rp-23-11.pdf

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.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

Part III

Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also, Part 1, §§ 174, 446, 1.446-1.)

Rev. Proc. 2023-11

SECTION 1. PURPOSE
This revenue procedure modifies and supersedes Rev. Proc. 2023-8, this Bulletin,
which modified Rev. Proc. 2022-14, 2022-7 I.R.B. 502, to provide procedures under
§ 446 of the Internal Revenue Code (Code) 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 for specified research or
experimental expenditures to comply with § 174 of the Code, as amended by § 13206 of
Public Law 115-97, 131 Stat. 2054 (December 22, 2017), commonly referred to as the
Tax Cuts and Jobs Act (TCJA). References in this revenue procedure to “former § 174”
refer to § 174 as in effect for research or experimental expenditures paid or incurred in
taxable years beginning before the effective date of the amendments made to § 174 by
§ 13206(a) of the TCJA, and all following references to “§ 174” in this revenue

2
procedure refer to § 174 as amended by the TCJA.
SECTION 2. BACKGROUND
.01 Former § 174
.

(1) Former § 174(a)(1) provided that a taxpayer may treat research or experimental
expenditures which are paid or incurred by the taxpayer during the taxable year in
connection with the taxpayer’s trade or business as expenses which are not chargeable
to capital account. The expenditures so treated were allowed as a deduction. Under
former § 174(a)(2)(A), a taxpayer could, without the consent of the Secretary of the
Treasury or her delegate (Secretary), adopt the method provided in former § 174(a) for
the taxpayer’s first taxable year for which expenditures described in former § 174(a)(1)
were paid or incurred. Under former § 174(a)(2)(B), a taxpayer could, with the consent
of the Secretary, adopt at any time the method provided in former § 174(a).
(2) Under former § 174(b)(1), at the election of the taxpayer, made in accordance
with regulations prescribed by the Secretary, research or experimental expenditures
could be treated as deferred expenses if such expenditures were: 1) paid or incurred by
the taxpayer in connection with the taxpayer’s trade or business, 2) not treated as
expenses under former § 174(a), and 3) chargeable to capital account but not
chargeable to property of a character which is subject to the allowance under § 167 of
the Code (relating to allowance for depreciation, etc.) or § 611 of the Code (relating to
allowance for depletion).
(3) Former § 174(b)(1) provided that in computing taxable income, such deferred
expenses were allowed as a deduction ratably over such period of not less than 60
months as may be selected by the taxpayer (beginning with the month in which the

3
taxpayer first realizes benefits from such expenditures). Such deferred expenses were
expenditures properly chargeable to capital account for purposes of § 1016(a)(1) of the
Code (relating to adjustments to basis of property).
(4) Under former § 174(b)(2), the election provided by former § 174(b)(1) could be
made for any taxable year, but only if made not later than the time prescribed by law for
filing the return for such taxable year (including extensions thereof). The method so
elected, and the period selected by the taxpayer, were required to be adhered to in
computing taxable income for the taxable year for which the election was made and for
all subsequent taxable years unless, with the approval of the Secretary, a change to a
different method (or to a different period) was authorized with respect to part or all of
such expenditures. The election did not apply to any expenditure paid or incurred
during any taxable year before the taxable year for which the taxpayer made the
election.
(5) Under § 1.174-1, which applies to research or experimental expenditures paid
or incurred in taxable years beginning before December 31, 2021 (the effective date of
the amendments to § 174 under § 13206 of the TCJA), research or experimental
expenditures which are neither treated as expenses nor deferred and amortized under
§ 174 must be charged to capital account.
1

.02 TCJA amendments
.

(1) As amended by § 13206(a) of the TCJA, § 174(a)(1) provides that in the case
of a taxpayer’s specified research or experimental expenditures for any taxable year,
except as provided in § 174(a)(2), no deduction is allowed for such expenditures.

1
The term “capital account” in § 1.174-1 includes capital asset accounts, including, but not limited to,
inventory and depreciable property.

4
Section 174(a)(2) provides that the taxpayer must charge such expenditures to capital
account
2
and is allowed an amortization deduction of such expenditures ratably over the
5-year period (15-year period in the case of any specified research or experimental
expenditures which are attributable to foreign research within the meaning of
§ 41(d)(4)(F) of the Code) beginning with the midpoint of the taxable year in which such
expenditures are paid or incurred. The method of accounting described in this section
2.02(1) is referred to as the “required § 174 method” in this revenue procedure.
(2) Under § 174(b) the term “specified research or experimental expenditures”
means, with respect to any taxable year, research or experimental expenditures which
are paid or incurred by the taxpayer during such taxable year in connection with the
taxpayer's trade or business.
(3) Section 174(c)(1) provides that the required § 174 method does not apply to
any expenditure for the acquisition or improvement of land, or for the acquisition or
improvement of property to be used in connection with the research or experimentation
and of a character which is subject to the allowance under § 167 (relating to allowance
of depreciation, etc.) or § 611 (relating to allowance for depletion); but for purposes of
§ 174, allowances under § 167 and allowances under § 611 are considered as
expenditures.
(4) Section 174(c)(2) provides that the required § 174 method does not apply to
any expenditure paid or incurred for the purpose of ascertaining the existence, location,
extent, or quality of any deposit of ore or other mineral (including oil and gas).
(5) Section 174(c)(3) provides that for purposes of § 174, any amount paid or

2
The term “capital account” in § 174(a)(2) does not mean the capital account described in § 1.174-1. The
term means a separate specified research or experimental capital account.

5
incurred in connection with the development of any software is treated as a research or
experimental expenditure accounted for under the required § 174 method.
(6) Under § 174(d), if any property with respect to which specified research or
experimental expenditures are paid or incurred is disposed, retired, or abandoned
during the period which such expenditures are allowed as an amortization deduction
under the required § 174 method, no deduction is allowed with respect to such
expenditures on account of such disposition, retirement, or abandonment and such
amortization deduction will continue with respect to such expenditures.
(7) Section 13206(b) of the TCJA provides that the amendments made by
§ 13206(a) of the TCJA to former § 174 “shall be treated as a change in method of
accounting for purposes of section 481” and that “(1) such change shall be treated as
initiated by the taxpayer, (2) such change shall be treated as made with the consent of
the Secretary, and (3) such change shall be applied only on a cut-off basis for any
research or experimental expenditures paid or incurred in taxable years beginning after
December 31, 2021, and no adjustments under section 481(a) shall be made.”
(8) Section 13206(e) of the TCJA provides that the amendments made by
§ 13206(a) of the TCJA to former § 174 apply to research or experimental expenditures
paid or incurred in taxable years beginning after December 31, 2021.
.03 Section 446(e)
.

(1) Except as otherwise expressly provided in the Code and the regulations
thereunder, §§ 446(e) and 1.446-1(e)(2) require a taxpayer to secure the consent of the
Commissioner before changing a method of accounting for Federal income tax
purposes. Section 1.446-1(e)(3)(i) states, in part, that except as otherwise provided

6
under the authority of § 1.446-1(e)(3)(ii), to secure the Commissioner's consent to a
taxpayer's change in method of accounting the taxpayer generally must file an
application on Form 3115, Application for Change in Accounting Method, with the
Commissioner during the taxable year in which the taxpayer desires to make the
change in method of accounting. Section 1.446-1(e)(3)(ii) authorizes the Commissioner
to prescribe administrative procedures under which taxpayers will be permitted to
change their method of accounting. The administrative procedures will prescribe those
terms and conditions necessary to obtain the Commissioner's consent to effect the
change and to prevent amounts from being duplicated or omitted.
(2) 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. 2017-59, 2017-48 I.R.B.
543, and Rev. Proc. 2021-34, 2021-35 I.R.B. 337, and as updated by Rev. Proc. 2021-
26, 2021-22 I.R.B. 1163, sets forth the general procedures by which a taxpayer may
obtain the automatic consent of the Commissioner to change a method of accounting
described in the List of Automatic Changes. Rev. Proc. 2022-14, as modified by Rev.
Proc. 2023-8, contains the current List of Automatic Changes.
(3) A change in a taxpayer's treatment of specified research or experimental
expenditures paid or incurred in taxable years beginning after December 31, 2021, to
comply with § 174 is a change in method of accounting to which §§ 446(e) and 481, and
the corresponding regulations, apply. A taxpayer changing the treatment of specified
research or experimental expenditures paid or incurred to the method of accounting that
complies with § 174 must use the accounting method change procedures in Rev. Proc.
2015-13, or its successor. Section 3 of this revenue procedure modifies Rev. Proc.

7
2022-14, as modified by Rev. Proc. 2023-8, and modifies and supersedes Rev. Proc.
2023-8, to allow taxpayers to obtain automatic consent to change their method of
accounting to comply with § 174 for taxable years beginning after December 31, 2021.
(4) As discussed in section 2.02(7) of this revenue procedure, § 13206(b) of the
TCJA provides that the amendments made by § 13206(a) of the TCJA to former § 174
are treated as a change in method of accounting for purposes of § 481 that is initiated
by the taxpayer and made with the consent of the Commissioner, and that “such change
shall be applied only on a cut-off basis for any research or experimental expenditures
paid or incurred in taxable years beginning after December 31, 2021, and no
adjustments under section 481(a) shall be made.” Pursuant to section 2.07 of Rev.
Proc. 2015-13, 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. When a change in method of accounting is
made on a cut-off basis, no amounts are duplicated or omitted, and therefore, a
§ 481(a) adjustment is not necessary or permitted.
(5) In accordance with § 13206(b) of the TCJA, a change in a taxpayer’s method of
accounting to the required § 174 method for the first taxable year that the amendments
made by § 13206(a) of the TCJA are effective must be made only on a cut-off basis.
The required § 174 method applies only to specified research or experimental
expenditures paid or incurred in taxable years beginning after December 31, 2021. The

8
procedures in section 3 of this revenue procedure provide an automatic change in
method of accounting to the required § 174 method to comply with § 174 by filing a
statement with the taxpayer’s original Federal income tax return for the first taxable year
in which § 174 becomes effective in lieu of a Form 3115. If a change to the required
§ 174 method to comply with § 174 for some or all of the taxpayer’s specified research
or experimental expenditures is made for a taxable year subsequent to the taxable year
of the taxpayer in which § 174 becomes effective, the change to the required § 174
method to comply with § 174 is made by filing a Form 3115, with a modified § 481(a)
adjustment that takes into account only specified research or experimental expenditures
paid or incurred in taxable years beginning after December 31, 2021.
(6) Additionally, section 3 of this revenue procedure provides a transition rule for
taxpayers who filed a Federal tax return on or before this revenue procedure is
published in the Internal Revenue Bulletin for a taxable year beginning after December
31, 2021. The transition rule provides that such taxpayer is deemed to have complied
with the § 446 method change procedures and section 7.02 of Rev. Proc. 2022-14, as
modified by Rev. Proc. 2023-8, and further modified by section 3 of this revenue
procedure, if the taxpayer properly reported the amount of specified research or
experimental expenditures on Part VI of Form 4562, Depreciation and Amortization,
filed with the Federal tax return, and properly capitalized and amortized such specified
research or experimental expenditures in accordance with the required § 174 method.
(7) A taxpayer that changes its method of accounting for specified research or
experimental expenditures under section 7.02 of Rev. Proc. 2022-14, as modified by
Rev. Proc. 2023-8, and further modified by section 3 of this revenue procedure, will

9
receive limited audit protection under section 8.01 of Rev. Proc. 2015-13. Specifically,
audit protection will not apply for expenditures paid or incurred in taxable years
beginning before January 1, 2022. Audit protection also will not apply for expenditures
paid or incurred in taxable years beginning after December 31, 2021, if a change in
method is made for the taxable year immediately subsequent to the first taxable year in
which § 174 becomes effective. Additionally, notwithstanding the audit protection rules
under section 8.01 of Rev. Proc. 2015-13, the IRS may change the characterization or
classification of expenditures as specified research or experimental expenditures as
defined in § 174(b) in order to apply § 174 as well as the change under section 7.02 of
Rev. Proc. 2022-14, as modified by Rev. Proc. 2023-8, and further modified by section
3 of this revenue procedure, to the proper amount of expenditures paid or incurred in
each taxable year beginning after December 31, 2021.
SECTION 3. AUTOMATIC METHOD CHANGE TO REQUIRED § 174 METHOD

.01 Modification of Section 7 of Rev. Proc. 2022-14. Section 7 of Rev. Proc. 2022-
14, as modified by Rev. Proc. 2023-8, is further modified to revise section 7.02 to read
as follows.
.02 Specified Research or Experimental Expenditures.
(1) Description of change.
(a) This change applies to a taxpayer that changes its method of accounting for
specified research or experimental expenditures (as defined under § 174(b)) to the
required § 174 method (as defined in section 7.02(1)(b) of this revenue procedure) to
comply with § 174. Unless otherwise stated, references to “§ 174” in this section 7.02
refer to § 174 as amended by § 13206(a) of the TCJA. Section 13206(e) of the TCJA

10
provides that the amendments made by § 13206 of the TCJA apply to amounts paid or
incurred in taxable years beginning after December 31, 2021.
(b) Section 174(a)(1) provides that in the case of a taxpayer’s specified research
or experimental expenditures for any taxable year, except as provided in § 174(a)(2), no
deduction is allowed for such expenditures. Section 174(a)(2) provides that the
taxpayer must charge such expenditures to capital account and is allowed an
amortization deduction of such expenditures ratably over the 5-year period (15-year
period in the case of any specified research or experimental expenditures which are
attributable to foreign research within the meaning of § 41(d)(4)(f) of the Code)
beginning with the midpoint of the taxable year in which such expenditures are paid or
incurred. The method of accounting described in this section 7.02(1)(b) is referred to as
the “required § 174 method” in this section 7.02.
(2) Applicability
. This change to the required § 174 method applies to specified
research or experimental expenditures (as defined in § 174(b)) paid or incurred in
taxable years beginning after December 31, 2021.
(3) Inapplicability. This change does not apply to:
(a) a change in the treatment of acquired, leased, or licensed computer software
under Rev. Proc. 2000-50, 2000-52 I.R.B. 601, as modified by Rev. Proc. 2007-16,
2007-1 C.B. 358 (see section 9.01 of this revenue procedure); or
(b) a change in the treatment of research or experimental expenditures under
former § 174, or software development expenditures, paid or incurred in taxable years
beginning before January 1, 2022 (see sections 7.01 and 9.01 of this revenue
procedure).

11
(4) Manner of making change
.
(a) First taxable year beginning after December 31, 2021.
(i) Cut-off basis. The change under section 7.02 of this revenue procedure for
specified research or experimental expenditures paid or incurred in the first taxable year
beginning after December 31, 2021, is implemented on a cut-off basis.
(ii) Statement in lieu of a Form 3115 for first taxable year beginning after
December 31, 2021. Except as otherwise provided in section 7.02(5) of this revenue
procedure, the requirement of § 1.446-1(e)(3)(i) to file a Form 3115, Application for
Change in Accounting Method, is waived and a statement in lieu of a Form 3115 is
authorized for the change in method of accounting under section 7.02 of this revenue
procedure for which the year of change is the first taxable year beginning after
December 31, 2021. Notwithstanding the definition of Form 3115 in section 3.07 of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, the statement in lieu of a Form 3115 that is
permitted under this section 7.02(4)(a)(ii) is considered a Form 3115 for purposes of the
automatic consent procedures of Rev. Proc. 2015-13. The requirement to file the
duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived. The
statement must include the following information for each applicant:
(A) the name and employer identification number or social security number,
as applicable, of the applicant that has paid or incurred specified research or
experimental expenditures after December 31, 2021;
(B) the beginning and ending dates of the first taxable year in which the
change to the required § 174 method takes effect for the applicant (year of change);
(C) the designated automatic accounting method change number for this

12
change (see section 7.02(8) of this revenue procedure);
(D) a description of the type of expenditures included as specified research
or experimental expenditures;
(E) the amount of specified research or experimental expenditures paid or
incurred by the applicant during the year of change; and
(F) a declaration that the applicant is changing the method of accounting for
specified research or experimental expenditures to capitalize such expenditures to a
specified research or experimental capital account, and amortize such amount over
either a 5-year period for domestic research or 15-year period for foreign research (as
applicable) beginning with the mid-point of the taxable year in which such expenditures
are paid or incurred in accordance with the method permitted under § 174 for the year
of change. Also, the declaration must state that the applicant is making the change on
a cut-off basis.
(b)
Year of change later than the first taxable year beginning after December 31,
2021.
(i) Modified § 481(a) adjustment. The change under section 7.02 of this
revenue procedure for a year of change later than the first taxable year beginning after
December 31, 2021, is made with a modified § 481(a) adjustment, and should take into
account only specified research or experimental expenditures paid or incurred in taxable
years beginning after December 31, 2021.
(ii) Form 3115. In completing a Form 3115, Application for Change in
Accounting Method, to make the change in method of accounting under section 7.02 of
this revenue procedure with respect to any year of change later than the first taxable

13
year beginning after December 31, 2021, a taxpayer must include on an attachment to
Form 3115:
(A) a description of the type of expenditures included as specified research or
experimental expenditures;
(B) the taxable year(s) in which the specified research or experimental
expenditures subject to the change were paid or incurred by the applicant; and
(C) a declaration that the applicant is changing its method of accounting for
specified research or experimental expenditures to capitalize such expenditures to a
specified research or experimental capital account, and amortize such amount over
either a 5-year period for domestic research or 15-year period for foreign research (as
applicable) beginning with the mid-point of the taxable year in which such expenditures
are paid or incurred in accordance with the method permitted under § 174 for the year
of change. Also, the declaration must state that the applicant is making the change with
a modified § 481(a) adjustment that takes into account only specified research or
experimental expenditures paid or incurred in taxable years beginning after December
31, 2021.
(5) Transition rule
. A taxpayer who filed a Federal tax return on or before
January 17, 2023, for a taxable year beginning after December 31, 2021, is deemed to
have complied with the § 446 method change procedures and section 7.02 of this
revenue procedure to change its method of accounting for specified research or
experimental expenditures paid or incurred in the first taxable year beginning after
December 31, 2021, to the required § 174 method to comply with § 174 if the taxpayer:
(a) reported the amount of specified research or experimental expenditures paid

14
or incurred for such taxable year on Part VI of Form 4562, Depreciation and
Amortization, filed with the Federal tax return, and
(b) properly capitalized and amortized such specified research or experimental
expenditures in accordance with the required § 174 method for such taxable year.
(6) Certain eligibility rule temporarily inapplicable
. The eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to changes to the
required § 174 method for the taxpayer’s first taxable year beginning after December
31, 2021.
(7) No audit protection for expenditures paid or incurred in taxable years prior to
the first taxable year in which § 174 becomes effective or for a year of change that is the
taxable year immediately subsequent to the first taxable year in which § 174 becomes
effective. A taxpayer does not receive audit protection under section 8.01 of Rev. Proc.
2015-13 for the change under section 7.02 of this revenue procedure with respect to
expenditures paid or incurred in taxable years beginning on or before December 31,
2021. Additionally, a taxpayer does not receive audit protection under section 8.01 of
Rev. Proc. 2015-13 for the change under section 7.02 of this revenue procedure with
respect to expenditures paid or incurred in taxable years beginning after December 31,
2021, if such change is made for the taxable year immediately subsequent to the first
taxable year in which § 174 becomes effective. 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 section 7.02 of this
revenue procedure is “265.”

15
(9)
No inference relating to expenditures paid or incurred in taxable years prior to
the first taxable year in which § 174 becomes effective. No inference may be drawn
from section 7.02 of this revenue procedure regarding the treatment of research or
experimental expenditures paid or incurred in, and changes in methods of accounting
for, taxable years in which former § 174 was in effect, including issues relating to the
application of §§ 1.174-1, 1.174-3, and 1.174-4 of the Income Tax Regulations for
taxable years in which former § 174 was in effect.
(10) Contact information. For further information regarding a change under this
section, contact Martha M. Garcia at (202) 317-6853 (not a toll-free number).
SECTION 4. EFFECT ON OTHER DOCUMENTS
This revenue procedure modifies section 7 of Rev. Proc. 2022-14, as modified by
Rev. Proc. 2023-8, and modifies and supersedes Rev. Proc. 2023-8.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for specified research or experimental
expenditures paid or incurred in taxable years beginning after December 31, 2021, in
which § 174 is in effect.
SECTION 6. PAPERWORK REDUCTION ACT
The collection of information contained in this revenue procedure has been reviewed
and approved by the Office of Management and Budget under OMB control numbers
1545-0074 for individual filers and 1545-0123 for business filers, in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507(d)). An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information unless the
collection of information displays a valid OMB control number. The collection of

16
information in this revenue procedure is in section 3, which adds sections 7.02(4)(a)(ii)
and 7.02(4)(b)(ii) to Rev. Proc. 2022-14. This information is necessary and will be used
to determine whether the taxpayer properly changed to a permitted method of
accounting. The collections of information are required for the taxpayer to obtain
consent to change its method of accounting.
SECTION 7. DRAFTING INFORMATION
The principal authors of this revenue procedure are Martha M. Garcia and John M.
Deininger of the Office of Associate Chief Counsel (Passthroughs & Special Industries).
For further information regarding this revenue procedure contact Martha M. Garcia or
John M. Deininger at (202) 317-6853 (not a toll-free call).