)(4)(E). When Congress extended the
research credit in the Tax Relief Exten-
sion Act of 1999, (Public Law 106-170,
113 Stat. 1860 (1999)), however, the leg-

islative history stated the following with
respect to internal use software:

The conferees further note the rapid
pace of technological advance, es-
pecially in service-related indus-
tries, and urge the Secretary to con-
sider carefully the comments he has
and may receive in promulgating
regulations in connection with what
constitutes "internal use" with re-
gard to software expenditures. The
conferees also wish to observe that
software research, that otherwise
satisfies the requirements of section
41, which is undertaken to support
the provision of a service, should
not be deemed "internal use" solely
because the business component in-
volves the provision of a service.

H.R. Conf. Rep. No. 106-478, at 132
(1999).

#### Prior Regulations

As discussed in the 2004 ANPRM,
prior regulatory guidance generally re-
flects three approaches to the definition of
internal use software. The 1997 proposed
regulations closely followed the language
contained in the 1986 legislative history
and required an evaluation of "all relevant
facts and circumstances" to determine
whether software was primarily for inter-
nal use. The 1997 proposed regulations
referenced the 1986 legislative history's
identification of software used in general
and administrative functions or used in
providing noncomputer services as gener-
ally not eligible for the research credit.
The 1997 proposed regulations also incor-
porated the legislative history's three-part
high threshold of innovation test. The
2001 final regulations provided greater
specificity than the 1997 proposed regula-
tions regarding the definition of internal
use software by distinguishing between
computer services and noncomputer ser-
vices and providing a rule that the devel-
opment of internal use software used to
deliver noncomputer services to custom-
ers with new features that are not yet
offered by a taxpayer's competitors is
deemed to satisfy the three-part high
threshold of innovation test. The 2001 fi-
nal regulations continued to provide a
general definition of internal use software
that incorporated the 1986 legislative his-
tory's examples of general and adminis-

trative functions and noncomputer ser-
vices, but modified the application of the
three-part high threshold of innovation
test to require a comparison of "the in-
tended result with software that is within
the common knowledge of skilled profes-
sionals" to determine if internal use soft-
ware is innovative or the development in-
volves significant economic risk. Finally,
the 2001 proposed regulations continued
to distinguish between software that pro-
vides computer services and software that
provides noncomputer services, but did
not include the rule provided in the 2001
final regulations that the development of
internal use software used to deliver non-
computer services to customers with new
features that are not yet offered by a tax-
payer's competitors was deemed to satisfy
the three-part high threshold of innovation
test. Instead, the 2001 proposed regula-
tions departed from the language used in
the 1986 legislative history and provided a
bright-line presumption that software is
developed primarily for internal use un-
less the software is developed to be com-
mercially sold, leased, licensed, or other-
wise marketed for separately stated
consideration to unrelated third parties.
The 2001 proposed regulations also mod-
ified the innovation component of the
three-part high threshold of innovation
test to state that software is innovative if
intended to be unique or novel and differ
in a significant and inventive way from
prior software implementations or meth-
ods.

### Summary of Comments and Explanation of Provisions

#### In General

These proposed regulations provide a
definition of software developed primarily
for internal use and describe software not
developed primarily for internal use.
These proposed regulations also provide
that certain internal use software is eligi-
ble for the research credit if the software
satisfies the high threshold of innovation
test. These proposed regulations provide
rules for computer software that is devel-
oped for both internal use and non-
internal use (dual function computer soft-
ware), including a safe harbor for
determining if any of the expenditures
with respect to dual function computer

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

software are qualified research expendi-
tures. These proposed regulations include
examples to illustrate application of the
proposed regulations for internal use soft-
ware. Finally, these proposed regulations
include examples under §1.41-4 to illus-
trate the application of the process of ex-
perimentation requirement to computer
software under section 41(d)(1)(C).

#### Definition of Internal Use Software

The 2004 ANPRM requested com-
ments concerning an appropriate defini-
tion of internal use software that reflects
the statute and legislative intent, can be
readily applied by taxpayers and readily
administered by the IRS, and is flexible
enough to provide continuing application
into the future. In submitting comments,
commenters were invited to address any
of the definitions included in prior guid-
ance as well as other definitions that have
been proposed to the Treasury Depart-
ment and the IRS.

Commenters suggested that the defini-
tion of internal use software should
closely follow the general and administra-
tive examples from the 1986 legislative
history. Commenters stated that character-
izing services provided to customers as
"computer" or "noncomputer" will result
in disparate treatment. Commenters rec-
ommended that the definition should be
based on the function provided by the
software and not the overall nature of the
end product or service provided to third
parties. Commenters noted that a facts and
circumstances functionality rule may be
more difficult to administer, but it is pref-
erable to a bright-line separately stated
consideration rule. In addition, comment-
ers asserted that today's highly integrated
nature of software development will not
prevent taxpayers from being able to sep-
arate software development into func-
tions.

Although the 1986 legislative history
indicates that Congress intended internal
use software to include software used in
noncomputer services, the 1999 legisla-
tive history requests that Treasury note the
rapid pace of technological advance, es-
pecially in service-related industries,
when providing rules for internal use soft-
ware. The role that computer software
plays in business activities is very differ-

ent today than it was when the exclusion
for internal use software was enacted in
1986. Today, computer software is used in
all aspects of business activity, especially
in providing goods and services to third
parties, and such software has played a
vital role in increasing the productivity of
the U.S. economy and in making the U.S.
more competitive globally.

Accordingly, these proposed regula-
tions provide that software is developed
by (or for the benefit of) the taxpayer
primarily for internal use if the software is
developed by the taxpayer for use in gen-
eral and administrative functions that fa-
cilitate or support the conduct of the tax-
payer's trade or business. Similarly,
software that the taxpayer develops pri-
marily for a related party's internal use
will be considered internal use software.
A related party is any corporation, trade or
business, or other person that is treated as
a single taxpayer with the taxpayer pursu-
ant to section 41(f). Furthermore, these
proposed regulations eliminate the dis-
tinction between software developed to
deliver computer and noncomputer ser-
vices.

Under these proposed regulations, gen-
eral and administrative functions are lim-
ited to financial management functions,
human resource management functions,
and support services functions. Financial
management functions are functions that
involve the financial management of the
taxpayer and the supporting recordkeep-
ing. Human resource management func-
tions are functions that manage the tax-
payer's workforce. Support services
functions are functions that support the
day-to-day operations of the taxpayer,
such as data processing or facilities ser-
vices.

This list of functions that constitute
general and administrative functions is in-
tended to target the back-office functions
of a taxpayer that most taxpayers would
have regardless of the taxpayer's industry.
The benefits of software developed by the
taxpayer for use in general and adminis-
trative functions are likely to be captured
only by the taxpayer developing it and
therefore exclusion from credit eligibility
is more consistent with the purposes for
which Congress created the credit. How-
ever, the characterization of a function as
back-office may depend upon the taxpay-

er's industry. For example, tax software in
the tax services industry is not used by the
taxpayer in a general and administrative
function, but for taxpayers that do not
provide tax services, tax software is used
by the taxpayer in a general and adminis-
trative function.

#### Non-Internal Use Software

Some commenters, addressing the
2001 proposed regulations' definition of
internal use software, suggested that soft-
ware that is not developed to be commer-
cially sold, leased, licensed, or otherwise
marketed for separately stated consider-
ation should not be presumed to be inter-
nal use software. Some commenters also
questioned whether the exception for soft-
ware developed to be commercially sold,
leased, or licensed is appropriate given the
purposes of the research credit. These
commenters suggested that such criteria
may not further the purposes of the statute
because whether software is held for sale
may not be indicative of the software's
function. These proposed regulations do
not contain a presumption for software
that is not developed to be commercially
sold, leased, licensed, or otherwise mar-
keted for separately stated consideration,
but they do treat software that is devel-
oped to be commercially sold, leased, li-
censed, or otherwise marketed as software
not developed primarily for internal use.

The Treasury Department and the IRS
have determined that the purpose of the
software's development can be indicative
of the software's function. In this way, the
inquiry of whether software is developed
for commercial sale, lease, or license
looks to the purpose of the software and
serves as an additional test separate from a
pure functionality test. This approach to
identifying software not developed pri-
marily for internal use furthers the under-
lying purpose of the statute because the
benefits from software held for commer-
cial sale, lease, or license are likely to be
captured by persons other than the tax-
payer developing the software. Accord-
ingly, it should be eligible for the research
credit provided the other requirements of
section 41 are met. Similarly, software
that enables a taxpayer to interact with
third parties or allows third parties to ini-
tiate functions or review data on the tax-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

payer's system does not solely benefit the
taxpayer developing the software, and
therefore it is appropriate to exclude such
software from the definition of internal
use software.

Accordingly, these proposed regula-
tions provide that software is not devel-
oped primarily for internal use if it is
developed to be commercially sold,
leased, licensed, or otherwise marketed to
third parties, or if it is developed to enable
a taxpayer to interact with third parties or
to allow third parties to initiate functions
or review data on the taxpayer's system.
Examples of software developed to enable
a taxpayer to interact with third parties or
to allow third parties to initiate functions
or review data include software developed
for third parties to execute banking trans-
actions, track the progress of a delivery of
goods, search a taxpayer's inventory for
goods, store and retrieve a third party's
digital files, purchase tickets for transpor-
tation or entertainment, and receive ser-
vices over the internet. For purposes of
these rules, third parties do not include
any persons that use the software to sup-
port a taxpayer's general and administra-
tive functions that facilitate or support the
conduct of the taxpayer's trade or busi-
ness.

Whether software is not developed pri-
marily for internal use depends upon the
intent of the taxpayer and the facts and
circumstances at the beginning of the soft-
ware development. If a taxpayer originally
develops software primarily for internal
use but later makes improvements to the
software with the intent to hold the im-
proved software for commercial sale,
lease, or license or to allow third parties to
initiate functions or review data, the im-
provements will be considered separate
from the existing software and will not be
considered to be for internal use. Like-
wise, if a taxpayer originally develops
software for commercial sale, lease, or
license or to interact with third parties or
to allow third parties to initiate functions
or review data, but later makes improve-
ments to the software with the intent to
use the software in general and adminis-
trative functions, the improvements will
be considered developed primarily for in-
ternal use. Any improvements to the ex-
isting software will be considered separate
from the existing software and the appli-

cation of the internal use software rules
will be made solely to the improvements
to the software. Additionally, software
that is intended to be developed for com-
mercial sale, lease, or license will not be
considered internal use merely because
the taxpayer tests the software by using it
internally.

#### Dual Function Computer Software

The Treasury Department and the IRS
recognize the need to provide guidance on
whether computer software is developed
"primarily" for internal use if a taxpayer
develops software that serves both general
and administrative and non-general and
administrative functions. These proposed
regulations balance administrative and
compliance concerns with the need to pro-
vide substantive rules appropriate to the
purposes of the research credit. To further
these objectives, the proposed regulations
provide that dual function computer soft-
ware is presumed to be developed primar-
ily for a taxpayer's internal use. However,
this presumption is inapplicable to the ex-
tent that a taxpayer can identify a subset
of elements of dual function computer
software that only enables a taxpayer to
interact with third parties or to allow third
parties to initiate functions or review data
(third party subset). The proposed regula-
tions provide that if the taxpayer can iden-
tify the third party subset, the portion of
research expenditures allocable to a third
party subset of the dual function computer
software may be eligible for the research
credit, provided all the other applicable
requirements are met.

Moreover, the proposed regulations
provide taxpayers with a safe harbor to
apply to dual function computer software
if a third party subset cannot be identified
or to the remaining subset of dual function
computer software after the third party
subset has been identified (dual function
subset). The safe harbor allows a taxpayer
to include 25 percent of the qualified re-
search expenditures of the dual function
subset in computing the amount of the
taxpayer's credit, provided that the tax-
payer's research activities related to the
dual function subset constitute qualified
research and the use of the dual function
subset by third parties or by the taxpayer
to interact with third parties is reasonably

anticipated to constitute at least 10 percent
of the dual function subset's use. The pro-
posed regulations provide that taxpayers
must use an objective, reasonable method
to estimate the computer software's use
by third parties or by the taxpayer to in-
teract with third parties and such use of
the dual function computer software is
estimated at the beginning of software de-
velopment. The proposed regulations con-
tain a facts and circumstances approach to
determine a taxpayer's intent at the begin-
ning of computer software development
and provide several examples illustrating
these rules. In the Request for Public
Comments section of this preamble, the
Treasury Department and the IRS request
comments on the administrability of cer-
tain objective, reasonable methods of
measuring third parties' reasonably antic-
ipated use as well as other appropriate,
objective standards that can be used to
measure third parties' reasonably antici-
pated use.

#### Computer Software and Hardware Developed as a Single Product

Based upon the 1986 legislative his-
tory, these proposed regulations retain the
exception for computer software and
hardware developed as a single product
and provide that internal use software
does not include a new or improved pack-
age of computer software and hardware
developed together by the taxpayer as a
single product that is used directly by the
taxpayer in providing services in the tax-
payer's trade or business. These proposed
regulations provide an example illustrat-
ing this rule.

#### Computer Software as Part of a Production Process

Several commenters asserted that com-
puter software supporting the delivery of
goods or services to third parties is not
internal use software because the software
is part of a production process within the
meaning of section 41(d)(4)(E)(ii). Thus,
for example, computer software that is
used to track a taxpayer's inventory of
goods would not be internal use software
because the tracking of inventory supports
the taxpayer's ability to deliver goods to

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

third parties, which is a final step in the
taxpayer's production process.

The Treasury Department and the IRS
do not agree that computer software sup-
porting the delivery of goods or services
to third parties is part of a production
process within the meaning of section
41(d)(4)(E)(ii). To the contrary, the deliv-
ery of goods and services to third parties
is a post-production activity. Nonetheless,
under rules provided in these proposed
regulations and described previously in
this preamble, computer software support-
ing the delivery of goods or services to
third parties may not be within the defini-
tion of software developed primarily for
internal use to the extent that the software
enables a taxpayer to interact with third
parties or allows third parties to initiate
functions or review data.

#### High Threshold of Innovation

The high threshold of innovation test is
derived from the legislative history of sec-
tion 41(d)(4)(E). The Conference Report
states:

The conferees intend that these reg-
ulations will make the costs of new
or improved internal-use software
eligible for the credit only if the
taxpayer can establish, in addition
to satisfying the general require-
ments for credit eligibility, (1) that
the software is innovative (as where
the software results in a reduction in
cost, or improvement in speed, that
is substantial and economically sig-
nificant); (2) that the software de-
velopment involves significant eco-
nomic risk (as where the taxpayer
commits substantial resources to the
development and also there is sub-
stantial uncertainty, because of
technical risk, that such resources
would be recovered within a reason-
able period); and (3) that the soft-
ware is not commercially available
for use by the taxpayer (as where
the software cannot be purchased,
leased, or licensed and used for the
intended purpose without modifica-
tions that would satisfy the first two
requirements just stated).

See H.R. Conf. Rep. No. 841, at II-73.

Prior guidance reflects the 1986 legis-
lative history by requiring that, in addition
to satisfying the general requirements for

the research credit, internal use software
must meet the high threshold of innova-
tion test to qualify for the credit. The high
threshold of innovation test, described in
this section of the preamble, is intended to
limit credit eligibility of software devel-
oped primarily for internal use to software
development that meets a higher standard
than other business components. At the
same time, it is clear that Congress in-
tended that some software developed pri-
marily for internal use would meet the
high threshold of innovation test. Accord-
ingly, the requirements should not be so
restrictive as to make the test impossible
to meet. The proposed regulations provide
rules of application with respect to the
high threshold of innovation test that re-
flect this purpose.

#### Innovation

The 1986 legislative history requires
that the software result in a reduction in
cost or improvement in speed that is sub-
stantial and economically significant. The
1997 proposed regulations contained an
objective definition consistent with the
1986 legislative history. The 2001 final
regulations modified the application of the
innovation component of the high thresh-
old of innovation test to require a compar-
ison of "the intended result with software
that is within the common knowledge of
skilled professionals." As described pre-
viously in this preamble, the 2001 pro-
posed regulations proposed a new defini-
tion of innovation that departed from the
1986 legislative history in that it required
that the taxpayer intended the software to
be unique or novel and that the taxpayer
intended it to differ in a significant and
inventive way from prior software imple-
mentations or methods. Most commenters
requested that the definition reflect the
more mechanical and quantitative ap-
proach in the 1986 legislative history and
the 1997 proposed regulations.

Consistent with the 1986 legislative
history, these proposed regulations pro-
vide that software is innovative if the soft-
ware would result in a reduction in cost or
improvement in speed or other measur-
able improvement, that is substantial and
economically significant, if the develop-
ment is or would have been successful.
The innovativeness test does not require

that the software development actually be
successful, but assuming the software de-
velopment would have been successful,
the test requires that it would have re-
sulted in such an improvement. This ap-
proach is measurable and objective, and
should reduce the potential for contro-
versy.

#### Significant Economic Risk

These proposed regulations, consistent
with the 1986 legislative history, require
that the software development involve
significant economic risk, which exists if
the taxpayer commits substantial re-
sources to the development and there is
substantial uncertainty, because of techni-
cal risk, that such resources would be re-
covered within a reasonable period. These
proposed regulations do not incorporate
the "common knowledge of skilled pro-
fessionals" comparative assessment of un-
certainty and technical risk that was ad-
opted in the 2001 final regulations. As
provided in these proposed regulations,
the significant economic risk test is ap-
plied to the level of uncertainty involved
at the outset of the development rather
than the degree of innovation represented
by the end result.

Section 1.41-4(a)(3) of the current
regulations, which establishes the criteria
for establishing whether research is under-
taken for the purpose of discovering in-
formation, provides that "uncertainty ex-
ists if the information available to the
taxpayer does not establish the capability
or method for developing or improving
the business component or the appropriate
design of the business component." Under
§1.41-4(a)(3), uncertainty must relate to
the capability or method for developing or
improving the business component, or the
appropriate design of the business compo-
nent. For purposes of defining "substantial
uncertainty" to determine if there is sig-
nificant economic risk with respect to the
high threshold of innovation test, the use
of the word "substantial" indicates a
higher threshold of uncertainty than that
required for business components that are
not internal use software.

Therefore, these proposed regulations
provide that substantial uncertainty exists
if, at the beginning of the taxpayer's ac-
tivities, the information available to the

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

taxpayer does not establish the capability
or method for developing or improving
the software. Internal use software re-
search activities that involve only uncer-
tainty related to appropriate design, and
not capability or methodology, do not
qualify as having substantial uncertainty
for purposes of the high threshold of in-
novation test. The requirement that the
uncertainty relate to the capability or
method, but not the appropriate design of
the business component creates the higher
threshold for eligibility that Congress in-
tended for certain internal use software,
while creating a logical relationship with
the general requirements under §1.41-
4(a)(3). Additionally, the reference to
known, previously defined terms reduces
potential controversy arising from the use
of new undefined terms.

There has been some controversy re-
garding whether the significant economic
risk test concerns technical risk or eco-
nomic risk. The Treasury Department and
the IRS interpret the significant economic
risk test to require both technical and eco-
nomic risk. It requires technical risk be-
cause there must be uncertainty that is
technological in nature, as defined in
§1.41-4(a)(4) of the current regulations.
However, it also requires economic risk
because the taxpayer must devote substan-
tial resources to the development and, by
virtue of the technical risk, there must be
uncertainty regarding whether the final re-
sult can be achieved within a timeframe
that will allow those resources to be re-
covered within a reasonable period.

#### Commercially Available for Use

The proposed regulations reflect the
1986 legislative history and are consistent
with all prior regulations regarding the
commercially available for use standard.
The proposed regulations provide that in-
ternal use software may only satisfy the
high threshold of innovation standard if
the software is not commercially available
for use by the taxpayer in that the software
cannot be purchased, leased, or licensed
and used for the intended purpose without
modifications that would satisfy the inno-
vation and significant economic risk re-
quirements.

Addition of Process of Experimentation
Examples for Computer Software

The 2004 final regulations provide that
experimentation with respect to techno-
logical uncertainty qualifies as a process
of experimentation under section 41(d)(1)(C).
However, none of the examples in the
2004 final regulations involved the devel-
opment of computer software. These pro-
posed regulations provide examples of
how the process of experimentation test is
applied to computer software. The exam-
ples also illustrate that certain types of
web design and the installation of enter-
prise resource planning software generally
do not qualify as a process of experimen-
tation under the 2004 final regulations.
Additionally, these proposed regulations
illustrate computer software development
that does qualify as a process of experi-
mentation, and in particular, software de-
velopment in which the taxpayer has tech-
nological uncertainty regarding the
appropriate design.

#### Comments and Public Hearing

Comments are requested on all aspects
of these proposed regulations. Specifi-
cally, the Treasury Department and the
IRS invite comments that provide infor-
mation on:

1\. The appropriate definition and treat-
ment of connectivity software that allows
multiple processes running on one or
more machines to interact across a net-
work, sometimes referred to as bridging
software, integration software, or middle-
ware,

2\. For purposes of the dual function
computer software safe harbor, the admin-
istrability of measuring the reasonably an-
ticipated use of software by taxpayers to
interact with third parties and by third
parties to initiate functions or review data
based on reasonable methods, such as pro-
cessing time, amount of data transfer,
number of software user interface screens,
and number of third party initiated func-
tions, as well as other objective, reason-
able methods to measure the dual function
computer software's reasonably antici-
pated use by taxpayers to interact with
third parties and by third parties to initiate
functions or review data, and whether the

regulations should include specific rea-
sonable methods and examples, and

3\. Facts and circumstances, other than
those factors enumerated in the legislative
history, to be considered in determining
whether internal use software satisfies the
three prongs of the high threshold of in-
novation test.

#### Proposed Effective/Applicability Date

The Treasury Department and the IRS
requested comments in the 2004 ANPRM
on whether final regulations relating to
internal use software should be effective
retroactively. Some commenters requested
that the rules apply retroactively back to
1986, while other commenters requested
that the regulations be prospective only.
After careful consideration, and in light of
the length of time that has passed since
1986, as well as the developments with
respect to computer software, the Trea-
sury Department and the IRS have de-
cided that these proposed regulations,
once finalized, will be prospective only.
The rules contained in these regulations
are proposed to apply to taxable years
ending on or after the date of publication
of the Treasury decision adopting these
rules as final regulations in the Federal
Register. Notwithstanding the prospec-
tive effective date, the IRS will not chal-
lenge return positions consistent with
these proposed regulations for taxable
years ending on or after the date these
proposed regulations are published.

The rules in these proposed regulations
are not, and should not be viewed as, an
interpretation of prior regulatory guidance
or of the 1986 legislative history. For ex-
ample, software not developed for internal
use under these proposed regulations,
such as software developed to enable a
taxpayer to interact with third parties, may
or may not have been internal use soft-
ware under prior law.

#### Withdrawal of the 2004 ANPRM

The 2004 ANPRM provides that with
respect to internal use software for taxable
years beginning after December 31, 1985,
and until further guidance is published,
taxpayers may continue to rely upon all of
the provisions in the 2001 proposed reg-
ulations, or alternatively, all of the provi-
sions in the 2001 final regulations. As a

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

consequence of the publication of these
proposed regulations, and to provide guid-
ance with respect to the application of
internal use software rules contained in
regulations issued prior to these proposed
regulations, the Treasury Department and
the IRS withdraw the 2004 ANPRM ef-
fective for taxable years beginning on or
after the date of issuance of these pro-
posed regulations. For taxable years end-
ing before the date these proposed regu-
lations are published in the Federal
Register, taxpayers may choose to follow
either all of the internal use software pro-
visions of §1.41-4(c)(6) in the 2001 final
regulations or all of the internal use soft-
ware provisions of §1.41-4(c)(6) in the
2001 proposed regulations.

### Special Analyses

It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866, as supplemented by
Executive Order 13563. Therefore, a reg-
ulatory assessment is not required. Addi-
tionally, this notice of proposed rulemaking
does not impose a collection of information.

An initial regulatory flexibility analysis
has been prepared for this notice of pro-
posed rulemaking under 5 U.S.C. 603.
The analysis is set forth under the heading
"Initial Regulatory Flexibility Analysis."
Pursuant to section 7805(f) of the Code,
this notice of proposed rulemaking has
been submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.

### Initial Regulatory Flexibility Analysis

These proposed regulations affect tax-
payers engaged in research activities in-
volving computer software. The reasons
for promulgation of these regulations, and
their legal basis, are set forth in this pre-
amble under the heading "Summary of
Comments and Explanation of Provi-
sions." Section 41(d)(4)(E) provides that,
except to the extent provided by regula-
tions, research with respect to computer
software that is developed by (or for the
benefit of) the taxpayer primarily for in-
ternal use by the taxpayer is excluded
from the definition of qualified research
under section 41(d). The objective of

these proposed regulations is to provide a
narrower exclusion of software from qual-
ified research than provided in prior reg-
ulatory guidance.

The types of small entities to which
these regulations may apply are small cor-
porations and partnerships, and other
small businesses, covering all areas of in-
dustry. Therefore, the Treasury Depart-
ment and the IRS have determined that
these proposed regulations will have an
impact on a substantial number of small
entities. Because these proposed regula-
tions provide a narrower definition of in-
ternal use software, the research credit
will be available to a greater number of
small entities than was previously avail-
able under prior guidance. Therefore, the
Treasury Department and the IRS have
determined that these proposed regula-
tions will have a positive economic im-
pact on a substantial number of small en-
tities.

These proposed regulations do not im-
pose any additional reporting, recordkeep-
ing, or other compliance requirements
aside from the record keeping require-
ments under §1.6001-1 that are generally
applicable to all persons subject to tax.
Section 1.6001-1 requires the keeping of
records "sufficient to establish the amount
of * * * credits * * * required to be shown
\* \* \* in any return of such tax * * *. " The
Treasury Department and the IRS deter-
mined that the rules generally applicable
under section 6001 provide sufficient de-
tail about required documentary substan-
tiation for purposes of the research credit,
and thus no additional record keeping or
reporting is required.

Comments are requested on the nature
and extent of the economic burden im-
posed on small entities by these proposed
regulations and on alternatives that would
be less burdensome to small entities.

The Treasury Department and the IRS
are not aware of any duplicative, overlap-
ping, or conflicting federal rules.

### Comments and Public Hearing

Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS. Comments are re-
quested on all aspects of these proposed

regulations. All comments will be avail-
able at www.regulations.gov for public in-
spection and copying.

A public hearing has been scheduled
for April 17, 2015, beginning at 10 a.m. in
the IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington DC. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In ad-
dition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate
entrance area more than 30 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the

## "FOR FURTHER INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments
and an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (a signed original and eight (8) cop-
ies) by March 23, 2015. A period of 10
minutes will be allotted to each person for
making comments. An agenda showing
the scheduling of the speakers will be
prepared after the deadline for receiving
outlines has passed. Copies of the agenda
will be available free of charge at the
hearing.

### Drafting Information

The principal author of these regula-
tions is Martha M. Garcia, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. However,
other personnel from the Treasury Depart-
ment and the IRS participated in their
development.

*****

## Withdrawal of Advance Notice of Proposed Rulemaking

Accordingly, under the authority of 26
U.S.C. 7805, the advance notice of pro-
posed rulemaking that was published in
the Federal Register on January 2, 2004
(69 FR 43) is withdrawn.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

## Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:

## PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.41-4 also issued under 26
U.S.C. 41(d)(4)(E). * * *

Par. 2. Section 1.41-4 is amended by:
1\. Adding Example 5 through Example
10 at the end of paragraph (a)(8).

2\. Revising paragraphs (c)(6) and (e).
The additions and revisions read as fol-
lows:

§1.41-4 Qualified research for
expenditures paid or incurred in taxable
years ending on or after December 31,
2003.

(a) * * *

(8) * * *

Example 5. (i) Facts. X, a retail and distribution
company, wants to upgrade its warehouse manage-
ment software. X evaluates several of the alternative
warehouse management software products available
from vendors in the marketplace to determine which
product will best serve X's technical requirements. X
selects vendor V's software.

(ii) Conclusion. X's activities to select the soft-
ware are not qualified research under section
41(d)(1) and paragraph (a)(5) of this section. X did
not conduct a process of evaluating alternatives in
order to eliminate uncertainty regarding the devel-
opment of a business component. X's evaluation of
products available from vendors is not a process of
experimentation.

Example 6. (i) Facts. X wants to develop a new
web application to allow customers to purchase its
products online. X, after reviewing commercial soft-
ware offered by various vendors, purchases a com-
mercial software package of object-oriented func-
tions from vendor Z that X can use in its web
application (for example, a shopping cart). X evalu-
ates the various object-oriented functions included in
vendor Z's software package to determine which
functions it can use. X then incorporates the selected
software functions in its new web application soft-
ware.

(ii) Conclusion. X's activities related to selecting
the commercial software vendor with the object-
oriented functions it wanted, and then selecting
which functions to use, are not qualified research
under section 41(d)(1) and paragraph (a)(5) of this
section. In addition, incorporating the selected
object-oriented functions into the new web applica-
tion software being developed by X did not involve
conducting a process of evaluating alternatives in

order to eliminate uncertainty regarding the devel-
opment of software. X's evaluation of products
available from vendors and selection of software
functions are not a process of experimentation.

Example 7. (i) Facts. In order to be more respon-
sive to user online requests, X wants to develop
software to balance the incoming processing re-
quests across multiple web servers that run the same
set of software applications. Without evaluating or
testing any alternatives, X decides that a separate
server will be used to distribute the workload across
each of the web servers and that a round robin
workload distribution algorithm is appropriate for its
needs.

(ii) Conclusion. X's activities to develop the
software are activities relating to the development of
a separate business component under section
41(d)(2)(A). X's activities to develop the load dis-
tribution function are not qualified research under
section 41(d)(1) and paragraph (a)(5) of this section.
X did not conduct a process of evaluating different
load distribution alternatives in order to eliminate
uncertainty regarding the development of software.
X's selection of a separate server and a round robin
distribution algorithm is not a process of experimen-
tation.

Example 8. (i) Facts. X must develop load bal-
ancing software across a server cluster supporting
multiple web applications. X's web applications
have high concurrency demands because of a dy-
namic, highly volatile environment. X is uncertain of
the appropriate design of the load balancing algo-
rithm, given that the existing evolutionary algo-
rithms did not meet the demands of their highly
volatile web environment. Therefore, X designs and
systematically tests and evaluates several different
algorithms that perform the load distribution func-
tions.

(ii) Conclusion. X's activities to develop soft-
ware are activities to develop a separate business
component under section 41(d)(2)(A). X's activities
involving the design, evaluation, and systematic test-
ing of several new load balancing algorithms meet
the requirements as set forth in paragraph (a)(5) of
this section. X's activities constitute elements of a
process of experimentation because X identified un-
certainties related to the development of a business
component, identified alternatives intended to elim-
inate those uncertainties, and evaluated one or more
alternatives to achieve a result where the appropriate
design was uncertain at the beginning of X's re-
search activities.

Example 9. (i) Facts. X, a multinational manu-
facturer, wants to install an enterprise resource plan-
ning (ERP) system that runs off a single database so
that X could track orders more easily, and coordinate
manufacturing, inventory, and shipping among many
different locations at the same time. In order to
successfully install and implement ERP software, X
evaluates its business needs and the technical re-
quirements of the software, such as processing
power, memory, storage, and network resources. X
devotes the majority of its resources in implementing
the ERP system to evaluating the available tem-
plates, reports, and other standard programs and
choosing among these alternatives in configuring the
system to match its business process and reengineer-
ing its business process to match the available alter-

natives in the ERP system. X also performs some
data transfer from its old system, involving routine
programming and one-to-one mapping of data to be
exchanged between each system.

(ii) Conclusion. X's activities related to the ERP
software including the data transfer are not qualified
research under section 41(d)(1) and paragraph (a)(5)
of this section. X did not conduct a process of
evaluating alternatives in order to eliminate uncer-
tainty regarding the development of software. X's
activities in choosing between available templates,
reports, and other standard programs and conducting
data transfer are not elements of a process of exper-
imentation.

Example 10. (i) Facts. Same facts as Example 9
except that X determines that it must interface part of
its legacy software with the new ERP software be-
cause the ERP software does not provide a particular
function that X requires for its business. As a result,
X must develop an interface between its legacy soft-
ware and the ERP software, and X evaluates several
data exchange software applications and chooses one
of the available alternatives. X is uncertain as to how
to keep the data synchronized between the legacy
and ERP systems. Thus, X engages in systematic
trial and error testing of several newly designed data
caching algorithms to eliminate synchronization
problems.

(ii) Conclusion. Substantially all of X's activities
of this ERP project do not satisfy the requirements
for a process of experimentation. However, when the
shrinking-back rule is applied, a subset of X's activ-
ities do satisfy the requirements for a process of
experimentation. X's activities to develop the data
caching software and keeping the data on the legacy
and ERP systems synchronized meet the require-
ments of qualified research as set forth in paragraph
(a)(2) of this section. Substantially all of X's activ-
ities to develop the specialized data caching and
synchronization software constitute elements of a
process of experimentation because X identified un-
certainties related to the development of a business
component, identified alternatives intended to elim-
inate those uncertainties, and evaluated alternatives
to achieve a result where the appropriate design of
that result was uncertain as of the beginning of the
taxpayer's research activities.

* * * * *

(c) * * *

(6) Internal use software-(i) General
rule. Research with respect to computer
software that is developed by (or for the
benefit of) the taxpayer primarily for the
taxpayer's internal use is eligible for the
research credit only if-

(A) The software satisfies the require-
ments of section 41(d)(1);

(B) The software is not otherwise ex-
cluded under section 41(d)(4) (other than
section 41(d)(4)(E)); and

(C) One of the following conditions is
met-

(1) The taxpayer develops the software
for use in an activity that constitutes qual-

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

ified research (other than the development
of the internal use software itself);

(2) The taxpayer develops the software
for use in a production process to which
the requirements of section 41(d)(1) are
met; or

(3) The software satisfies the high
threshold of innovation test of paragraph
(c)(6)(v) of this section.

(ii) Computer software and hardware
developed as a single product. This para-
graph (c)(6) does not apply to the devel-
opment costs of a new or improved pack-
age of computer software and hardware
developed together by the taxpayer as a
single product (or to the costs to modify
an acquired computer software and hard-
ware package), of which the software is an
integral part, that is used directly by the
taxpayer in providing services in its trade
or business. In these cases, eligibility for
the research credit is to be determined by
examining the combined hardware-software
product as a single product.

(iii) Software developed primarily for
internal use-(A) In general. Computer
software is developed by (or for the ben-
efit of) the taxpayer primarily for the tax-
payer's internal use if the software is devel-
oped for use in general and administrative
functions that facilitate or support the con-
duct of the taxpayer's trade or business.
Software that the taxpayer develops pri-
marily for a related party's internal use
will be considered internal use software.
A related party is any corporation, trade or
business, or other person that is treated as
a single taxpayer with the taxpayer pursu-
ant to section 41(f).

(B) General and administrative func-
tions. General and administrative func-
tions are:

(1) Financial management. Financial
management functions are functions that
involve the financial management of the
taxpayer and the supporting recordkeep-
ing. Financial management functions in-
clude, but are not limited to, functions
such as accounts payable, accounts receiv-
able, inventory management, budgeting,
cash management, cost accounting, dis-
bursements, economic analysis and fore-
casting, financial reporting, finance, fixed
asset accounting, general ledger book-
keeping, internal audit, management ac-
counting, risk management, strategic busi-
ness planning, and tax.

(2) Human resources management.
Human resources management functions
are functions that manage the taxpayer's
workforce. Human resources management
functions include, but are not limited to,
functions such as recruiting, hiring, train-
ing, assigning personnel, and maintaining
personnel records, payroll, and benefits.

(3) Support services. Support services
are other functions that support the day-
to-day operations of the taxpayer. Support
services include, but are not limited to,
functions such as data processing, facility
services (for example, grounds keeping,
housekeeping, janitorial, and logistics),
graphic services, marketing, legal ser-
vices, government compliance services,
printing and publication services, and se-
curity services (for example, video sur-
veillance and physical asset protection
from fire and theft).

(iv) Software not developed primarily
for internal use-(A) In general. Com-
puter software is not developed primarily
for the taxpayer's internal use if either-

(1) The software is developed to be
commercially sold, leased, licensed, or
otherwise marketed to third parties; or

(2) The software is developed to enable
a taxpayer to interact with third parties or
to allow third parties to initiate functions
or review data on the taxpayer's system.

(B) Time and manner of determination.
For purposes of paragraph (c)(6)(iv)(A) of
this section, whether software is devel-
oped to be commercially sold, leased, or
licensed, or to enable a taxpayer to inter-
act with third parties or to allow third
parties to initiate functions or review data
depends on the intent of the taxpayer and
the facts and circumstances at the begin-
ning of the software development. Soft-
ware will not be considered internal use
software solely because it is used inter-
nally for purposes of testing prior to com-
mercial sale, lease, or license. If a tax-
payer originally develops software primarily
for internal use, but later makes improve-
ments to the software with the intent to
hold the improved software for commer-
cial sale, lease, or license, or to allow third
parties to initiate functions or review data
using the improved software, the improve-
ments will be considered separate from
the existing software and will not be con-
sidered internal use. Alternatively, if a
taxpayer originally develops software for

commercial sale, lease, or license, or to
interact with third parties or to allow third
parties to initiate functions or review data,
but later makes improvements to the soft-
ware with the intent to use the software in
general and administrative functions, the
improvements will be considered separate
from the existing software and will be
considered developed primarily for inter-
nal use.

(C) Computer software developed for
both internal use and to enable interac-
tion with third parties-(1) Presumption
of development primarily for internal use.
Unless paragraph (c)(6)(iv)(C)(2) or (3) of
this section applies, computer software
developed by (or for the benefit of) the
taxpayer both for use in general and ad-
ministrative functions that facilitate or
support the conduct of the taxpayer's
trade or business and to enable a taxpayer
to interact with third parties or to allow
third parties to initiate functions or review
data (dual function computer software) is
presumed to be developed primarily for a
taxpayer's internal use.

(2) Identification of a subset of ele-
ments of computer software that only en-
ables interaction with third parties. To the
extent that a taxpayer can identify a subset
of elements of dual function computer
software that only enables a taxpayer to
interact with third parties or allows third
parties to initiate functions or review data
(third party subset), the presumption un-
der paragraph (c)(6)(iv)(C)(1) of this sec-
tion does not apply to such third party
subset, and such third party subset is not
developed primarily for internal use under
paragraph (c)(6)(iv)(A)(2).

(3) Safe harbor for expenditures re-
lated to computer software developed for
both internal use and to enable interac-
tion with third parties. If, after the appli-
cation of paragraph (c)(6)(iv)(C)(2) of this
section, there remains a subset of elements
of dual function computer software (dual
function subset), a taxpayer may include
25 percent of the qualified research expen-
ditures of such dual function subset in
computing the amount of the taxpayer's
credit. This paragraph (c)(6)(iv)(C)(3) ap-
plies only if the taxpayer's research activ-
ities related to the development or im-
provement of the dual function computer
software constitute qualified research un-
der section 41(d), without regard to sec-

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

tion 41(d)(4)(E), and the dual function
subset's use by third parties or by the
taxpayer to interact with third parties is
reasonably anticipated to constitute at
least 10 percent of the dual function sub-
set's use. An objective, reasonable
method must be used to estimate the dual
function subset's use by third parties or by
the taxpayer to interact with third parties
and such use is estimated at the beginning
of the computer software development.

(4) Illustration. The following exam-
ples illustrate provisions contained in this
paragraph (c)(6)(iv)(C):

Example 1. Dual function computer software;
identification of a third party subset-(i) Facts. Tax-
payer develops computer software that Taxpayer
uses in general and administrative functions that
facilitate or support the conduct of Taxpayer's trade
or business and that allows third parties to initiate
functions. Taxpayer is able to identify the third party
subset. Taxpayer incurs $50,000 of research expen-
ditures for the computer software, 50% of which is
allocable to the third party subset.

(ii) Conclusion. The computer software devel-
oped by Taxpayer is dual function computer soft-
ware. Because Taxpayer is able to identify the third
party subset, such third party subset is not presumed
to be internal use software under paragraph
(c)(6)(iv)(C)(1) of this section. If Taxpayer's re-
search activities related to the third party subset
constitute qualified research under section 41(d), and
the allocable expenditures are qualified research ex-
penditures under section 41(b), the $25,000 of the
computer software research expenditures allocable
to the third party subset may be included in comput-
ing the amount of Taxpayer's credit, pursuant to
paragraph (c)(6)(iv)(C)(2) of this section. If, after the
application of paragraph (c)(6)(iv)(C)(2) of this sec-
tion, there remains a dual function subset, the Tax-
payer may determine whether paragraph
(c)(6)(iv)(C)(3) of this section applies.

Example 2. Dual function computer software;
application of the safe harbor-(i) Facts. The facts
are the same as in Example 1, except that Taxpayer
is unable to identify a third party subset. Taxpayer
uses an objective, reasonable method at the begin-
ning of the computer software development to de-
termine that the dual function computer software's
use by third parties to initiate functions is reasonably
anticipated to constitute 75% of the dual function
computer software's use.

(ii) Conclusion. The computer software devel-
oped by Taxpayer is dual function computer soft-
ware. The computer software is presumed to be
developed primarily for internal use under paragraph
(c)(6)(iv)(C)(1) of this section. Although Taxpayer is
unable to identify a third party subset, Taxpayer
reasonably anticipates that the dual function com-
puter software's use by third parties is at least 10%
of the dual function computer software's use. If
Taxpayer's research activities related to the devel-
opment or improvement of the dual function com-
puter software constitute qualified research under
section 41(d), without regard to section 41(d)(4)(E),
and the allocable expenditures are qualified research

expenditures under section 41(b), Taxpayer may in-
clude $12,500 of the computer software research
expenditures of the dual function computer software
in computing the amount of Taxpayer's credit pur-
suant to paragraph (c)(6)(iv)(C)(3) of this section.

Example 3. Dual function computer software;
safe harbor inapplicable-(i) Facts. The facts are
the same as in Example 1, except Taxpayer is unable
to identify a third party subset. Taxpayer uses an
objective, reasonable method at the beginning of the
computer software development to determine that
the dual function computer software's use by third
parties to initiate functions is reasonably anticipated
to constitute 5% of the dual function computer soft-
ware's use.

(ii) Conclusion. The computer software devel-
oped by Taxpayer is dual function computer soft-
ware. The computer software is presumed to be
developed primarily for Taxpayer's internal use un-
der paragraph (c)(6)(iv)(C)(1) of this section because
Taxpayer is unable to identify a third party subset,
and Taxpayer reasonably anticipates that the dual
function computer software's use by third parties is
less than 10% of the dual function computer soft-
ware's use. Taxpayer may not include any of the
computer software research expenditures of the dual
function computer software in computing the
amount of Taxpayer's credit unless Taxpayer's re-
search activities related to the dual function com-
puter software meet the requirements of paragraph
(c)(6)(i) of this section.

Example 4. Dual function computer software;
identification of a third party subset and the safe
harbor-(i) Facts. Taxpayer develops computer
software that Taxpayer uses in general and adminis-
trative functions that facilitate or support the conduct
of Taxpayer's trade or business and that allows third
parties to initiate functions and review data. Tax-
payer is able to identify a third party subset (Subset
A). The remaining dual function subset of the com-
puter software (Subset B) allows third parties to
review data and provides Taxpayer with data used in
its general and administrative functions. Taxpayer is
unable to identify a third party subset of Subset B.
Taxpayer incurs $50,000 of research expenditures
for the computer software, 50% of which is allocable
to Subset A and 50% of which is allocable to Subset
B. Taxpayer uses an objective reasonable method at
the beginning of the computer software development
to determine that the third party use of Subset B is
reasonably anticipated to account for 50% of the use
of Subset B.

(ii) Conclusion. The computer software devel-
oped by Taxpayer is dual function computer soft-
ware. Because Taxpayer is able to identify a third
party subset, such third party subset (Subset A) is not
presumed to be internal use software under para-
graph (c)(6)(iv)(C)(1) of this section. If Taxpayer's
research activities related to the development or im-
provement of Subset A constitute qualified research
under section 41(d), and the allocable expenditures
are qualified research expenditures under section
41(b), the $25,000 of the computer software research
expenditures allocable to Subset A may be included
in computing the amount of Taxpayer's credit pur-
suant to paragraph (c)(6)(iv)(C)(2) of this section.
Although Taxpayer is unable to identify a third party
subset of Subset B, 50% of Subset B's use is rea-

sonably anticipated to be attributable to the use of
Subset B by third parties. If Taxpayer's research
activities related to the development or improvement
of Subset B constitute qualified research under sec-
tion 41(d), without regard to section 41(d)(4)(E), and
the allocable expenditures are qualified research ex-
penditures under 41(b), Taxpayer may include
$6,250 (25% x $25,000) of the computer software
research expenditures of Subset B in computing the
amount of Taxpayer's credit, pursuant to paragraph
(c)(6)(iv)(C)(3) of this section.

(D) Third party. For purposes of para-
graph (c)(6)(iv) of this section, the term
third party means any corporation, trade
or business, or other person that is not
treated as a single taxpayer with the
taxpayer pursuant to section 41(f). Addi-
tionally, for purposes of paragraph
(c)(6)(iv)(A)(2) of this section, third par-
ties do not include any persons that use
the software to support the general and
administrative functions of the taxpayer.

(v) High threshold of innovation test-

(A) In general. Computer software sat-
isfies this paragraph (c)(6)(v) only if the
taxpayer can establish that-

(1) The software is innovative;

(2) The software development involves
significant economic risk; and

(3) The software is not commercially
available for use by the taxpayer in that
the software cannot be purchased, leased,
or licensed and used for the intended pur-
pose without modifications that would sat-
isfy the requirements of paragraphs
(c)(6)(v)(A)(1) and (2) of this section.

(B) Innovative. Software is innovative
if the software would result in a reduction
in cost or improvement in speed or other
measurable improvement, that is substan-
tial and economically significant, if the
development is or would have been suc-
cessful. This is a measurable objective
standard, not a determination of the
unique or novel nature of the software or
the software development process.

(C) Significant economic risk. The soft-
ware development involves significant
economic risk if the taxpayer commits
substantial resources to the development
and if there is substantial uncertainty, be-
cause of technical risk, that such resources
would be recovered within a reasonable
period. This standard does not require
technical uncertainty regarding whether
the final result can ever be achieved, but
rather whether the final result can be
achieved within a timeframe that will al-
low the substantial resources committed

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

to the development to be recovered within
a reasonable period. Substantial uncer-
tainty exists if, at the beginning of the
taxpayer's activities, the information
available to the taxpayer does not estab-
lish the capability or method for develop-
ing or improving the software. Technical
risk arises from uncertainty that is techno-
logical in nature, as defined in §1.41-
4(a)(4).

(D) Application of high threshold of
innovation test. The high threshold of in-
novation test of this paragraph (c)(6)(v) of
this section takes into account only the
results attributable to the development of
new or improved software independent of
the effect of any modifications to related
hardware or other software. It is not al-
ways necessary to have a revolutionary
discovery or creation of new technologies
such as a new programming language,
operating system, architecture, or algo-
rithm to satisfy the high threshold of in-
novation test. Although the implementa-
tion of existing technology, no matter how
complex, is not evidence, by itself, of
innovation, the use of existing technolo-
gies in new ways could be evidence of a
high threshold of innovation if it resolves
substantial uncertainty as defined in para-
graph (c)(6)(v)(C) of this section.

(vi) Illustrations. The following exam-
ples illustrate provisions contained in this
paragraph (c)(6). No inference should be
drawn from these examples concerning
the application of section 41(d)(1) and
paragraph (a) of this section to these facts.

Example 1. Internal use software; financial man-
agement-(i) Facts. X, a manufacturer, self-insures
its liabilities for employee health benefits. X devel-
ops its own software to administer its self-insurance
reserves related to employee health benefits. At the
beginning of the development, X does not intend to
develop the software for sale. The software does not
enable X to interact with third parties or allow third
parties to initiate functions or review data.

(ii) Conclusion. The software is developed pri-
marily for use in a general and administrative func-
tion because reserve valuation is a financial manage-
ment function under paragraph (c)(6)(iii)(B)(1) of
this section. Accordingly, the software is internal use
software because it is developed primarily for use in
a general and administrative function.

Example 2. Internal use software; human re-
sources management-(i) Facts. X, a manufacturer,
develops a software module that interacts with X's
existing payroll software to allow X's employees to
print pay stubs and make certain changes related to
payroll deductions over the internet. At the begin-
ning of the development, X does not intend to de-
velop the software module for sale. The software

module does not enable X to interact with third
parties or allow third parties to initiate functions or
review data.

(ii) Conclusion. The employee access software
module is developed primarily for use in a general
and administrative function because employee ac-
cess software is a human resources management
function under paragraph (c)(6)(iii)(B)(2) of this sec-
tion. Accordingly, the software module is internal
use software because it is developed primarily for
use in a general and administrative function.

Example 3. Internal use software; support ser-
vices-(i) Facts. X, a restaurant, develops software
for a website that provides general information about
the restaurant such as items served, price, location,
phone number, and hours of operation. At the begin-
ning of the development, X does not intend to de-
velop the website software for sale. The software
does not enable X to interact with third parties or
allow third parties to initiate functions or review
data.

(ii) Conclusion. The software is developed pri-
marily for use in a general and administrative func-
tion because the software was developed to be used
by X for marketing which is a support services
function under paragraph (c)(6)(iii)(B)(3) of this sec-
tion. Accordingly, the software is internal use soft-
ware because it is developed primarily for use in a
general and administrative function.

Example 4. Not internal use software-(i) Facts.
X, a manufacturer of various products, develops
software for a website that allows third parties to
order X's products and track the status of their orders
online. At the beginning of the development, X does
not intend to develop the website software for sale.

(ii) Conclusion. The software is not developed
primarily for internal use because the software al-
lows third parties to initiate functions or review data
as provided under paragraph (c)(6)(iv)(A)(2) of this
section.

Example 5. Internal use software; third party
interaction exclusion-(i) Facts. X develops soft-
ware to interact electronically with its vendors to
improve X's inventory management. The software
enables X to interact with vendors and to allow
vendors to initiate functions or review data. X de-
fines the electronic messages that will be exchanged
between X and the vendors. X's software allows a
vendor to request X's current inventory of the ven-
dor's product, and allows a vendor to send a message
to X which informs X that the vendor has just made
a new shipment of the vendor's product to replenish
X's inventory. At the beginning of development, X
does not intend to develop the software for sale.

(ii) Conclusion. Under paragraph (c)(6)(iv)(D) of
this section, X's vendors are not third parties for
purposes of paragraph (c)(6)(iv)(A) of this section.
While X's software allows vendors to initiate func-
tions or review data, the software is not excluded
from internal use software as set forth in paragraph
(c)(6)(iv)(A)(2) of this section because vendors use
the software to support X's inventory management
which is a general and administrative function of X.

Example 6. Internal use software; third party
interaction exclusion-(i) Facts. X is a popular web
destination that offers various free services to users.
X developed software that allows its users to upload
and modify photographs at no charge. X earns rev-

enue by selling advertisements that are displayed
while users enjoy the services that X offers for free.
X also developed software that has interfaces
through which advertisers can bid for the best posi-
tion in placing their ads, set prices for the ads, or
develop advertisement campaign budgets. At the be-
ginning of development, X does not intend to de-
velop either software for sale.

(ii) Conclusion. The users of free services and
the advertisers are third parties for purposes of para-
graph (c)(6)(iv)(A) of this section. Both the software
for uploading and modifying photographs and the
advertising software are excluded from internal use
software under paragraph (c)(6)(iv)(A)(2) of this
section, because the software allows third parties to
initiate functions.

Example 7. Internal use software-(i) Facts. X,
a multinational manufacturer with different business
and financial systems in each of its divisions, under-
takes a software development project aimed at inte-
grating the majority of the functional areas of its
major software systems (Existing Software) into a
single enterprise resource management system sup-
porting centralized financial systems, human re-
sources, inventory, and sales. X purchases software
(New Software) upon which to base its enterprise-
wide system. X has to develop software (Developed
Software) that transfers data from X's legacy finan-
cial, human resources, inventory, and sales systems
to the New Software. At the beginning of the devel-
opment, X does not intend to develop the software
for sale. The software does not enable X to interact
with third parties or allow third parties to initiate
functions or review data.

(ii) Conclusion. The financial systems, human
resource systems, inventory and sales systems are
general and administrative functions under para-
graph (c)(6)(iii)(B) of this section. Accordingly, the
Developed Software is internal use software because
it is developed primarily for use in general and
administrative functions.

Example 8. Computer hardware and software
developed as a single product-(i) Facts. X is a
telecommunications company that developed high
technology telephone switching hardware. In addi-
tion, X developed software that interfaces directly
with the hardware, such as the ability to initiate and
terminate a call, along with other functions. X de-
signed and developed the hardware and software
together.

(ii) Conclusion. The telecommunications soft-
ware that interfaces directly with the hardware is part
of a package of computer software and hardware
developed together by the taxpayer that is used by
the taxpayer in providing services in its trade or
business. Accordingly, this paragraph (c)(6) does not
apply to the software that interfaces directly with the
hardware, and eligibility for the research credit is
determined by examining the combined software-
hardware product as a single product.

Example 9. Improvements to existing internal use
software-(i) Facts. X has branches throughout the
country and develops its own facilities services soft-
ware to coordinate moves and to track maintenance
requests for all locations. At the beginning of the
development, X does not intend to develop the soft-
ware for sale. The software does not enable X to
interact with third parties or allow third parties to

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

initiate functions or review data. Several years after
completing the development and using the software,
X consults its business development department,
which assesses the market for the software. X deter-
mines that the software could be sold at a profit if
certain technical and functional enhancements are
made. X develops the improvements to the software,
and sells the improved software to third parties.

(ii) Conclusion. Support services, which include
facility services, are general and administrative func-
tions under paragraph (c)(6)(iii)(B) of this section.
Accordingly, the original software is developed pri-
marily for use in general and administrative func-
tions. However, the improvements to the software
are not developed primarily for internal use because
the improved software was developed to be commer-
cially sold, leased, licensed, or otherwise marketed
to third parties under paragraph (c)(6)(iv)(A)(1) and
(c)(6)(iv)(B) of this section.

Example 10. Internal use software; application
of the high threshold of innovation test-(i) Facts. X
maintained separate software applications for track-
ing a variety of human resource (HR) functions,
including employee reviews, salary information, lo-
cation within the hierarchy and physical location of
employees, 401(k) plans, and insurance coverage
information. X determined that improved HR effi-
ciency could be achieved by redesigning its disparate
software applications into one employee-centric sys-
tem, and worked to develop that system. X also
determined that commercially available database
management systems did not meet all of the require-
ments of the proposed system. Rather than waiting
several years for vendor offerings to mature and
become viable for its purpose, X embarked upon the
project utilizing older technology that was severely
challenged with respect to data modeling capabili-
ties. The improvements, if successful, would provide
a reduction in cost and improvement in speed that is
substantial and economically significant. For exam-
ple, having one employee-centric system would re-
move the duplicative time and cost of manually
entering basic employee information separately in
each application because the information would only
have to be entered once to be available across all
applications. The limitations of the technology X
was attempting to utilize required that X attempt to
develop a new database architecture. X committed
substantial resources to the project, but was uncer-
tain whether it could develop the database software
in the timeframe necessary so that X could recover
its resources in a reasonable period. Specifically, X
was uncertain regarding the capability of developing,
within a reasonable period, a new database architec-
ture using the old technology that would resolve its
technological issues regarding the data modeling ca-
pabilities and the integration of the disparate systems
into one system. At the beginning of the develop-
ment, X did not intend to develop the software for
sale. The software did not enable X to interact with
third parties or allow third parties to initiate func-
tions or review data.

(ii) Conclusion. The software is internal use soft-
ware because it is developed primarily for use in a
general and administrative function. However, the
software satisfies the high threshold of innovation
test set forth in paragraph (c)(6)(v) of this section.
The software was intended to be innovative in that it

would provide a reduction in cost or improvement in
speed that is substantial and economically signifi-
cant. In addition, X's development activities in-
volved significant economic risk in that X committed
substantial resources to the development and there
was substantial uncertainty, because of technical
risk, that the resources would be recovered within a
reasonable period. Finally, at the time X undertook
the development of the system, software meeting X's
requirements was not commercially available for use
by X.

Example 11. Internal use software; application
of the high threshold of innovation test-(i) Facts. X
undertook a software project to rewrite a legacy
mainframe application using an object-oriented pro-
gramming language, and to move the new applica-
tion off the mainframe to a client/server environ-
ment. Both the object-oriented language and client/
server technologies were new to X. This project was
undertaken to develop a more maintainable applica-
tion, which X expected would significantly reduce
the cost of maintenance, and implement new features
more quickly, which X expected would provide both
significant improvements in speed and reduction in
cost. Thus, the improvements, if successful, would
provide a reduction in cost and improvement in
speed that is substantial and economically signifi-
cant. X also determined that commercially available
systems did not meet the requirements of the pro-
posed system. X was certain that it would be able to
overcome any technological uncertainties and imple-
ment the improvements within a reasonable period.
However, X was unsure of the appropriate method-
ology to achieve the improvements. At the beginning
of the development, X does not intend to develop the
software for sale. The software does not enable X to
interact with third parties or allow third parties to
initiate functions or review data.

(ii) Conclusion. The software is internal use soft-
ware because it is developed primarily for use in a
general and administrative function. X's activities do
not satisfy the high threshold of innovation test of
paragraph (c)(6)(v) of this section. Although the
software meets the requirements of paragraphs
(c)(6)(v)(A)(1) and (3) of this section, X's develop-
ment activities did not involve significant economic
risk under paragraph (c)(6)(v)(A)(2) of this section.
X did not have substantial uncertainty, because of
technical risk, that the resources committed to the
project would be recovered within a reasonable pe-
riod.

Example 12. Internal use software; application
of the high threshold of innovation test-(i) Facts. X
wants to expand its internal computing power, and is
aware that its PCs and workstations are idle at night,
on the weekends, and for a significant part of any
business day. Because the general and administrative
computations that X needs to make could be done on
workstations as well as PCs, X develops a screen-
saver-like application that runs on employee com-
puters. When employees' computers have been idle
for an amount of time set by each employee, X's
application goes back to a central server to get a new
job to execute. This job will execute on the idle
employee's computer until it has either finished, or
the employee resumes working on his computer. The
ability to use the idle employee's computers would
save X significant costs because X would not have to

buy new hardware to expand the computing power.
The improvements, if successful, would provide a
reduction in cost that is substantial and economically
significant. At the time X undertook the software
development project, there was no commercial ap-
plication available with such a capability. In addi-
tion, at the time X undertook the software develop-
ment project, X was uncertain whether it was
capable of developing a server application that could
schedule and distribute the jobs across thousands of
PCs and workstations, as well as handle all the error
conditions that occur on a user's machine. X com-
mits substantial resources to the project. X under-
takes a process of experimentation to attempt to
eliminate its uncertainty. At the beginning of the
development, X does not intend to develop the soft-
ware for sale. The software does not enable X to
interact with third parties or allow third parties to
initiate functions or review data.

(ii) Conclusion. The software is internal use soft-
ware because it is developed primarily for use in a
general and administrative function. However, the
software satisfies the high threshold of innovation
test as set forth in paragraph (c)(6)(v) of this section.
The software was intended to be innovative because
it would provide a reduction in cost or improvement
in speed that is substantial and economically signif-
icant. In addition, X's development activities in-
volved significant economic risk in that X committed
substantial resources to the development and there
was substantial uncertainty that because of technical
risk, such resources would be recovered within a
reasonable period. Finally, at the time X undertook
the development of the system, software meeting X's
requirements was not commercially available for use
by X.

Example 13. Internal use software; application
of the high threshold of innovation test-(i) Facts.
X, a multinational manufacturer, wants to install
enterprise resource planning (ERP) system that runs
off a single database. However, to implement the
ERP system, X determines that it must integrate part
of its old system with the new because the ERP
system does not have a particular function that X
requires for its business. The two systems are general
and administrative software systems. The systems
have mutual incompatibilities. The integration, if
successful, would provide a reduction in cost and
improvement in speed that is substantial and eco-
nomically significant. At the time X undertook this
project, there was no commercial application avail-
able with such a capability. X is uncertain regarding
the appropriate design of the interface software.
However, X knows that given a reasonable period of
time to experiment with various designs, X would be
able to determine the appropriate design necessary to
meet X's technical requirements and would recover
the substantial resources that X commits to the de-
velopment of the system within a reasonable period.
At the beginning of the development, X does not
intend to develop the software for sale. The software
does not enable X to interact with third parties or
allow third parties to initiate functions or review
data.

(ii) Conclusion. The software is internal use soft-
ware because it is developed primarily for use in a
general and administrative function. X's activities do
not satisfy the high threshold of innovation test of

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

paragraph (c)(6)(v) of this section. Although the
software meets the requirements of paragraphs
(c)(6)(v)(A)(1) and (3) of this section, X's develop-
ment activities did not involve significant economic
risk under paragraph (c)(6)(v)(A)(2) of this section.
X did not have substantial uncertainty, because of
technical risk, that the resources committed to the
project would be recovered within a reasonable pe-
riod.

(e) Effective/applicability dates. Other
than paragraph (c)(6) of this section, this
section is applicable for taxable years end-
ing on or after December 31, 2003. Para-
graph (c)(6) of this section is applicable

for taxable years ending on or after the
date of publication of the Treasury deci-
sion adopting these rules as final regula-
tions in the Federal Register. Notwith-
standing the prospective effective date,
the IRS will not challenge return positions
consistent with these proposed regulations
for taxable years ending on or after the
date these proposed regulations are pub-
lished. For taxable years ending before the
date these proposed regulations are pub-
lished in the Federal Register, taxpayers
may choose to follow either all of the
internal use software provisions of §1.41-

4(c)(6) in TD 8930 or all of the internal
use software provisions in the 2001 pro-
posed regulations.

John Dalrymple
Deputy Commissioner for Services and
Enforcement.

(Filed by the Office of the Federal Register on January 16,
2015, 8:45 a.m., and published in the issue of the Federal
Register for January 20, 2015 F.R. 2624)

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

# 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
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the 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 with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is 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
with amplified and clarified, above).

Obsoleted describes 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.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.

Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is 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 following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

TFE-Transferee.

CFR-Code of Federal Regulations.

GP-General Partner.

TFR-Transferor.

CI-City.

GR-Grantor.

T.I.R .- Technical Information Release.

COOP-Cooperative.

IC-Insurance Company.

TP-Taxpayer.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

TR-Trust.

CY-County.

LE-Lessee.

TT-Trustee.

D-Decedent.

LP-Limited Partner.

U.S.C .- United States Code.

DC-Dummy Corporation.

X-Corporation.

DE-Donee.

Del. Order-Delegation Order.

Nonacq .- Nonacquiescence.

O Organization.

DR-Donor.

P-Parent Corporation.

PHC-Personal Holding Company.

PO Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

BK-Bank.

T-Target Corporation.

B.T.A .- Board of Tax Appeals.

T.C .- Tax Court.

C-Individual.

T.D .- Treasury Decision.

C.B .- Cumulative Bulletin.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

LR-Lessor.

M-Minor.

Y-Corporation.

Z-Corporation.

DISC-Domestic International Sales Corporation.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

## Numerical Finding List1

Bulletin 2015-1 through 2015-5

### Announcements:

2015-2, 2015-3 I.R.B. 324
2015-3, 2015-3 I.R.B. 328
2015-4, 2015-5 I.R.B. 565

Proposed Regulations:

REG-109187-11, 2015-2 I.R.B. 277
REG-132751-14, 2015-2 I.R.B. 279
REG-145878-14, 2015-2 I.R.B. 290
REG-153656-3, 2015-5 I.R.B. 566

### Notices:

2015-1, 2015-2 I.R.B. 249
2015-2, 2015-4 I.R.B. 334
2015-4, 2015-5 I.R.B. 407

2015-5, 2015-5 I.R.B. 408
2015-6, 2015-5 I.R.B. 412

### Revenue Procedures:

2015-1, 2015-1 I.R.B. 1
2015-2, 2015-1 I.R.B. 105

2015-3, 2015-1 I.R.B. 129
2015-4, 2015-1 I.R.B. 144

2015-5, 2015-1 I.R.B. 186
2015-6, 2015-1 I.R.B. 194
2015-7, 2015-1 I.R.B. 231
2015-8, 2015-1 I.R.B. 235
2015-9, 2015-2 I.R.B. 249
2015-10, 2015-2 I.R.B. 261
2015-12, 2015-2 I.R.B. 265
2015-13, 2015-5 I.R.B. 419
2015-14, 2015-5 I.R.B. 450

2015-15, 2015-5 I.R.B. 564

### Revenue Rulings:

2015-1, 2015-4 I.R.B. 331
2015-2, 2015-3 I.R.B. 321

### Treasury Decisions:

9707, 2015-2 I.R.B. 247
9708, 2015-5 I.R.B. 337

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2014-27 through 2014-52 is in Internal Revenue Bulletin
2014-52, dated December 28, 2014.

<!-- PageFooter="February 2, 2015" -->

<!-- PageFooter="Bulletin No. 2015-5" -->
<!-- PageBreak -->

### Finding List of Current Actions on Previously Published Items1

Bulletin 2015-1 through 2015-5

#### Announcements:

2010-3
Amplified by
Ann. 2015-3, 2015-3 I.R.B. 328

#### Revenue Procedures:

2014-01
Superseded by
Rev. Proc. 2015-01, 2015-01 I.R.B. 1

2014-02
Superseded by
Rev. Proc. 2015-02, 2015-01 I.R.B. 105

2014-03
Superseded by
Rev. Proc. 2015-03, 2015-01 I.R.B. 129

2014-04
Superseded by
Rev. Proc. 2015-04, 2015-01 I.R.B. 144

2014-05
Superseded by
Rev. Proc. 2015-05, 2015-01 I.R.B. 186

2014-06
Superseded by
Rev. Proc. 2015-06, 2015-01 I.R.B. 194

2014-07
Superseded by
Rev. Proc. 2015-07, 2015-01 I.R.B. 231

2014-08
Superseded by
Rev. Proc. 2015-08, 2015-01 I.R.B. 235

2014-10
Superseded by
Rev. Proc. 2015-10, 2015-2 I.R.B. 261

2003-63
Superseded by
Rev. Proc. 2015-12, 2015-2 I.R.B. 265

2011-14
Modified by
Rev. Proc. 2015-12, 2015-2 I.R.B. 265

2011-14
Modified by
Rev. Proc. 2015-13, 2015-5 I.R.B. 419

Revenue Procedures-Continued:

2011-14
Amplified by
Rev. Proc. 2015-13, 2015-5 I.R.B. 419

2011-14
Clarified by
Rev. Proc. 2015-13, 2015-5 I.R.B. 419

1997-27
Clarified by
Rev. Proc. 2015-13, 2015-5 I.R.B. 419

1997-27
Modified by
Rev. Proc. 2015-13, 2015-5 I.R.B. 419

Revenue Rulings:

92-19
Supplemented by
Rev. Rul. 2015-02, 2015-3 I.R.B. 321

<!-- PageFooter="1A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2014-27 through 2014-52 is in Internal Revenue Bulletin 2014-52, dated December 28, 2014." -->
<!-- PageFooter="Bulletin No. 2015-5" -->

<!-- PageFooter="February 2, 2015" -->
<!-- PageBreak -->

# Internal Revenue Service Washington, DC 20224

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# 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 Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.
NW, IR-6230 Washington, DC 20224.