rp-18-60.pdf

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Administrative, Procedural, and Miscellaneous

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also: Part I, Sections 446, 451; 1.451-1.)

Rev. Proc. 2018-60

SECTION 1. PURPOSE
Section 13221 of the Tax Cuts and Jobs Act, Pub. L. No. 115-97 (December 22,
2017) (TCJA) amended § 451 of the Internal Revenue Code (Code) relating to the
timing of the recognition of income for federal income tax purposes for taxable years
beginning after December 31, 2017. This revenue procedure modifies Rev. Proc. 2018-
31, 2018-22 I.R.B. 637, to provide procedures under § 446 and § 1.446-1(e) of the
Income Tax Regulations to obtain automatic consent of the Commissioner of Internal
Revenue (Commissioner) to change methods of accounting to comply with § 451(b), as
amended by TCJA. In addition, for the first taxable year that begins after December 31,
2017, certain taxpayers are permitted to make a method change to comply with
§ 451(b) without filing a Form 3115, Application for Change in Accounting Method.

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SECTION 2. BACKGROUND
.01 Section 13221 of TCJA made several changes to the timing of income for accrual
method taxpayers by redesignating § 451(b) through (i) as (d) through (k), and adding
new §§ 451(b) and (c). New §§ 451(b) and (c) are generally effective for tax years
beginning after December 31, 2017. Section 451(b), as amended by TCJA, generally
provides that for an accrual method taxpayer, the all events test with respect to any item
of gross income (or portion thereof) shall not be treated as met any later than when
such item (or portion thereof) is taken into account as revenue in the taxpayer’s
applicable financial statement, or such other financial statement as the Secretary may
specify.
.02 Section 13221(d) of TCJA provides rules relating to the coordination with
§ 481(a) for a qualified change in method of accounting for the taxpayer’s first taxable
year beginning after December 31, 2017. Section 13221(d)(2) of TCJA provides that a
qualified change in method of accounting is a change that: is required by the
amendments made by section 13221 of TCJA, or was prohibited under the Code of
1986 prior to such amendments and that is permitted under the Code after such
amendments. These method changes are treated as initiated by the taxpayer and as
made with the consent of the Secretary. This provision of TCJA does not set forth the
administrative procedures to make a change in method of accounting to comply with
§ 451(b), and does not specify whether a taxpayer is entitled to a section 481(a) spread
period, audit protection, or ruling protection.
.03 Section 13221(e) of TCJA provides that in the case of income from a debt
instrument having original issue discount (OID), the rules of § 451(b) apply to taxable

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years beginning after December 31, 2018, and the § 481(a) adjustment period for any
adjustment under § 481(a) for a qualified change in method of accounting is six taxable
years.
.04 On May 28, 2014, the Financial Accounting Standards Board (FASB) and
International Accounting Standards Board (IASB) jointly announced new financial
accounting standards for revenue recognition, titled “Revenue from Contracts with
Customers (Topic 606)” (New Standards). See FASB Update No. 2014-09 and IASB
International Financial Reporting Standard (IFRS) 15. Publicly-traded entities, certain
not-for-profit entities, and certain employee benefit plans are required to adopt the New
Standards for annual reporting periods beginning after December 15, 2017. Other
entities are required to adopt the New Standards for annual reporting periods beginning
after December 15, 2018. However, early adoption was allowed for reporting periods
beginning after December 15, 2016. See FASB Update No. 2015-14, “Revenue from
Contracts with Customers (Topic 606), Deferral of the Effective Date.”
.05 Rev. Proc. 2018-29, 2018-22 I.R.B. 634, as modified by Rev. Proc. 2018-49,
2018-41 I.R.B. 548, added a new automatic method change to Rev. Proc. 2018-31 for
taxpayers that want to change their method of accounting for the recognition of income
to a method that uses the New Standards (i) to identify performance obligations, (ii) to
allocate transaction price to performance obligations, and/or (iii) to consider
performance obligations satisfied. Rev. Proc. 2018-29, as modified by Rev. Proc. 2018-
49, is effective on May 10, 2018, and applies to taxable years ending on or before May
10, 2021.
.06 Section 1.446-1(e)(3)(ii) provides that the Commissioner may prescribe the

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administrative procedures under which a taxpayer will be permitted to change a method
of accounting. Except as otherwise provided in § 1.446-1(e)(3)(ii), a taxpayer must file
a Form 3115 in order to secure the Commissioner’s consent to change a method of
accounting. Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as clarified and modified by Rev.
Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2016-1, 2016-1
I.R.B. 1, and Rev. Proc. 2017-59, 2017-48 I.R.B. 543, provides the general procedures
by which a taxpayer may obtain automatic consent of the Commissioner to change a
method of accounting described in the List of Automatic Changes. Rev. Proc. 2018-31
contains the current List of Automatic Changes.
.07 Section 3 of this revenue procedure modifies Rev. Proc. 2018-31 to provide new
automatic method changes under § 451, and modifications to an existing automatic
change for a taxpayer to change its method of accounting to comply with
§§ 451(b)(1)(A) and 451(b)(4). A taxpayer that files a Form 3115 in accordance with
this revenue procedure to make a change in method of accounting to comply with
§ 451(b) may receive audit protection, as provided in section 8.01 of Rev. Proc. 2015-
13.
.08 To further ease the administrative burden faced by taxpayers to comply with
TCJA amendments to § 451 for the first taxable year beginning after December 31,
2017, this revenue procedure permits certain taxpayers to make changes in method of
accounting to comply with § 451(b) using streamlined method change procedures if the
change results in a zero § 481(a) adjustment, or if the taxpayer requesting the change is
a small business taxpayer as provided in this revenue procedure. Some taxpayers that
qualify to use the streamlined method change procedures provided in this revenue

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procedure may choose to file a Form 3115 in order to retain a clear record of a change
in method of accounting, make permissible concurrent changes on the same Form
3115, or make a change in method of accounting with audit protection. However, other
qualifying taxpayers may prefer the administrative convenience of being able to comply
with § 451(b) solely by the filing of their federal income tax return. This revenue
procedure provides rules for accrual method taxpayers that qualify and prefer to use the
streamlined method change procedures.
SECTION 3. AUTOMATIC METHOD CHANGES
.01 Section 16 of Rev. Proc. 2018-31 is modified to add new section 16.12 to read as
follows:
.12 Changes in the timing of income recognition under § 451(b) for a taxpayer with
an applicable financial statement (AFS).
(1) Description of change. This change applies to taxable years beginning after
December 31, 2017. However, in the case of income from a debt instrument having
original issue discount (OID), this change applies to taxable years beginning after
December 31, 2018. This change applies to an accrual method taxpayer with an AFS
that wants to change its method of accounting for the recognition of income to a method
of accounting that complies with § 451(b)(1)(A). This change also applies to an accrual
method taxpayer with an AFS that wants to change its method of accounting to a
method under § 451(b)(4).
(2) Applicability. This change applies to a taxpayer that:
(a) wants to change to a method of accounting that treats an item of gross
income, or portion thereof, as meeting the all events test no later than when such item,

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or portion thereof, is taken into account as revenue in its AFS under § 451(b)(1)(A),
and/or
(b) is not adopting the New Standards (as defined in section 16.11(1) of this
revenue procedure) for the year of change, and wants to allocate the transaction price
to performance obligations under § 451(b)(4).
(3) Inapplicability. This change does not apply to a taxpayer that:
(a) wants to make a change for federal income tax purposes to a method that
adopts the New Standards, as provided in section 16.11 of this revenue procedure.
See, however, section 16.11 of this revenue procedure for a change to adopt the New
Standards;
(b) wants to make a change in method of accounting to a method described in
§ 451(b)(2); or
(c) does not have an AFS, as defined in § 451(b)(1)(A)(i) or (ii).
(4) Manner of making change.
(a) Short Form 3115. A taxpayer making a change under this section 16.12 is
required to complete only the following information on Form 3115 (Rev. December
2015):
(i) The identification section of page 1 (above Part I);
(ii) The signature section at the bottom of page 1;
(iii) Part I;
(iv) Part II, all lines except lines 13,16c, and 19; and
(v) Part IV, all lines. For a taxpayer making a change under this section 16.12,
the statement required for Line 26 of Form 3115 should list the § 481(a) adjustment(s),

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and a description of where the § 481(a) adjustment is reflected on the federal income
tax return (line number or schedule).
In addition, the requirement to file the duplicate copy, under section 6.03(1)(a) of
Rev. Proc. 2015-13, is waived.
(b) Section 481(a) adjustment period for changes relating to items of income
involving OID. In the case of income from a debt instrument having OID, the § 481(a)
adjustment period for any qualified change in method of accounting described in this
section 16.12(4)(b) is six taxable years (year of change and next five taxable years).
For purposes of the preceding sentence, a qualified change in method of accounting is
a change in method of accounting for income from a debt instrument having OID to a
method that is required by § 451(b), as added by section 13221 of the Tax Cuts and
Jobs Act (TCJA) Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), for such income,
but only for the taxpayer’s first taxable year beginning after December 31, 2018.
(c) Streamlined method change procedures for certain taxpayers.
(i) Applicability. The procedures described in this section 16.12(4)(c) may be
used by a taxpayer to make a change in method of accounting described in section
16.12(2) of this revenue procedure in the taxpayer’s first taxable year beginning after
December 31, 2017. A taxpayer is permitted to use the streamlined method change
procedures if the taxpayer meets one of the following requirements:
(A) the taxpayer, other than a tax shelter (as defined in § 448(d)(3)), meets
the § 448(c) gross receipts test (a “small business taxpayer”). The taxpayer meets the
§ 448(c) gross receipts test if the taxpayer has average annual gross receipts for the
three prior taxable years of $25,000,000 or less; or

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(B) the taxpayer is making one or more changes to comply with
§ 451(b)(1)(A) and/or § 451(b)(4), and the § 481(a) adjustment required by each of the
changes is zero. A taxpayer making more than one change in method of accounting
under section 16.12(2) of this revenue procedure is not permitted to net the § 481(a)
adjustments to determine if the taxpayer meets the requirements to use the streamlined
method change procedures. See section 16.12(8)(a) of this revenue procedure for
more information on making a permitted concurrent change.
(ii) Inapplicability. In addition to the inapplicability rules provided in section
16.12(3) of this revenue procedure, a taxpayer may not use these streamlined method
change procedures if the taxpayer wants to make a concurrent automatic change
described in section 16.12(8)(b) of this revenue procedure.
(iii) No Form 3115 required. In accordance with § 1.446-1(e)(3)(ii), the
requirement of § 1.446-1(e)(3)(i) to file a Form 3115 is waived for a taxpayer making a
change in method of accounting under this section 16.12 using the streamlined method
change procedures. Thus, a taxpayer using the streamlined method change
procedures is not required to file a Form 3115 and is not required to attach a separate
statement when making a change under this section 16.12.
(5) Certain eligibility rule inapplicable.
(a) In general. Except as otherwise provided in this section 16.12(5), the
eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a change
under this section 16.12 for a taxpayer's first, second, or third taxable year beginning
after December 31, 2017.

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(b) Changes related to debt instruments having OID. For a change related to
income from a debt instrument having OID, the eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 does not apply to this change for a taxpayer's first, second, or third
taxable year beginning after December 31, 2018.
(c) Changes made under the streamlined method change procedures. For a
change made using the streamlined procedures of section 16.12(4)(c) of this revenue
procedure, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply
to this change for a taxpayer's first taxable year beginning after December 31, 2017.
(6) No audit protection. A taxpayer making a change in method of accounting
using the streamlined method change procedures provided in section 16.12(4)(c) of this
revenue procedure does not receive audit protection under section 8.01 of Rev. Proc.
2015-13.
(7) No ruling on method used. The consent granted under section 9 of Rev. Proc.
2015-13 for a change made under section 16.12 of this revenue procedure is not a
determination by the Commissioner that the new method of accounting is a permissible
method of accounting under § 451 and does not create a presumption that the
allocation method used under § 451(b)(4) is a permissible method of accounting. The
Director may ascertain whether the new method of accounting is a permissible method
of accounting under § 451 and whether the allocation method is permissible under
§ 451(b)(4).
(8) Concurrent automatic changes.
(a) In general. A taxpayer that wants to make one or more concurrent changes
in method of accounting under this section 16.12 may file a single Form 3115 that

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includes all of the changes, must separately state the § 481(a) adjustment for each
change, if applicable, and may not net the § 481(a) adjustment for a change with
§ 481(a) adjustments from other changes. A taxpayer that makes a change under both
section 16.12(2)(a) and (2)(b) of this revenue procedure is required to implement the
change under section 16.12(2)(b) before making the change under section 16.12(2)(a).
See section 6.03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent
changes.
(b) Concurrent change in the timing of recognition of income due to the New
Standards. Except as provided in section 16.12(4)(c)(i) of this section, a taxpayer that
wants to make a change under section 16.12(2)(a) of this revenue procedure and a
change under section 16.11 of this revenue procedure for the same year of change may
file a single Form 3115 for both changes and enter the designated automatic accounting
method change number for both changes on the appropriate line of Form 3115. A
taxpayer that makes both changes is required to make the change under section 16.11
of this revenue procedure before making the change under this section 16.12(2)(a).
(9) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change under this section 16.12 is
“239.”
(10) Contact information. For further information regarding a change under this
section, contact Peter E. Ford at (202) 317-7003 (not a toll-free call). For further
information regarding a change under this section for OID, contact Charles W. Culmer
at (202) 317-4528 (not a toll-free call).

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.02 Section 15.01 of Rev. Proc. 2018-31, as modified by Rev. Proc. 2018-44, 2018-
37 I.R.B. 416, is modified as follows:
(1) Section 15.01(1)(a) of Rev. Proc. 2018-31 is modified to add a new paragraph
at the end thereof to read as follows:
Lastly, a taxpayer with an applicable financial statement (AFS) qualifies to use
this section 15.01 for a taxable year beginning after December 31, 2017, to comply with
§ 451(b)(1)(A), and, if applicable, § 451(b)(4). However, a taxpayer that wants to make
a change for the recognition of income for federal income tax purposes to a method
under the New Standards, as defined in section 16.11(1) of this revenue procedure, for
allocating transaction price to performance obligations for the same year of change
must use section 16.11 of this revenue procedure to make the change for purposes of
complying with § 451(b)(4).
(2) Section 15.01(1)(b) of Rev. Proc. 2018-31 is modified to add new division (ix)
to read as follows:
(ix) a taxpayer with an AFS that wants to make a change for the
recognition of income for federal income tax purposes to a method under the New
Standards, as defined in section 16.11(1) of this revenue procedure, for allocating
transaction price to performance obligations for the same year of change that it wants to
change to an accrual method.
(3) Section 15.01(2)(b) of Rev. Proc. 2018-31 is modified to read as follows:
(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). For a taxable year beginning after
December 31, 2017, a taxpayer with an AFS treats the all events test with respect to an

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item of income, or portion of an item of income, as met no later than when the item, or
portion of that item, is taken into account as revenue in its AFS.
(4) Section 15.01(3)(b) of Rev. Proc. 2018-31 is modified to read as follows:
(b) Certain eligibility rule inapplicable.
(i) Prior change eligibility rule inapplicable. Any prior change to the overall
cash method that the taxpayer implemented using the provisions of Rev. Proc. 2001-10,
as modified by Rev. Proc. 2011-14, or Rev. Proc. 2002-28, as modified by Rev. Proc.
2011-14, is disregarded for purposes of section 5.01(1)(e) of Rev. Proc. 2015-13.
(ii) Certain eligibility rule temporarily inapplicable. For a taxpayer with an
AFS that changes to an overall accrual method that complies with § 451(b)(1)(A), and, if
applicable, § 451(b)(4) under this section, the eligibility rule in section 5.01(1)(e) of Rev.
Proc. 2015-13 does not apply to this change for the taxpayer’s first, second, or third
taxable year ending beginning after December 31, 2017.
(5) Section 15.01(3) of Rev. Proc. 2018-31 is modified to add new subparagraphs
(f) and (g) to read as follows:
(f) Concurrent automatic changes for a taxpayer with an AFS that complies
with § 451(b). A taxpayer with an AFS that changes to an overall accrual method that
complies with § 451(b)(1)(A) under this section 15.01 that also wants to make a change
under this section 15.01 to comply with § 451(b)(4) must file a single Form 3115. The
taxpayer must separately state the § 481(a) adjustment for each change and may not
net these § 481(a) adjustments. A taxpayer must make the change for § 451(b)(4)
before making the change for § 451(b)(1)(A). See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making concurrent changes.

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(g) Concurrent change in the timing of recognition of income due to the New
Standards. A taxpayer that wants to make a change under this section 15.01 and a
change under section 16.11 of this revenue procedure for the same year of change
must file a single Form 3115 for both changes and enter the designated automatic
accounting method change number for both changes on the appropriate line of Form
3115. A taxpayer that makes both changes is required to make the change under
section 16.11 of this revenue procedure before making the change under this section
15.01.
(6) Section 15.01(4)(b) of Rev. Proc. 2018-31 is modified to read as follows:
(b) Certain eligibility rule inapplicable.
(i) Prior change eligibility rule inapplicable. 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 section 5.01(1)(e) of Rev. Proc. 2015-13.
(ii) Certain eligibility rule temporarily inapplicable. For a taxpayer with an
AFS that changes to an overall accrual method that complies with § 451(b)(1)(A), and, if
applicable, § 451(b)(4) under this section, the eligibility rule in section 5.01(1)(e) of Rev.
Proc. 2015-13 does not apply to this change for the taxpayer’s first, second, or third
taxable year beginning after December 31, 2017.
(7) Section 15.01 of Rev. Proc. 2018-31 is modified to renumber existing
paragraphs 15.01(5) and (6) as paragraphs 15.01(6) and (7), respectively, and add new
paragraph 15.01(5) to read as follows:
(5) No ruling on method used. The consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under section 15.01 of this revenue procedure is not

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a determination by the Commissioner that the new method of accounting is a
permissible method of accounting under § 451 and does not create a presumption that
the allocation method used under § 451(b)(4) is a permissible method of accounting.
The Director may ascertain whether the new method of accounting is a permissible
method of accounting under § 451 and whether the allocation method is permissible
under § 451(b)(4).
SECTION 4. EFFECTIVE DATE
.01 In general. This revenue procedure is effective on November 29, 2018, for a
taxable year beginning after December 31, 2017.
.02 Return of Form 3115 filed under the non-automatic change procedures. The
National Office will return any Form 3115 requesting a change in method of accounting
that was filed with the National Office on or before November 29, 2018, under the non-
automatic procedures of Rev. Proc. 2015-13 for a taxable year beginning after
December 31, 2017, that is pending with the National Office on November 29, 2018,
and that is described in section 3 of this revenue procedure. The National Office will
send a letter to the taxpayer acknowledging the return of the Form 3115, and will return
the user fee submitted with the Form 3115. For purposes of the eligibility rules in
section 5 of Rev. Proc. 2015-13, the timely resubmitted Form 3115 will be considered
filed as of the date the taxpayer originally filed the Form 3115 under the non-automatic
change procedures in Rev. Proc. 2015-13. This paragraph does not extend the date
the taxpayer must file the original (returned) Form 3115 under section 6.03(1)(a)(i)(A) of
Rev. Proc. 2015-13.
SECTION 5. EFFECT ON OTHER DOCUMENTS

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This revenue procedure modifies Rev. Proc. 2018-31.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Peter E. Ford of the Office of the
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure, contact Mr. Ford on (202) 317-7003 (not a toll free call).