Internal Revenue Bulletin 2018-22 (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.

# INTERNAL REVENUE BULLETIN

IRS

## 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.

## Employee Plans

### Notice 2018-53, page 631.

This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for May
2018 used under § 417(e)(3)(D), the 24-month average seg-
ment rates applicable for May 2018, and the 30-year Treasury
rates, as reflected by the application of § 430(h)(2)(C)(iv).

## Income Tax

### Notice 2018-49, page 624.

This notice announces the inflation adjustment factor and
phase-out amount for the enhanced oil recovery credit for
2018 calendar year.

### Notice 2018-50, page 626.

Credit for Renewable Electricity Production and Refined Coal
Production, and Publication of Inflation Adjustment Factor and
Reference Prices for Calendar Year 2018: The notice reports
for 2018 the inflation adjustment factor and reference prices
used to determine the availability of the section 45 credit for
electricity produced from qualified energy resources and re-
fined coal and includes the credit amounts for renewable elec-
tricity production and refined coal production.

### Notice 2018-51, page 628.

The guidance announces that under section 613A(c)(6)(C) of
the Code, the applicable percentage for purposes of determin-
ing percentage depletion on marginal properties for calendar
year 2018 is 15 percent.

### Notice 2018-52, page 629.

This guidance announces the applicable reference price for
qualified natural gas production from qualified marginal wells
during taxable years beginning in 2017.

Bulletin No.

2018-22

May

29, 2018

### Rev. Proc. 2018-29, page 634.

Rev. Proc. 2018-29 provides new procedures for taxpayers
changing their method of accounting for the recognition of income
for federal income tax purposes to a method for recognizing
revenues described in the new financial accounting standards
issued by the Financial Accounting Standards Board and the
International Accounting Standards Board (New Standards). In
particular, Rev. Proc. 2018-29 provides procedures under sec-
tion 446 and section 1.446-1(e) to change to an otherwise
permissible method of accounting that uses the New Standards to
identify performance obligations, allocate transaction price to
performance obligations, and/or consider performance obliga-
tions satisfied, if such method change is made for the taxable year
in which the taxpayer adopts the New Standards.

### Rev. Proc. 2018-31, page 637.

This revenue procedure provides the List of Automatic Changes to
which the automatic change procedures in Rev. Proc. 2015-13,
2015-5 I.R.B. 419, as clarified and modified by Rev. Proc. 2015-
33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2017-
59, 2017-48 I.R.B. 543, and by section 17.02 of Rev. Proc.
2016-1, 2016-1 I.R.B. 1, apply. The definitions in section 3 of
Rev. Proc. 2015-13 apply to this revenue procedure.

### Rev. Proc. 2018-33, page 734.

The proposed revenue procedure provides issuers of qualified
mortgage bonds, as defined in section 143(a) of the Internal
Revenue Code, and issuers of mortgage credit certificates as
defined in section 25(c), with the United States median gross
income figure most recently computed by the Department of
Housing and Urban Development (HUD). The proposed revenue
procedure also provides these issuers with guidance concern-
ing the area median gross incomes as computed by HUD.
Issuers of qualified mortgage bonds (QMB) and mortgage
credit certificates (MCC) must use these income figures in
determining whether the income limitation placed on the ben-
eficiaries of the mortgages and certificates may be increased
because the residences to be financed are located in high
housing cost areas. See sections 25(c)(A)(iii)(IV) and 143(f)(5).

Finding Lists begin on page ii.

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## 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.

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## Part III. Administrative, Procedural, and Miscellaneous

### 2018 Section 43 Inflation Adjustment Notice 2018-49

Section 43(a) provides that for pur-
poses of section 38, the enhanced oil re-
covery credit for any taxable year is an
amount equal to 15 percent of the taxpay-
er's qualified enhanced oil recovery costs
for such taxable year.

Section 43(b)(1) provides that the
amount of the credit determined under sub-
section (a) for any taxable year shall be
reduced by an amount which bears the same
ratio to the amount of such credit (deter-

mined without regard to this paragraph) as -
(A) the amount by which the reference price
for the calendar year preceding the calendar
year in which the taxable years begins ex-
ceeds $28, bears to (B) $6.

Section 43(b)(3)(B) of the Internal
Revenue Code requires the Secretary to
publish an inflation adjustment factor.
The enhanced oil recovery credit under
§ 43 for any taxable year is reduced if
the "reference price," determined under
§ 45K(d)(2)(C), for the calendar year
preceding the calendar year in which the
taxable year begins is greater than $28
multiplied by the inflation adjustment
factor for that year.

The term "inflation adjustment factor"
means, with respect to any calendar year, a
fraction the numerator of which is the GNP
implicit price deflator for the preceding cal-
endar year and the denominator of which is
the GNP implicit price deflator for 1990.

Because the reference price for the
2017 calendar year ($48.05) exceeds $28
multiplied by the inflation adjustment fac-
tor for the 2017 calendar year ($28 mul-
tiplied by 1.7008 = $47.6224), a portion
of the enhanced oil recovery credit for
qualified costs paid or incurred in 2018 is
phased out by using the following ratio:

48.05 - 47.6224
6
15
\=
x

where solving for x = 1.069

Therefore, the percentage available for 2018 is 13.931(15 - 1.069)

Table 1 contains the GNP implicit
price deflator used for the 2018 calendar

year, as well as the previously published
GNP implicit price deflators used for the

1991 through 2017 calendar years.

Notice 2018-49 TABLE 1 GNP IMPLICIT PRICE DEFLATORS

Calendar Year

GNP Implicit Price Deflator

1990

112.9 (used for 1991)

1991

117.0 (used for 1992)

1992

120.9 (used for 1993)

1993

124.1 (used for 1994)

1994

126.0 (used for 1995)*

1995

107.5 (used for 1996)

1996

109.7 (used for 1997) **

1997

112.35 (used for 1998)

1998

112.64 (used for 1999) ***

1999

104.59 (used for 2000)

2000

106.89 (used for 2001)

2001

109.31 (used for 2002)

2002

110.63 (used for 2003)

2003

105.67 (used for 2004) ****

2004

108.23 (used for 2005)

2005

112.129 (used for 2006)

2006

116.036 (used for 2007)

2007

119.656 (used for 2008)

2008

122.407 (used for 2009)

2009

109.764 (used for 2010)

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# Notice 2018-49 TABLE 1 GNP IMPLICIT PRICE DEFLATORS

Calendar Year

GNP Implicit Price Deflator

2010

110.654 (used for 2011)

2011

113.347 (used for 2012) ******

2012

115.387 (used for 2013)

2013

106.710 (used for 2014)

2014

108.407 (used for 2015) ********

2015

109.868 (used for 2016)

2016

111.528 (used for 2017)

2017

113.500 (used for 2018)

\* Beginning in 1995, the GNP implicit price deflator was rebased relative to 1992. The 1990 GNP implicit price deflator
used to compute the 1996 § 43 inflation adjustment factor is 93.6.

** Beginning in 1997, two digits follow the decimal point in the GNP implicit price deflator. The 1990 GNP price defla-
tor used to compute the 1998 § 43 inflation adjustment factor is 93.63.

*** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price defla-
tor used to compute the 2000 § 43 inflation adjustment factor is 86.53.

**** Beginning in 2003, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used to
compute the 2004 § 43 inflation adjustment factor is 81.589.

Beginning in 2009, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used to
compute the 2010 § 43 inflation adjustment factor is 72.199.

Beginning in 2011, the 1990 GNP implicit price deflator used to compute the 2012 § 43 inflation adjustment fac-
tor is 72.260.

Beginning in 2013, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used
to compute the 2014 § 43 inflation adjustment factor is 66.803.

Beginning in 2014, the 1990 GNP implicit price deflator used to compute the 2015 § 43 inflation adjustment
factor is 66.732.

Table 2 contains the inflation adjust-
ment factor and the phase-out amount for
taxable years beginning in the 2018 cal-

endar year as well as the previously pub-
lished inflation adjustment factors and
phase-out amounts for taxable years be-

ginning in the 1991 through 2017 calendar
years.

Notice 2018-49 TABLE 2 INFLATION ADJUSTMENT FACTORS AND PHASE-OUT AMOUNTS

Calendar Year

Inflation Adjustment Factor

Phase-out Amount

1991

1.0000

0

1992

1.0363

0

1993

1.0708

0

1994

1.0992

0

1995

1.1160

0

1996

1.1485

0

1997

1.1720

0

1998

1.1999

0

1999

1.2030

0

2000

1.2087

0

2001

1.2353

0

2002

1.2633

0

2003

1.2785

0

2004

1.2952

0

2005

1.3266

0

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Notice 2018-49 TABLE 2 INFLATION ADJUSTMENT FACTORS AND PHASE-OUT AMOUNTS

Calendar Year

Inflation Adjustment Factor

Phase-out Amount

2006

1.3743

100 percent

2007

1.4222

100 percent

2008

1.4666

100 percent

2009

1.5003

100 percent

2010

1.5203

100 percent

2011

1.5326

100 percent

2012

1.5686

100 percent

2013

1.5968

100 percent

2014

1.5974

100 percent

2015

1.6245

100 percent

2016

1.6464

0

2017

1.6713

0

2018

1.7008

1.069 percent

## DRAFTING INFORMATION

The principal author of this notice is
Phil Tiegerman of the Office of Associate
Chief Counsel (Passthroughs and Special
Industries). For further information regard-
ing this notice, contact Phil Tiegerman at
(202) 317-6853 (not a toll-free number).

Credit for Renewable
Electricity Production and
Refined Coal Production,
and Publication of Inflation
Adjustment Factor and
Reference Prices for
Calendar Year 2018

### Notice 2018-50

This notice publishes the inflation adjust-
ment factor and reference prices for calen-
dar year 2018 for the renewable electricity
production credit and the refined coal pro-
duction credit under section 45 of the Inter-
nal Revenue Code. For calendar year 2018,
the credit period for Indian coal production
has expired. The inflation adjustment factor
for Indian coal production for calendar year
2017 was published in the Federal Register
at 83 FR 13346. The 2018 inflation adjust-
ment factor and reference prices are used in
determining the availability of the credits.
The 2018 inflation adjustment factor and
reference prices apply to calendar year 2018
sales of kilowatt hours of electricity pro-

duced in the United States or a possession
thereof from qualified energy resources and
to calendar year 2018 sales of refined coal
produced in the United States or a posses-
sion thereof.

## BACKGROUND

Section 45(a) provides that the renew-
able electricity production credit for any tax
year is an amount equal to the product of 1.5
cents multiplied by the kilowatt hours of
specified electricity produced by the tax-
payer and sold to an unrelated person during
the tax year. This electricity must be pro-
duced from qualified energy resources and
at a qualified facility during the 10-year
period beginning on the date the facility was
originally placed in service.

Section 45(b)(1) provides that the
amount of the credit determined under sec-
tion 45(a) is reduced by an amount which
bears the same ratio to the amount of the
credit as (A) the amount by which the ref-
erence price for the calendar year in which
the sale occurs exceeds 8 cents, bears to (B)
3 cents. Under section 45(b)(2), the 1.5 cent
amount in section 45(a), the 8 cent amount
in section 45(b)(1), the $4.375 amount in
section 45(e)(8)(A), and, in section 45(e)(8)
(B)(i), the reference price of fuel used as
feedstock (within the meaning of section
45(c)(7)(A)) in 2002 are each adjusted by
multiplying the amount by the inflation ad-
justment factor for the calendar year in
which the sale occurs. If any amount as
increased under the preceding sentence is

not a multiple of 0.1 cent, the amount is
rounded to the nearest multiple of 0.1 cent.
In the case of electricity produced in open-
loop biomass facilities, small irrigation
power facilities, landfill gas facilities, trash
facilities, qualified hydro-power facilities,
and marine and hydrokinetic renewable en-
ergy facilities, section 45(b)(4)(A) requires
the amount in effect under section 45(a)(1)
(before rounding to the nearest 0.1 cent) to
be reduced by one-half.

Section 45(b)(5) provides that in the case
of any facility using wind to produce elec-
tricity, the amount of the credit determined
under section 45(a) (determined after the
application of section 45(b)(1), (2), and (3)
and without regard to section 45(b)(5)) shall
be reduced by (A) in the case of any facility
the construction of which begins after De-
cember 31, 2016, and before January 1,
2018, 20 percent, (B) in the case of any
facility the construction of which begins af-
ter December 31, 2017, and before January
1, 2019, 40 percent, and (C) in the case of
any facility the construction of which begins
after December 31, 2018, and before Janu-
ary 1, 2020, 60 percent.

Section 45(c)(1) defines qualified en-
ergy resources as wind, closed-loop bio-
mass, open-loop biomass, geothermal
energy, small irrigation power, municipal
solid waste, qualified hydropower produc-
tion, and marine and hydrokinetic renew-
able energy.

Section 45(d)(1) defines a qualified fa-
cility using wind to produce electricity as

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any facility owned by the taxpayer that is
originally placed in service after Decem-
ber 31, 1993, and the construction of
which begins before January 1, 2020. See
section 45(e)(7) for rules relating to the
inapplicability of the credit to electricity
sold to utilities under certain contracts.

Section 45(d)(2)(A) defines a qualified
facility using closed-loop biomass to pro-
duce electricity as any facility (i) owned
by the taxpayer that is originally placed in
service after December 31, 1992, and the
construction of which begins before Jan-
uary 1, 2018, or (ii) owned by the tax-
payer which before January 1, 2018, is
originally placed in service and modified
to use closed-loop biomass to co-fire with
coal, with other biomass, or with both, but
only if the modification is approved under
the Biomass Power for Rural Develop-
ment Programs or is part of a pilot project
of the Commodity Credit Corporation as
described in 65 Fed. Reg. 63052. For pur-
poses of section 45(d)(2)(A)(ii), a facility
shall be treated as modified before Janu-
ary 1, 2018, if the construction of such
modification begins before such date. Sec-
tion 45(d)(2)(C) provides that in the case
of a qualified facility described in section
45(d)(2)(A)(ii), (i) the 10-year period re-
ferred to in section 45(a) is treated as
beginning no earlier than the date of en-
actment of section 45(d)(2)(C)(i) (October
22, 2004), and (ii) if the owner of the
facility is not the producer of the electric-
ity, the person eligible for the credit al-
lowable under section 45(a) is the lessee
or the operator of the facility.

Section 45(d)(3)(A) defines a qualified
facility using open-loop biomass to pro-
duce electricity as any facility owned by
the taxpayer which (i) in the case of a
facility using agricultural livestock waste
nutrients, (I) is originally placed in service
after the date of enactment of section
45(d)(3)(A)(i)(I) (October 22, 2004) and
the construction of which begins before Jan-
uary 1, 2018, and (II) the nameplate capac-
ity rating of which is not less than 150
kilowatts, and (ii) in the case of any other
facility, the construction of which begins
before January 1, 2018. In the case of any
facility described in section 45(d)(3)(A), if
the owner of the facility is not the producer
of the electricity, section 45(d)(3)(C) pro-
vides that the person eligible for the credit

allowable under section 45(a) is the lessee
or the operator of the facility.

Section 45(d)(4) defines a qualified fa-
cility using geothermal energy to produce
electricity as any facility owned by the
taxpayer which is originally placed in ser-
vice after the date of enactment of section
45(d)(4) (October 22, 2004) and the con-
struction of which begins before January
1, 2018. A qualified facility using geother-
mal energy does not include any property
described in section 48(a)(3) the basis of
which is taken into account by the tax-
payer for purposes of determining the en-
ergy credit under section 48.

Section 45(d)(5) defines a qualified fa-
cility using small irrigation power to pro-
duce electricity as any facility owned by
the taxpayer which is originally placed in
service after the date of enactment of sec-
tion 45(d)(5) (October 22, 2004) and be-
fore October 3, 2008.

Section 45(d)(6) defines a qualified facil-
ity using gas derived from the biodegrada-
tion of municipal solid waste to produce
electricity as any facility owned by the tax-
payer which is originally placed in service
after the date of enactment of section 45(d)(6)
(October 22, 2004) and the construction of
which begins before January 1, 2018.

Section 45(d)(7) defines a qualified fa-
cility (other than a facility described in
section 45(d)(6)) that burns municipal
solid waste to produce electricity as any
facility owned by the taxpayer which is
originally placed in service after the date
of enactment of section 45(d)(7) (October
22, 2004) and the construction of which
begins before January 1, 2018. A qualified
facility burning municipal solid waste in-
cludes a new unit placed in service in con-
nection with a facility placed in service on
or before the date of enactment of section
45(d)(7), but only to the extent of the in-
creased amount of electricity produced at
the facility by reason of such new unit.

Section 45(d)(8) provides, in the case
of a facility that produces refined coal
(other than a facility producing steel in-
dustry fuel), the term "refined coal pro-
duction facility" means any facility pro-
ducing refined coal placed in service after
the date of the enactment of the American
Jobs Creation Act of 2004 (October 22,
2004) and before January 1, 2012.

Section 45(d)(9) defines a qualified fa-
cility producing qualified hydroelectric

production described in section 45(c)(8)
as (i) any facility producing incremental
hydropower production, but only to the
extent of its incremental hydropower pro-
duction attributable to efficiency improve-
ments or additions to capacity described
in section 45(c)(8)(B) placed in service
after the date of enactment of section
45(d)(9)(A)(i) (August 8, 2005) and be-
fore January 1, 2018, and (ii) any other
facility placed in service after the date of
enactment of section 45(d)(9)(A)(ii) (Au-
gust 8, 2005) and the construction of
which begins before January 1, 2018. Sec-
tion 45(d)(9)(B) provides that, in the case
of a qualified facility described in section
45(d)(9)(A), the 10-year period referred to
in section 45(a) is treated as beginning on
the date the efficiency improvements or ad-
ditions to capacity are placed in service.
Section 45(d)(9)(C) provides that for pur-
poses of section 45(d)(9)(A)(i), an effi-
ciency improvement or addition to capacity
is treated as placed in service before January
1, 2018, if the construction of such improve-
ment or addition begins before such date.

Section 45(d)(11) provides in the case
of a facility producing electricity from
marine and hydrokinetic renewable en-
ergy, the term "qualified facility" means
any facility owned by the taxpayer which
(A) has a nameplate capacity rating of at
least 150 kilowatts, and (B) which is orig-
inally placed in service on or after the date
of the enactment of section 45(d)(11)(B)
(October 3, 2008) and the construction of
which begins before January 1, 2018.

Section 45(e)(8)(A) provides that the re-
fined coal production credit is an amount
equal to $4.375 per ton of qualified refined
coal (i) produced by the taxpayer at a refined
coal production facility during the 10-year
period beginning on the date the facility was
originally placed in service, and (ii) sold by
the taxpayer (I) to an unrelated person and
(II) during the 10-year period and the tax
year. Section 45(e)(8)(B) provides that the
amount of credit determined under section
45(e)(8)(A) is reduced by an amount which
bears the same ratio to the amount of the
increase as (i) the amount by which the
reference price of fuel used as feedstock
(within the meaning of section 45(c)(7)(A))
for the calendar year in which the sale oc-
curs exceeds an amount equal to 1.7 multi-
plied by the reference price for such fuel in
2002, bears to (ii) $8.75.

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Section 45(e)(2)(A) requires the Secre-
tary to determine and publish in the Federal
Register each calendar year the inflation ad-
justment factor and the reference price for
the calendar year. The inflation adjustment
factor and the reference prices for the 2018
calendar year were published in the Federal
Register at 83 FR 17474 on April 19, 2018.

Section 45(e)(2)(B) defines the infla-
tion adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the
preceding calendar year and the denomi-
nator of which is the GDP implicit price
deflator for the calendar year 1992. The
term "GDP implicit price deflator" means
the most recent revision of the implicit
price deflator for the gross domestic prod-
uct as computed and published by the
Department of Commerce before March
15 of the calendar year.

Section 45(e)(2)(C) provides that the ref-
erence price is the Secretary's determination
of the annual average contract price per
kilowatt hour of electricity generated from
the same qualified energy resource and sold
in the previous year in the United States.
Only contracts entered into after December
31, 1989, are taken into account.

Under section 45(e)(8)(C), the determi-
nation of the reference price for fuel used as
feedstock within the meaning of section
45(c)(7)(A) is made according to rules sim-
ilar to the rules under section 45(e)(2)(C).

## INFLATION ADJUSTMENT FACTOR AND REFERENCE PRICES

The inflation adjustment factor for cal-
endar year 2018 for qualified energy re-
sources and refined coal is 1.6072.

The reference price for calendar year
2018 for facilities producing electricity from
wind (based upon information provided by
the Department of Energy) is 4.85 cents per
kilowatt hour. The reference prices for fuel
used as feedstock within the meaning of
section 45(c)(7)(A), relating to refined coal
production (based upon information pro-
vided by the Department of Energy) are
$31.90 per ton for calendar year 2002 and
$49.69 per ton for calendar year 2018. The
reference prices for facilities producing
electricity from closed-loop biomass, open-
loop biomass, geothermal energy, small ir-
rigation power, municipal solid waste, qual-
ified hydropower production, and marine

and hydrokinetic energy have not been de-
termined for calendar year 2018.

## PHASEOUT CALCULATION

Because the 2018 reference price for
electricity produced from wind (4.85 cents
per kilowatt hour) does not exceed 8 cents
multiplied by the inflation adjustment fac-
tor (1.6072), the phaseout of the credit
provided in section 45(b)(1) does not ap-
ply to such electricity sold during calendar
year 2018. However, refer to section
45(b)(5) for an additional phaseout of the
credit for wind facilities the construction
of which begins after December 31, 2016.
Because the 2018 reference price of fuel
used as feedstock for refined coal ($49.69)
does not exceed $87.16 (which is the
$31.90 reference price of such fuel in
2002 multiplied by the inflation adjust-
ment factor (1.6072) and 1.7), the phase-
out of the credit provided in section
45(e)(8)(B) does not apply to refined coal
sold during calendar year 2018. Further,
for electricity produced from closed-loop
biomass, open-loop biomass, geothermal
energy, small irrigation power, municipal
solid waste, qualified hydropower produc-
tion, and marine and hydrokinetic energy,
the phaseout of the credit provided in sec-
tion 45(b)(1) does not apply to such elec-
tricity sold during calendar year 2018.

## CREDIT AMOUNT BY QUALIFIED ENERGY RESOURCE AND FACILITY AND REFINED COAL

As required by section 45(b)(2), the 1.5
cent amount in section 45(a)(1), and the
$4.375 amount in section 45(e)(8)(A) are
each adjusted by multiplying such amount
by the inflation adjustment factor for the
calendar year in which the sale occurs. If
any amount as increased under the preced-
ing sentence is not a multiple of 0.1 cent,
such amount is rounded to the nearest
multiple of 0.1 cent. In the case of elec-
tricity produced in open-loop biomass fa-
cilities, small irrigation power facilities,
landfill gas facilities, trash facilities, qual-
ified hydropower facilities, and marine
and hydrokinetic renewable energy facil-
ities, section 45(b)(4)(A) requires the
amount in effect under section 45(a)(1)
(before rounding to the nearest 0.1 cent) to
be reduced by one-half. Under the calcu-

lation required by section 45(b)(2), the
credit for renewable electricity production
for calendar year 2018 under section 45(a) is
2.4 cents per kilowatt hour on the sale of
electricity produced from the qualified en-
ergy resources of wind, closed-loop bio-
mass, and geothermal energy, and 1.2 cents
per kilowatt hour on the sale of electricity
produced in open-loop biomass facilities,
small irrigation power facilities, landfill gas
facilities, trash facilities, qualified hydro-
power facilities, and marine and hydroki-
netic energy facilities. Under the calculation
required by section 45(b)(2), the credit for
refined coal production for calendar year
2018 under section 45(e)(8)(A) is $7.03 per
ton on the sale of qualified refined coal.

## DRAFTING AND CONTACT INFORMATION

The principal author of this notice is
Martha M. Garcia of the Office of Asso-
ciate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this notice contact Ms. Garcia at
(202) 317-6853 (not a toll-free number).

## 2018 Marginal Production Rates Notice 2018-51

This notice announces the applicable
percentage under § 613A of the Internal
Revenue Code to be used in determining
percentage depletion for marginal proper-
ties for the 2018 calendar year.

Section 613A(c)(6)(C) defines the term
"applicable percentage" for purposes of de-
termining percentage depletion for oil and
gas produced from marginal properties. The
applicable percentage is the percentage (not
greater than 25 percent) equal to the sum of
15 percent, plus one percentage point for
each whole dollar by which $20 exceeds the
reference price (determined under § 45K(d)
(2)(C)) for crude oil for the calendar year
preceding the calendar year in which the
taxable year begins. The reference price de-
termined under § 45K(d)(2)(C) for the 2017
calendar year is $48.05.

The following table contains the appli-
cable percentages for marginal production
for taxable years beginning in calendar
years 1991 through 2018.

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# Notice 2018-51 APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION

Calendar Year

Applicable Percentage

1991

15 percent

1992

18 percent

1993

19 percent

1994

20 percent

1995

21 percent

1996

20 percent

1997

16 percent

1998

17 percent

1999

24 percent

2000

19 percent

2001

15 percent

2002

15 percent

2003

15 percent

2004

15 percent

2005

15 percent

2006

15 percent

2007

15 percent

2008

15 percent

2009

15 percent

2010

15 percent

2011

15 percent

2012

15 percent

2013

15 percent

2014

15 percent

2015

15 percent

2016

15 percent

2017

15 percent

2018

15 percent

The principal author of this notice is Phil
Tiegerman of the Office of Associate Chief
Counsel (Passthroughs and Special Indus-
tries). For further information regarding this
notice contact Mr. Tiegerman at (202) 317-
6853 (not a toll-free number).

Reference Price for
Section 45I Credit for
Production of Natural Gas
from Marginal Wells During
Taxable Years Beginning in
Calendar Year 2017
Notice 2018-52

SECTION 1. PURPOSE

This notice provides the applicable ref-
erence price for qualified natural gas pro-
duction from qualified marginal wells dur-
ing taxable years beginning in calendar

year 2017 for the purpose of determining
the marginal well production credit
(MWC) under § 45I of the Internal Rev-
enue Code. The applicable reference price
for taxable years beginning in calendar
year 2017 is $2.17 per 1,000 cubic feet
(mcf).

This notice also provides the credit
amount used for the purpose of deter-
mining the MWC for taxable years be-
ginning in calendar year 2017. The
credit amount is determined using the
2017 inflation adjustment factor of
1.2518 and the applicable reference
price1 of $2.17 per mcf. The credit
amount for taxable years beginning in
calendar year 2017 is $0.51 per mcf.

1Section 45I(b)(2)(A) provides that the applicable reference price for a taxable year is the reference price for the calendar year preceding the calendar year in which the taxable year begins.
Therefore, the 2017 applicable reference price is determined using the Secretary's estimate of the calendar year 2016 annual average wellhead price per mcf for all domestic natural gas.

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# SECTION 2. BACKGROUND

Section 45I(a), as it relates to quali-
fied natural gas production, provides
that, for purposes of § 38, the MWC for
any taxable year is an amount equal to
the product of (1) the credit amount and
(2) the qualified natural gas production
that is attributable to the taxpayer.

Section 45I(c)(1) provides that "qual-
ified natural gas production" means do-
mestic natural gas produced from a
qualified marginal well. Section 45I(c)
(3)(A) provides that a qualified marginal
well is a domestic well (i) the produc-
tion from which during the taxable year
is treated as marginal production under
§ 613A(c)(6), or (ii) which during the
taxable year (I) has average production
of not more than 25 barrel-of-oil equiv-
alents per day, and (II) produces water
at a rate of not less than 95 percent of
total well effluent.

Section 613A(c)(6)(D) and (E) provide
that "marginal production" means domes-
tic natural gas produced during any tax-
able year from a property that is a stripper
well property for the calendar year in
which the taxable year begins. A "stripper
well property" is, with respect to any
calendar year, any property producing
not more than 15 barrel equivalents per
day, determined by dividing the average
daily production of domestic crude oil
and domestic natural gas from produc-
ing wells on the property for such cal-
endar year by the number of such wells
on the property.

Section 45I(c)(2)(A) provides that gen-
erally only the first 1,095 barrels or barrel-
of- oil-equivalents (as defined in § 45K(d)
(5)) produced during the taxable year
qualify for the MWC. This limitation is
proportionately reduced in the case of a
short taxable year or in the case of a well
that is not capable of production each day
of a taxable year.

See § 45I(c)(2)(B). The number of
wells on which a taxpayer can claim the
MWC is not limited.

Section 45I(d)(2) provides that to
claim the credit a taxpayer must hold an
operating interest in the qualified mar-
ginal well producing the natural gas
to which the credit relates. Under
§ 45I(d)(1) if a well is owned by more
than one owner and the natural gas pro-
duction exceeds the limitation under
§ 45I(c)(2), the qualifying natural gas
production attributable to the taxpayer is
determined on the basis of the ratio the
taxpayer's revenue interest in the pro-
duction bears to the aggregate of the
revenue interests of all operating inter-
est owners in the production. Finally,
§ 45I(d)(3) provides that the MWC is
not allowable if the taxpayer is also
eligible to claim the § 45K nonconven-
tional sources credit for the taxable
year, unless the taxpayer elects not to
claim the credit under § 45K for the
well.

For purposes of § 45I(a)(1), the credit
amount is 50 cents (adjusted for infla-
tion) per mcf of qualified natural gas
production (tentative credit amount).
See § 45I(b)(1)(B) and (b)(2)(B).

Section 45I(b)(2)(A) and (B) provide
that the tentative credit amount (adjusted
for inflation) is reduced (but not below
zero) to the extent that the applicable ref-
erence price exceeds $1.67 (adjusted for
inflation). More specifically, § 45I(b)(2)
(A) provides that the tentative credit
amount (adjusted for inflation) is re-
duced by an amount that bears the same
ratio to such amount as the excess (if
any) of the applicable reference price
over $1.67 (adjusted for inflation), bears
to $0.33 (adjusted for inflation). As a
result, the MWC is not available if the
applicable reference price for qualified
natural gas production exceeds $2 (ad-
justed for inflation).

Section 45I(b)(2)(A) also provides
that the applicable reference price for a
taxable year is the reference price for
the calendar year preceding the calendar
year in which the taxable year begins.
Section 45I(b)(2)(C)(ii) provides the
term "reference price" means, with re-

spect to any calendar year, in the case of
qualified natural gas production, the
Secretary's estimate of the annual aver-
age wellhead price per mcf for all do-
mestic natural gas.

Section 45I(b)(2)(B) provides that in
the case of any taxable year beginning in
a calendar year after 2005, each of the
dollar amounts contained in § 45I(b)(2)
(A) will be increased to an amount equal
to such dollar amount multiplied by the
inflation adjustment factor for such calen-
dar year (determined under § 43(b)(3)(B)
by substituting "2004" for "1990").

# SECTION 3. INFLATION ADJUSTMENT FACTOR AND REFERENCE PRICE

.1 Inflation Adjustment. The inflation
adjustment factor under § 45I(b)(2)(B) for
calendar year 2017 is 1.2518.

.2 Reference Price. The Secretary's es-
timate of the calendar year 2016 annual
average wellhead price per mcf for all
domestic natural gas under § 45I(b)(2)
(C)(ii) of $2.38 per mcf was calculated by
applying the yearly change in the Pro-
ducer Price Index commodity index for
"Natural Gas" (WPU05310105)2 pub-
lished by the Bureau of Labor Statistics
(BLS) as part of its Producer Price Index
program, to the 2015 annual average well-
head price published in Notice 2017-51.
The annual Producer Price Index com-
modity index for natural gas published by
the BLS decreased from 133.5 in 2015 to
122.0 in 2016, which implies a ratio of
2016 to 2015 average wellhead prices of
0.91 (122.0/133.5). Therefore, the Secre-
tary's estimate of the calendar year 2016
annual average wellhead price per mcf for
all domestic natural gas is $2.17 per mcf
(0.91 × $2.38 per mcf).3

For years after 2016, the Secretary in-
tends to calculate the reference price by
application of the Producer Price Index
commodity index for "Natural Gas from
the Wellhead" (WPU053101051) pub-
lished by the BLS to the previous year's
reference price.

2https://data.bls.gov/cgi-bin/srgate. BLS publishes indexes and not actual or average prices.

3Notice 2017-51 indicates for years after 2015, the Secretary intends to calculate the reference price by application of the commodity index for Natural Gas from the Wellhead"
(WPU053101051) published by the BLS to the previous year's reference price. The Secretary's intended calculation for years after 2015 as stated in Notice 2017-51 requires two full years
of the Producer Price Index commodity index for "Natural Gas from the Wellhead" (WPU053101051) published by the BLS. As of the publication of this notice, there is only one full year
of the BLS commodity index data available. Accordingly, the Secretary calculated the 2016 reference price applying the methodology used to calculate the 2015 reference price. For years
after 2016, two full years of the BLS commodity index data will be available.

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# SECTION 4. CALCULATION OF CREDIT AMOUNT

Under § 45I(b)(1)(B) and (2)(B), the
tentative credit amount used to calculate
the MWC for taxable years beginning in
calendar year 2017 is 63 cents per mcf
($0.50 × 1.2518 inflation adjustment fac-
tor). However, in order to determine the

credit amount for purposes of § 45I(a)(1),
the tentative credit amount must be re-
duced as provided by § 45I(b)(2)(A).

Pursuant to § 45I(b)(2)(A), the tenta-
tive credit amount for taxable years begin-
ning in calendar year 2017 is reduced (but
not below zero) by an amount (§ 45I(b)(2)
Reduction Amount) which bears the same
ratio to such amount as (i) the excess (if

any) of the applicable reference price over
$2.09 ($1.67 × 1.2518 inflation adjust-
ment factor), bears to (ii) $0.41 ($0.33 X
1.2518 inflation adjustment factor). Ac-
cordingly, the § 45I(b)(2) Reduction
Amount (as adjusted for inflation) is com-
puted as follows:

§451(b)(2) Red.Amount
\=
App.Ref. Price - 2.09

0.63

0.41

Solving for the §451(b)(2) Red. Amount yields the following formula:

§451(b)(2) Red.Amount =

0.63 x (App.Ref.Price - 2.09)
0.41

Using the applicable reference price of
$2.17, the § 45I(b)(2) Reduction Amount
is $0.12. Therefore, the credit amount
used to calculate the MWC for taxable
years beginning in calendar year 2017 is
$0.51 per mcf ($0.63 - $0.12).

# SECTION 5. EFFECTIVE DATE

This notice is effective for qualified
natural gas production during taxable
years beginning in calendar year 2017.

# SECTION 6. DRAFTING AND CONTACT INFORMATION

The principal author of this notice is
Philip Tiegerman of the Office of Associ-
ate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this notice contact Philip
Tiegerman at (202) 317-6853 (not a toll-
free number).

# Part III - Administrative, Miscellaneous, and Procedural Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

Notice 2018-53

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 un-
der § 431(c)(6)(E)(ii)(I).

## YIELD CURVE AND SEGMENT RATES

Section 430 specifies the minimum
funding requirements that apply to single-
employer plans (except for CSEC plans
under § 414(y)) 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 target. Under this
provision, present value is generally de-
termined using three 24-month average
interest rates ("segment rates"), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates
are adjusted by the applicable percentage
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.4 However, an elec-
tion 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
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified
in Notice 2007-81, the monthly corpo-
rate bond yield curve derived from April
2018 data is in Table 2018-4 at the end
of this notice. The spot first, second, and
third segment rates for the month of
April 2018 are, respectively, 2.99, 4.04,
and 4.43.

The 24-month average segment rates de-
termined under § 430(h)(2)(C)(i) through
(iii) must be adjusted pursuant to § 430(h)
(2)(C)(iv) to be within the applicable mini-
mum and maximum percentages of the cor-
responding 25-year average segment rates.
For plan years beginning before 2021, the
applicable minimum percentage is 90% and
the applicable maximum percentage is
110%. The 25-year average segment rates
for plan years beginning in 2016, 2017, and
2018 were published in Notice 2015-61,
2015-39 I.R.B. 408, Notice 2016-54,
2016-40 I.R.B. 429, and Notice 2017-50,
2017-41 I.R.B. 280, respectively.

## 24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES

The three 24-month average corpo-
rate bond segment rates applicable for
May 2018 without adjustment for the
25-year average segment rate limits are
as follows:

4Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).

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24-Month Average Segment Rates Without 25-Year Average Adjustment

Applicable Month

First Segment

Second Segment

Third Segment

May 2018

2.00

3.68

4.44

Based on § 430(h)(2)(C)(iv), the 24-
imum and maximum percentages of the
corresponding 25-year average segment

month averages applicable for May 2018,
adjusted to be within the applicable min-

rates, are as follows:

Adjusted 24-Month Average Segment Rates

For Plan Years Beginning In

Applicable Month

First Segment

Second Segment

Third Segment

2017

May 2018

4.16

5.72

6.48

2018

May 2018

3.92

5.52

6.29

## 30-YEAR TREASURY SECURITIES INTEREST RATES

Section 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 § 431(c)(6)(A), based on the
plan's current liability. Section 431(c)(6)
(E)(ii)(I) provides that the interest rate

used to calculate current liability for this
purpose must be no more than 5 percent
above and no more than 10 percent below
the weighted average of the rates of inter-
est on 30-year Treasury securities 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 securities for April

2018 is 3.07 percent. The Service deter-
mined this rate as the average of the daily
determinations of yield on the 30-year
Treasury bond maturing in February 2048.
For plan years beginning in May 2018, the
weighted average of the rates of interest
on 30-year Treasury securities and the
permissible range of rates used to calcu-
late current liability are as follows:

For Plan Years

Treasury Weighted Average Rates 30-Year Treasury

Permissible Range

Beginning In

Weighted Average

90% to 105%

May 2018

2.85

2.56 to 2.99

# 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 April 2018 are
as follows:

Minimum Present Value Segment Rates

Month

First Segment

Second Segment

Third Segment

April 2018

2.99

4.04

4.43

## DRAFTING INFORMATION

The principal author of this notice is
Tom Morgan of the Office of the Associate

Chief Counsel (Tax Exempt and Govern-
ment Entities). However, other personnel
from the IRS participated in the devel-
opment of this guidance. For further

information regarding this notice, con-
tact Mr. Morgan at 202-317-6700 or
Tony Montanaro at 202-317-8698 (not a
toll-free number).

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# Table 2018-4 Monthly Yield Curve for April 2018 Derived from April 2018 Data

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

0.5

2.43

20.5

4.32

40.5

4.44

60.5

4.49

80.5

4.51

1.0

2.60

21.0

4.32

41.0

4.44

61.0

4.49

81.0

4.51

1.5

2.75

21.5

4.33

41.5

4.45

61.5

4.49

81.5

4.51

2.0

2.89

22.0

4.33

42.0

4.45

62.0

4.49

82.0

4.51

2.5

3.00

22.5

4.34

42.5

4.45

62.5

4.49

82.5

4.51

3.0

3.09

23.0

4.34

43.0

4.45

63.0

4.49

83.0

4.51

3.5

3.17

23.5

4.35

43.5

4.45

63.5

4.49

83.5

4.51

4.0

3.25

24.0

4.35

44.0

4.45

64.0

4.49

84.0

4.51

4.5

3.32

24.5

4.36

44.5

4.45

64.5

4.49

84.5

4.51

5.0

3.39

25.0

4.36

45.0

4.46

65.0

4.49

85.0

4.51

5.5

3.46

25.5

4.37

45.5

4.46

65.5

4.49

85.5

4.51

6.0

3.53

26.0

4.37

46.0

4.46

66.0

4.49

86.0

4.51

6.5

3.59

26.5

4.37

46.5

4.46

66.5

4.49

86.5

4.51

7.0

3.65

27.0

4.38

47.0

4.46

67.0

4.49

87.0

4.51

7.5

3.71

27.5

4.38

47.5

4.46

67.5

4.49

87.5

4.51

8.0

3.77

28.0

4.38

48.0

4.46

68.0

4.50

88.0

4.51

8.5

3.82

28.5

4.39

48.5

4.46

68.5

4.50

88.5

4.51

9.0

3.87

29.0

4.39

49.0

4.46

69.0

4.50

89.0

4.51

9.5

3.91

29.5

4.39

49.5

4.47

69.5

4.50

89.5

4.51

10.0

3.96

30.0

4.40

50.0

4.47

70.0

4.50

90.0

4.51

10.5

3.99

30.5

4.40

50.5

4.47

70.5

4.50

90.5

4.51

11.0

4.03

31.0

4.40

51.0

4.47

71.0

4.50

91.0

4.52

11.5

4.06

31.5

4.40

51.5

4.47

71.5

4.50

91.5

4.52

12.0

4.09

32.0

4.41

52.0

4.47

72.0

4.50

92.0

4.52

12.5

4.12

32.5

4.41

52.5

4.47

72.5

4.50

92.5

4.52

13.0

4.14

33.0

4.41

53.0

4.47

73.0

4.50

93.0

4.52

13.5

4.16

33.5

4.41

53.5

4.47

73.5

4.50

93.5

4.52

14.0

4.18

34.0

4.42

54.0

4.47

74.0

4.50

94.0

4.52

14.5

4.20

34.5

4.42

54.5

4.48

74.5

4.50

94.5

4.52

15.0

4.22

35.0

4.42

55.0

4.48

75.0

4.50

95.0

4.52

15.5

4.23

35.5

4.42

55.5

4.48

75.5

4.50

95.5

4.52

16.0

4.24

36.0

4.43

56.0

4.48

76.0

4.50

96.0

4.52

16.5

4.26

36.5

4.43

56.5

4.48

76.5

4.50

96.5

4.52

17.0

4.27

37.0

4.43

57.0

4.48

77.0

4.50

97.0

4.52

17.5

4.28

37.5

4.43

57.5

4.48

77.5

4.50

97.5

4.52

18.0

4.28

38.0

4.43

58.0

4.48

78.0

4.51

98.0

4.52

18.5

4.29

38.5

4.43

58.5

4.48

78.5

4.51

98.5

4.52

19.0

4.30

39.0

4.44

59.0

4.48

79.0

4.51

99.0

4.52

19.5

4.31

39.5

4.44

59.5

4.48

79.5

4.51

99.5

4.52

20.0

4.31

40.0

4.44

60.0

4.48

80.0

4.51

100.0

4.52

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

## Rev. Proc. 2018-29 SECTION 1. PURPOSE

This revenue procedure provides new
procedures for taxpayers changing their
method of accounting for the recognition
of income for federal income tax purposes
to a method for recognizing revenues de-
scribed in the new financial accounting
standards issued by the Financial Ac-
counting Standards Board (FASB) and the
International Accounting Standards Board
(IASB) (New Standards). In particular, this
revenue procedure modifies Rev. Proc.
2018-31, 2018-22 I.R.B. 637, to provide
procedures under § 446 of the Internal Rev-
enue 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 to an
otherwise permissible method of accounting
that uses the New Standards to identify per-
formance obligations, allocate transaction
price to performance obligations, and/or
consider performance obligations satisfied,
if such method change is made for the tax-
able year in which the taxpayer adopts the
New Standards.

This revenue procedure does not pro-
vide guidance relating to the amendments
to § 451 made by section 13221 of "An
Act to provide for reconciliation pursuant
to titles II and V of the concurrent reso-
lution on the budget for fiscal year 2018,"
Pub. L. No. 115-97 (December 22, 2017)
(the Act). The Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (Service) are preparing
additional guidance to address the amend-
ments to § 451 made by section 13221 of
the Act.

## SECTION 2. BACKGROUND

.01 On May 28, 2014, FASB and IASB
jointly announced new financial account-
ing standards for revenue recognition, ti-
tled "Revenue from Contracts with Cus-
tomers (Topic 606)." See FASB Update
No. 2014-09 and IASB International Fi-
nancial Reporting Standard (IFRS) 15.

.02 Publicly-traded entities, certain
not-for-profit entities, and certain em-
ployee benefit plans are required to adopt

the New Standards for annual reporting
periods beginning after December 15,
2017. All other entities are required to
adopt the New Standards for annual re-
porting periods beginning after December
15, 2018. Early adoption is allowed for
reporting periods beginning after Decem-
ber 15, 2016. See FASB Update No.
2015-14, "Revenue from Contracts with
Customers (Topic 606), Deferral of the
Effective Date."

.03 Since the joint announcement,
FASB and IASB have revised the New
Standards and provided guidance on how
to implement the New Standards in cer-
tain situations. See FASB Update No.
2015-14; FASB Update No. 2016-8,
"Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Con-
siderations (Reporting Revenue Gross
versus Net);" FASB Update No. 2016-10,
"Revenue from Contracts with Customers
(Topic 606), Identifying Performance Ob-
ligations and Licensing;" FASB Update
No. 2016-12, "Revenue from Contracts
with Customers (Topic 606): Narrow-
Scope Improvements and Practical Expe-
dients;" FASB Update No. 2017-13,
"Revenue Recognition (Topic 605), Rev-
enue from Contracts with Customers
(Topic 606), Leases (Topic 840), and
Leases (Topic 842): Amendments to SEC
Paragraphs Pursuant to the Staff An-
nouncement at the July 20, 2017 EITF
Meeting and Rescission of Prior SEC
Staff Announcements and Observer Com-
ments (SEC Update);" FASB Update No.
2017-14, "Income Statement - Reporting
Comprehensive Income (Topic 220), Rev-
enue Recognition (Topic 605), and Reve-
nue from Contracts with Customers)
(Topic 606) (SEC Update)."

.04 Under the New Standards, an en-
tity will recognize revenue for promised
goods and services to customers in an
amount that reflects the consideration to
which the entity expects to be entitled in
exchange for those goods and services
based on the following five sequential
steps: (i) identify the contracts with a
customer; (ii) identify the performance
obligations in the contract; (iii) deter-
mine the transaction price; (iv) allocate
the transaction price to the performance
obligations; and (v) recognize revenue
as the entity satisfies a performance ob-
ligation.

.05 On March 28, 2017, the Treasury
Department and the Service issued Notice
2017-17, 2017-15 I.R.B. 1073, contain-
ing, and inviting comments on, a proposed
revenue procedure by which a taxpayer
could request consent to change a method
of accounting for recognizing income
when the change is made for the same
taxable year in which the taxpayer adopts
the New Standards and the change is
made as a result of, or directly related to,
the adoption of the New Standards.

.06 Commenters to Notice 2017-17
noted that the New Standards would affect
taxpayers in the technology and construc-
tion industries and service providers with
warranty and repair service contracts.
Many of these taxpayers will have to ac-
celerate income on their financial state-
ments due to the New Standards, poten-
tially creating a larger book-tax disparity.
Commenters requested that the Service
issue guidance to allow for more book-tax
conformity and to allow taxpayers to eas-
ily file accounting method change re-
quests associated with adopting the New
Standards. More specifically, commenters
requested an expansion of current auto-
matic accounting method change proce-
dures, guidance on the recognition of ad-
vance payments, an expansion of the
small business exception in the proposed
revenue procedure in Notice 2017-17, and
the option of implementing an accounting
method change on either a cut-off basis or
with a § 481(a) adjustment.

.07 In this revenue procedure, the Trea-
sury Department and the Service adopt
certain of the suggestions submitted by
commenters in response to Notice 2017-
17. For example, this revenue procedure
allows for more book-tax conformity and
allows taxpayers to easily file accounting
method change requests associated with
adopting the New Standards. Specifically,
this revenue procedure creates new auto-
matic accounting method change proce-
dures, applies rules similar to the small
business exception in the proposed reve-
nue procedure in Notice 2017-17 to more
taxpayers, and provides taxpayers the
option of implementing the accounting
method change on either a cut-off basis or
with a § 481(a) adjustment. Other com-
ments, such as comments requesting guid-
ance on the recognition of advance pay-
ments, will be considered in connection

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with the issuance of guidance implement-
ing the amendments made to § 451 by the
Act. The Treasury Department and the
Service intend to provide additional guid-
ance on these issues if needed to improve
the procedures contained in this revenue
procedure once the Treasury Department,
the Service, and taxpayers obtain more
experience with the interaction of the New
Standards with federal income tax ac-
counting methods.

.08 Section 13221 of the Act amends
§ 451 by redesignating § 451(b) through
(i) as (d) through (k), and adding new
§ 451(b) and (c). New § 451(b) and (c) are
effective for tax years beginning after
December 31, 2017. Section 451(b), as
amended by the Act, 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 ac-
count as revenue in an applicable financial
statement of the taxpayer, or such other
financial statement as the Secretary may
specify. However, new § 451(b) is inap-
plicable to certain taxpayers, such as tax-
payers that do not have an applicable finan-
cial statement or other financial statement
specified by the Secretary. New section
451(c) provides an elective method of ac-
counting for an accrual method taxpayer
that receives an advance payment during the
taxable year.

.09 The Treasury Department and the
Service expect to provide guidance in the
future to assist taxpayers in complying
with amended § 451.

.10 This revenue procedure is not in-
tended to provide guidance for taxpayers
changing their method of accounting to
comply with amended § 451. Rather, this
revenue procedure provides guidance for
taxpayers changing a method of account-
ing to an otherwise permissible method of
accounting that recognizes revenue in in-
come in a manner described in the New
Standards. For example, this revenue pro-
cedure provides procedures under which a
taxpayer that has adopted the New Stan-
dards may make a corresponding change
in its method of accounting for federal
income tax purposes, provided the new
method of accounting is otherwise per-
missible under the Code including under
amended § 451.

.11 After considering the comments re-
ceived on Notice 2017-17 and to reduce
compliance costs, burden, and administra-
tive complexity, the Treasury Department
and the Service are issuing this revenue
procedure to provide procedures under
§ 446 and § 1.446-1(e) for a taxpayer to
obtain automatic consent of the Commis-
sioner to change a method of accounting
used to recognize income for federal in-
come tax purposes to a method in which
the taxpayer uses the New Standards to
identify performance obligations, to allo-
cate transaction price to performance ob-
ligations, and/or to consider performance
obligations satisfied.

.12 This revenue procedure requests
comments on future guidance that may be
necessary as taxpayers begin to comply
with the New Standards, and comments
on the procedures in this revenue proce-
dure. In addition, comments are requested
on future guidance that may be necessary
to help taxpayers comply with amended
§ 451.

## SECTION 3. NEW AUTOMATIC METHOD CHANGE

.01 Rev. Proc. 2018-31 is modified to
add new section 16.11 to the List of Au-
tomatic Changes to read as follows:

.11 Changes in the timing of recogni-
tion of income due to the New Standards.

(1) Description of change. On May 28,
2014, the Financial Accounting Standards
Board (FASB) and the International Ac-
counting Standards Board (IASB) jointly
announced new financial accounting stan-
dards for revenue recognition entitled
"Revenue from Contracts with Customers
(Topic 606)" (New Standards). See FASB
Update No. 2014-09, and IASB Interna-
tional Financial Reporting Standard (IFRS)
15. Under the New Standards, a taxpayer
generally recognizes revenue for financial
accounting purposes when the taxpayer sat-
isfies a performance obligation by transfer-
ring a promised good or service to a cus-
tomer, as described in the New Standards.

(2) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for the recognition
of income for federal income tax purposes
to a method under the New Standards for:
(i) identifying performance obligations,
(ii) allocating transaction price to perfor-
mance obligations, and/or (iii) consider-

ing performance obligations satisfied. A
taxpayer may request a change under this
section 16.11 only if the taxpayer's new
method of accounting is otherwise per-
missible for federal income tax purposes
and the change in method of accounting is
made for the taxable year in which the
taxpayer adopts the New Standards for
financial accounting purposes. A taxpay-
er's allocation of transaction price to per-
formance obligations to comply with the
New Standards under this section 16.11 is
deemed to be an allocation based on ob-
jective criteria. See section 5.02(4)(c) of
Rev. Proc. 2004-34, 2004-1 C.B. 991, as
modified and clarified by Rev. Proc.
2011-18, 2011-5 I.R.B. 443, and Rev.
Proc. 2013-29, 2013-33 I.R.B. 141, and
as modified by Rev. Proc. 2011-14,
2011-4 I.R.B. 330.

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

(a) a change in the manner in which
the taxpayer identifies contracts or deter-
mines the transaction price, including the
inclusion and exclusion of variable con-
sideration in the transaction price, under
the New Standards;

(b) a change in method of accounting
for recognizing income that is made in a
year that is different from the year that the
taxpayer adopts the New Standards;

(c) a change in method of accounting
that does not comply with § 451 or other
guidance;

(d) any change in method of account-
ing that qualifies under another automatic
change described in the List of Automatic
Changes provided in this revenue proce-
dure (or any successor), even if it is de-
scribed in section 16.11(2) of this revenue
procedure, and otherwise satisfies the re-
quirements of paragraphs 5.01(1)(a)-(d)
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419
(or any successor). The taxpayer must
request such change(s) in method of
accounting by applying the automatic
change procedures in section 6 of Rev.
Proc. 2015-13 (or any successor) and
the respective section of Rev. Proc.
2018-31 (or any successor); or

(e) any change in the method of ac-
counting for income from a long-term
contract, as defined in § 460(f), unless the
long-term contract is excepted from re-
quired use of the percentage-of-completion
method by § 460(e)(1).

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(4) Time for making change. The
change under this section 16.11 may only
be made in the taxpayer's first, second, or
third taxable year ending on or after May
10, 2018.

(5) Manner of making change.

(a) Cut-off basis or § 481(a) adjust-
ment. A taxpayer making a change under
this section 16.11 may implement the
change with either a § 481(a) adjustment
as provided in sections 7.02 and 7.03 of
Rev. Proc. 2015-13, or on a cut-off basis.
If the taxpayer implements the change on
a cut-off basis, (i) the taxpayer must allo-
cate any payment allocations prior to the
year of change using the taxpayer's for-
mer method of accounting, (ii) all changes
made under this section 16.11 must be
implemented using a cut-off basis, and
(iii) a § 481(a) adjustment is neither per-
mitted nor required. Notwithstanding any-
thing to the contrary in this section
16.11(5)(a), if a taxpayer is a member of a
consolidated group (within the meaning of
§ 1.1502-1(h)), then the member must
implement all changes with respect to its
intercompany transactions (within the
meaning of § 1.1502-13(b)(1)(i)) under
this section 16.11 on a cut-off basis and
can apply the first two sentences of this
section 16.11(5)(a) to all other transac-
tions. See § 1.1502-17(b)(2); section 7.02
of Rev. Proc. 2015-13.

(b) Reduced filing requirement. A
taxpayer making a change under this sec-
tion 16.11 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 bot-
tom 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 16.11
using a § 481(a) adjustment, the statement
required for Line 26 of Form 3115 should
list a description of each change, the
§ 481(a) adjustment for each change (or
a statement that the change is being
made on a cut-off basis) and, if applica-
ble, a description of where the item's
§ 481(a) adjustment is reflected on the
federal income tax return (line number
(or schedule)).

In addition, the requirement to file the
duplicate copy, under section 6.03(1)(a)
of Rev. Proc. 2015-13, is waived.

(6) Certain eligibility rule inapplica-
ble. 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 ending on or
after May 10, 2018.

(7) No ruling on method used. The
consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under
this section 16.11 is not a determination
by the Commissioner that the new method
of accounting is a permissible method of
accounting and does not create any pre-
sumption that the allocation method is a
permissible method of accounting under
any provision of the Code. Further, the
consent granted under section 9 of Rev.
Proc. 2015-13 for a change made under
this section 16.11 is not a determination
that the amount of income included in
taxable income using an allocation
method described in the New Standards
is correct. The Director will ascertain
whether the new method of accounting is
a permissible method of accounting and
whether the allocation method is permis-
sible under the Code (for example, a
method that is permitted under § 451).

(8) Concurrent automatic change. A
taxpayer that wants to make one or more
changes in method of accounting under
this section 16.11 may file a single Form
3115 that includes all of the changes, must
separately state the § 481(a) adjustment
for each change made under this section,
and may not net the § 481(a) adjustments
with § 481(a) adjustments from other
changes.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
16.11 is "231."

(10) Contact information. For further
information regarding a change under this
section, contact Peter E. Ford at (202)
317-7011(not a toll free call) or Charles
Gorham at (202) 317-5091 (not a toll free
call).

## SECTION 4. REQUEST FOR COMMENTS

This revenue procedure provides cer-
tain procedures for obtaining the Commis-

sioner's consent for qualifying method
changes based on adoption of the New
Standards. As taxpayers adjust to adopting
the New Standards, additional differences
between financial accounting and tax ac-
counting rules may be discovered and a
need for additional guidance may arise.
The Treasury Department and the Service
request comments on any aspects of this
revenue procedure and any issues regard-
ing conformity between the New Stan-
dards and the Code and the Regulations.
In addition, comments are specifically re-
quested on the following issues:

1\. What additional change in account-
ing method requests do taxpayers antici-
pate requesting due to the New Standards?

2\. What additional procedural guidance
might be helpful as a result of the New
Standards?

3\. What industry-specific guidance
might be helpful as a result of the New
Standards?

In addition, the Treasury Department
and the Service request comments on fu-
ture guidance that would help taxpayers to
comply with amended § 451. Comments
are specifically requested on the following
issues:

1\. What change in method of account-
ing requests do taxpayers anticipate filing
due to the interplay of the New Standards
with amended § 451(b) or (c)?

2\. As taxpayers transition to amended
§ 451, what procedural guidance might be
helpful?

3\. As taxpayers transition to amended
§ 451, what industry-specific guidance
might be helpful?

WHERE TO SEND COMMENTS

Comments may be submitted using one
of the following methods:

· By Mail:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Revenue
Procedure 2018-29)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20444

· By Hand or Courier Delivery: Sub-
mission may be hand-delivered
Monday through Friday between the
hours of 8 a.m. and 4 p.m. to:

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Courier's Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Revenue Procedure 2018-29)
1111 Constitution Avenue, NW
Washington, DC 20224

· Electronic: Alternatively, persons
may submit comments electronically
to Revenue.Procedure.Comments@
irscounsel.treas.gov. Please include
"Revenue Procedure 2018-29" in
the subject line of any electronic
communications.

All Comments received will be available
for public inspection and copying.

## SECTION 5. EFFECTIVE DATE

.01 In general. Except as otherwise
provided under this section, this revenue
procedure is effective for a taxpayer's
first, second, or third taxable year ending
on or after May 10, 2018.

.02 Limited time period to convert a
Form 3115 filed under the non-automatic
change procedures in Rev. Proc. 2015-
13. If before May 10, 2018, a taxpayer
properly filed a Form 3115 under the non-
automatic change procedures in Rev.
Proc. 2015-13 requesting the Commis-
sioner's consent for a change in method of
accounting described in this revenue pro-
cedure, and the Form 3115 is pending
with the national office on May 10, 2018,
the taxpayer may choose to make the
change in method of accounting under the

automatic change procedures in Rev.
Proc. 2015-13 if the taxpayer is otherwise
eligible to use this revenue procedure and
the automatic change procedures in Rev.
Proc. 2015-13. The taxpayer must notify
the national office contact person for the
Form 3115 (if unknown, see section
9.08(6) of Rev. Proc. 2018-1, 2018-1
I.R.B. 50 (or successor)) of the taxpayer's
intent to make the change in method of
accounting under the automatic change
procedures in Rev. Proc. 2015-13 before
the later of (a) June 11, 2018, or (b) the
issuance of a letter ruling granting or de-
nying consent for the change. The notifi-
cation should indicate that the taxpayer
chooses to convert the Form 3115 to the
automatic change procedures in Rev.
Proc. 2015-13. If the taxpayer timely no-
tifies the national office that it chooses to
convert the Form 3115 to the automatic
change procedures in Rev. Proc. 2015-13,
the national office will send a letter to the
taxpayer acknowledging its request and
will return the user fee submitted with the
Form 3115.

A taxpayer converting a Form 3115 to
the automatic change procedures in Rev.
Proc. 2015-13 for a change in method of
accounting described in this revenue pro-
cedure must resubmit a Form 3115 that
conforms to the automatic change proce-
dures, with a copy of the national office
letter sent acknowledging the taxpayer's
request to convert attached, by the earlier
of (a) the 30th calendar day after the date
of the national office's letter acknowledg-

ing the taxpayer's request to convert, or
(b) the date the taxpayer is required to file
the original Form 3115 under section
6.03(1)(a)(i)(A) of Rev. Proc. 2015-13.
See section 6.03(3) of Rev. Proc. 2015-13
regarding additional required copies of
Form 3115.

For purposes of the eligibility rules in
section 5 of Rev. Proc. 2015-13, the
timely resubmitted Form 3115 will be
considered filed as of the date the taxpayer
originally filed the converted Form 3115
under the non-automatic change proce-
dures in Rev. Proc. 2015-13. This para-
graph does not extend the date the tax-
payer must file the original (converted)
Form 3115 under section 6.03(1)(a)(i)(A)
of Rev. Proc. 2015-13.

## SECTION 6. EFFECT ON OTHER DOCUMENTS

This revenue procedure modifies Rev.
Proc. 2018-31.

### SECTION 7. DRAFTING INFORMATION

The principal authors of this revenue
procedure are Peter E. Ford and Charles
Gorham of the Office of the Associate
Chief Counsel (Income Tax & Account-
ing). For further information regarding
this revenue procedure, contact Mr. Ford
on (202) 317-7011 (not a toll free number)
or Mr. Gorham on (202) 317-5091 (not a
toll free number).

26 CFR 601.204: Changes in accounting periods and in methods of accounting.

(Also Part I, § § 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 195, 197, 248, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455,
461, 467, 471, 472, 475, 481, 585, 709, 816, 832, 833, 846, 860A-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, 1.195-1, 1.197-2, 1.248-1, 1.263(a)-1, 1.263(a)-2, 1.263(a)-3, 1.263(a)-4,
1.263(a)-5, 1.263A-1, 1.263A-2, 1.263A-3, 1.263A-4, 1.263A-7, 1.267(a)-1, 1.280F-6, 1.404(b)-1T, 1.446-1, 1.446-1T, 1.446-2, 1.446-5, 1.446-6,
1.446-7, 1.448-1T, 1.448-2, 1.451-1, 1.451-5, 1.454-1, 1.455-6, 1.461-1, 1.461-4, 1.461-5, 1.467-1, 1.471-1, 1.471-2, 1.471-3, 1.471-4, 1.471-5,
1.471-8, 1.472-1, 1.472-2, 1.472-6, 1.472-8, 1.481-1, 1.481-4, 1.709-1, 1.709-2, 1.832-4, 1.832-5, 1.860A-6, 1.861-18, 1.985-5, 1.985-8, 1.1016-3,
1.1245-3, 1.1272-1, 1.1273-1, 1.1273-2, 1.1363-2, 1.1374-4, 1.1400L(b)-1.)

#### Rev. Proc. 2018-31

LIST OF AUTOMATIC CHANGES

642

SECTION 1. GROSS INCOME (§ 61)

642

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

642

SECTION 2. COMMODITY CREDIT LOANS (§ 77)

642

.01 Treating amounts received as loans

642

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)

643

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.01 Advances made by a lawyer on behalf of clients

643

.02 ISO 9000 Costs

643

.03 Restaurant or tavern smallwares packages.

643

.04 Timber grower fertilization costs

643

.05 Materials and supplies

643

.06 Repair and maintenance costs

643

.07 Wireline network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-27

643

.08 Wireless network asset maintenance allowance and units of property methods of accounting under Rev. Proc. 2011-28

643

.09 Method of accounting under Rev. Proc. 2011-43 for taxpayers in the business of transporting, delivering, or selling electricity

644

.10 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business of generating steam or electric power.

644

.11 Cable network asset capitalization methods of accounting under Rev. Proc. 2015-12

644

SECTION 4. BAD DEBTS (§ 166)

645

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

645

.02 Conformity election by bank after previous election automatically revoked

645

SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM (§ 171)

645

.01 Revocation of § 171(c) election

645

.02 Change to comply with § 163(e)(3)

645

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)

646

.01 Impermissible to permissible method of accounting for depreciation or amortization

646

.02 Permissible to permissible method of accounting for depreciation

650

.03 Sale, lease, or financing transactions

652

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

653

.05 Change in method of accounting for depreciation due to a change in the use of MACRS property

653

.06 Depreciation of qualified non-personal use vans and light trucks

653

.07 Impermissible to permissible method of accounting for depreciation or amortization for disposed depreciable or amortizable property

654

.08 Tenant construction allowances

655

.09 Safe harbor method of accounting for determining the depreciation of certain tangible assets used by wireless telecommunications carriers under Rev. Proc. 2011-22

656

.10 Partial dispositions of tangible depreciable assets to which the IRS's adjustment pertains (§ 168; § 1.168(i)-8)

656

.11 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)-4)

657

.12 Permissible to permissible method of accounting for depreciation of MACRS property (§ 168; §§ 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8)

658

.13 Disposition of a building or structural component (§ 168; § 1.168(i)-8)

660

.14 Dispositions of tangible depreciable assets (other than a building or its structural components) (§ 168; § 1.168(i)-8)

664

.15 Dispositions of tangible depreciable assets in a general asset account (§ 168(i)(4); § 1.168(i)-1)

666

.16 Summary of certain changes in methods of accounting related to dispositions of MACRS property

668

.17 Depreciation of fiber optic transfer node and fiber optic cable used by a cable system operator (§§ 167 and 168)

670

SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)

670

.01 Changes to a different method or different amortization period

670

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SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)

671

.01 Deduction for Energy Efficient Commercial Buildings (§ 179D)

671

SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197)

672

.01 Computer software expenditures

672

SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§§ 195, 248 AND 709)

672

.01 Start-up expenditures

672

.02 Organizational expenditures under § 248

672

.03 Organization fees under § 709

673

SECTION 11. CAPITAL EXPENDITURES (§ 263)

673

.01 Package design costs.

673

.02 Line pack gas or cushion gas

673

.03 Removal costs

673

.04 Distributor commissions

674

.05 Intangibles

674

.06 Rotable spare parts safe harbor method.

674

.07 Repairable and reusable spare parts

675

.08 Tangible property

676

.09 Railroad track structure expenditures

678

.10 Remodel-refresh safe harbor method

678

SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)

680

.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers

680

.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers

684

.03 Impact fees

685

.04 Change to capitalizing environmental remediation costs under § 263A

685

.05 Change in allocating environmental remediation costs under § 263A

685

.06 Safe harbor methods under § 263A for certain dealerships of motor vehicles

685

.07 Change to not apply § 263A to one or more plants removed from the list of plants that have a preproductive period in excess of 2 years.

686

.08 Change to a reasonable allocation method described in § 1.263A-1(f)(4) for self-constructed assets.

686

.09 Real property acquired through foreclosure.

687

.10 Sales-Based Royalties

687

.11 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method

687

.12 U.S. ratio method

688

.13 Depletion

689

.14 Interest capitalization

690

SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)

690

.01 Change to comply with § 267

690

SECTION 14. DEFERRED COMPENSATION (§ 404)

690

.01 Deferred compensation

690

.02 Grace period contributions

691

SECTION 15. METHODS OF ACCOUNTING (§ 446)

691

.01 Change in overall method from the cash method to an accrual method.

691

.02 Multi-year insurance policies for multi-year service warranty contracts

693

.03 Taxpayers changing to overall cash method.

693

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.04 Nonaccrual-experience method

694

.05 Interest accruals on short-term consumer loans-Rule of 78's method

695

.06 Film producer's treatment of certain creative property costs

695

.07 Deduction of incentive payments to health care providers

695

.08 Change by bank for uncollected interest.

696

.09 Change from the cash method to an accrual method for specific items

696

.10 Multi-year service warranty contracts

697

.11 Overall cash method for specified transportation industry taxpayers

697

.12 Change to overall cash/hybrid method for certain banks

698

.13 Change to overall cash method for farmers.

699

.14 Nonshareholder contributions to capital under § 118

699

.15 Debt issuance costs

700

.16 Transfers of interties under the safe harbor described in Notice 2016-36 (§ 118).

700

.17 Change to or from the net asset value (NAV) method.

700

SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451)

701

.01 Accrual of interest on nonperforming loans

701

.02 Advance rentals

702

.03 State or local income or franchise tax refunds

702

.04 Capital Cost Reduction Payments

702

.05 Credit card annual fees

702

.06 Credit card late fees

702

.07 Advance payments

703

.08 Credit card cash advance fees

703

.09 Retainages

704

.10 Advance payments - change in applicable financial statements (AFS)

704

SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)

705

.01 Series E, EE or I U.S. savings bonds

705

SECTION 18. PREPAID SUBSCRIPTION INCOME (§ 455)

706

.01 Prepaid subscription income

706

SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

706

.01 [Reserved]

706

SECTION 20. TAXABLE YEAR INCURRED (§ 461)

706

.01 Timing of incurring liabilities for employee compensation

706

(1) Self-insured employee medical benefits

706

(2) Bonuses

706

(3) Vacation pay, sick pay, and severance pay

707

.02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes, and state franchise taxes

707

.03 Timing of incurring liabilities under a workers' compensation act, tort, breach of contract, or violation of law

708

.04 Timing of incurring certain liabilities for payroll taxes

708

.05 Cooperative advertising

709

.06 Timing of incurring certain liabilities for services or insurance.

709

.07 Rebates and allowances

709

.08 Ratable accrual of real property taxes

709

.09 California Franchise Taxes

710

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.10 Gift cards issued as a refund for returned goods

710

.11 Timing of incurring liabilities under the recurring item exception to the economic performance rules

710

.12 Economic performance safe harbor for ratable service contracts

710

SECTION 21. RENT (§ 467)

710

.01 Change from an improper method of inclusion of rental income or expense to inclusion in accordance with the rent allocation

710

SECTION 22. INVENTORIES (§ 471)

711

.01 Cash discounts.

711

.02 Estimating inventory "shrinkage"

711

.03 Small taxpayer exception from requirement to account for inventories under § 471

712

.04 Qualifying volume-related trade discounts

712

.05 Impermissible methods of identification and valuation of inventories.

712

.06 Core Alternative Valuation Method

713

.07 Replacement cost for automobile dealers' parts inventory

713

.08 Replacement cost for heavy equipment dealers' parts inventory

713

.09 Rotable spare parts

714

.10 Advance Trade Discount Method

714

.11 Permissible methods of identification and valuation of inventories.

714

.12 Change in the official used vehicle guide utilized in valuing used vehicles

714

.13 Invoiced advertising association costs for new vehicle retail dealerships

715

.14 Rolling-average method of accounting for inventories

715

.15 Sales-Based Vendor Chargebacks

715

.16 Certain changes to the cost complement of the retail inventory method

715

.17 Certain changes within the retail inventory method.

716

.18 Change from currently deducting inventories to permissible methods of identification and valuation of inventories.

716

SECTION 23. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)

716

.01 Change from the LIFO inventory method

716

.02 Determining current-year cost under the LIFO inventory method

717

.03 Alternative LIFO inventory method for retail automobile dealers

717

.04 Used vehicle alternative LIFO method

718

.05 Determining the cost of used vehicles purchased or taken as a trade-in

719

.06 Change to the inventory price index computation (IPIC) method

719

.07 Changes within the inventory price index computation (IPIC) method

720

.08 Changes to the Vehicle-Pool Method

720

.09 Changes within the used vehicle alternative LIFO method

721

.10 Changes to dollar-value pools of manufacturers

721

SECTION 24. MARK-TO-MARKET ACCOUNTING METHOD (Including § 475)

716

.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f)

721

.02 Taxpayers requesting to change their method of accounting from the mark-to-market method of accounting described in § 475 to a realization method

722

SECTION 25. BANK RESERVES FOR BAD DEBTS (§ 585)

723

.01 Changing from the § 585 reserve method to the § 166 specific charge-off method

723

SECTION 26. INSURANCE COMPANIES (§§ 816, 832, 833)

724

.01 Safe harbor method of accounting for premium acquisition expenses

724

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.02 Certain changes in method of accounting for organizations to which § 833 applies

725

.03 Change in qualification as life/nonlife insurance company under § 816

725

SECTION 27. DISCOUNTED UNPAID LOSSES (§ 846)

725

.01 Composite method for discounting unpaid losses

725

SECTION 28. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A-860G)

725

.01 REMIC Inducement Fees

725

SECTION 29. FUNCTIONAL CURRENCY (§ 985)

726

.01 Change in functional currency

726

SECTION 30. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)

726

.01 De minimis original issue discount (OID)

726

.02 Proportional method of accounting for OID on a pool of credit card receivables

726

SECTION 31. MARKET DISCOUNT BONDS (§ 1278)

726

.01 Revocation of § 1278(b) election

726

SECTION 32. SHORT-TERM OBLIGATIONS (§ 1281)

727

.01 Interest income on short obligations

727

.02 Stated interest on short-term loans of cash method banks

727

EFFECTIVE DATE

728

EFFECT ON OTHER DOCUMENTS

729

PAPERWORK REDUCTION ACT

729

SIGNIFICANT CHANGES

730

DRAFTING INFORMATION

730

LIST OF AUTOMATIC CHANGES CONTACT LIST

730

This revenue procedure provides the List
of Automatic Changes to which the auto-
matic change procedures in Rev. Proc.
2015-13, 2015-5 I.R.B. 419, as clarified
and modified by Rev. Proc. 2015-33,
2015-24 I.R.B. 1067, and as modified by
Rev. Proc. 2017-59, 2017-48 I.R.B. 543,
and by section 17.02 of Rev. Proc. 2016-1,
2016-1 I.R.B. 1, apply. The definitions in
section 3 of Rev. Proc. 2015-13 apply to
this revenue procedure.

### LIST OF AUTOMATIC CHANGES SECTION 1. GROSS INCOME (§ 61)

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

(1) Description of change. This change
applies to a Utility that wants to change its
method of accounting for Up-front 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
Generator to finance Network Upgrades to
the Utility's Transmission System. For
federal income tax purposes, if an Up-
front Payment is made pursuant to an In-

terconnection Agreement that satisfies all
of the conditions of section 5.02 of Rev.
Proc. 2005-35, a Utility may treat that
Up-front Payment as not being taxable
income under § 61 when received (the
safe harbor method). In addition, a Utility
that uses the safe harbor method is not
entitled to any deduction for its reim-
bursements of the Up-front Payment. To
the extent that Federal Energy Regulatory
Commission (FERC) interest is deduct-
ible, it must be properly allocated to the
periods in which it accrues. A Utility us-
ing the safe harbor method must comply
with all other applicable provisions of
Rev. Proc. 2005-35. See Rev. Proc.
2005-35 for the definitions of certain
terms for purposes of this change.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
1.01 is "91."

(3) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).

## 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 inapplicable.
The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to this change.

(3) Manner of making change. This
change is made on a cut-off basis and
applies only to loans received from the
Commodity Credit Corporation on or after
the beginning of the year of change. Ac-
cordingly, a § 481(a) adjustment is neither
permitted nor required.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
2.01 is "1."

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(5) Contact information. For further in-
formation regarding a change under this
section, contact William Ruane at (202)
317-4718 (not a toll-free call).

## SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)

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

(1) Description of change. This change
applies to a lawyer who advances money
to pay for costs of litigation or for other
expenses on behalf of clients, and who
wants to change the method of accounting
for such advances from treating them as
deductible business expenses to treating
them as loans to clients. This change ap-
plies 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 Peter Ford at (202) 317-
7011(not a toll-free call).

.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 Peter Ford at (202) 317-
7011 (not a toll-free call).

.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 Peter Ford at (202) 317-
7011 (not a toll-free call).

.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 Peter Ford at (202) 317-
7011 (not a toll-free call).

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

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

.07 Wireline network asset maintenance
allowance and units of property methods
of accounting under Rev. Proc. 2011-
27.

(1) Description of change. This change
applies to a wireline telecommunications
carrier that is within the scope of Rev.
Proc. 2011-27, 2011-18 I.R.B. 740, and
wants to change its treatment of wireline

network asset expenditures to use either
(a) the wireline network asset 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 account-
ing 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 al-
lowance 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 call).

.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 al-
lowance 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

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section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).

.09 Method of accounting under Rev.
Proc. 2011-43 for taxpayers in the
business of transporting, delivering, or
selling electricity.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011-43, 2011-37
I.R.B. 326, and wants to change its treat-
ment of transmission and distribution
property expenditures to use the method
of accounting described in Rev. Proc.
2011-43.

(2) Section 481(a) adjustment. A tax-
payer must take the entire net § 481(a)
adjustment into account (whether posi-
tive or negative) in computing taxable
income for the year of change. The
§ 481(a) adjustment does not include
any amount attributable to property for
which the taxpayer elected to apply the
repair allowance under § 1.167(a)-
11(d)(2) for any taxable year in which
the election was made. For guidance
regarding permissible § 481(a) calcula-
tion methodologies, see section 7.02 and
Appendix A of Rev. Proc. 2011-43.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.09 is "160."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).

.10 Method of accounting under Rev.
Proc. 2013-24 for taxpayers in the
business of generating steam or electric
power.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2013-24, 2013-22
I.R.B. 1142, and wants to change its 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) 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.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
3.10 is "182."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).

.11 Cable network asset capitalization
methods of accounting under Rev. Proc.
2015-12.

(1) Description of change. This change
applies to a cable system operator that is
within the scope of Rev. Proc. 2015-12,
2015-2 I.R.B. 266, and wants to make one
or more of the 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) Concurrent automatic change. A
taxpayer that wants to make both one or
more changes in method of accounting
pursuant to this section 3.11 and a change
to a UNICAP method under section 12 of
this revenue procedure for the same year

of change should file a single Form 3115
that includes all of these changes and must
enter the designated automatic accounting
method change numbers for all of these
changes on the appropriate line on the
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes.

(3) Section 481(a) adjustment.

(a) In general, a change to one or more
of the of the changes in method of ac-
counting described in section 3.11(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
(Rev. December 2015), Part IV, line 26,
the total § 481(a) adjustment for all
changes in methods of accounting being
made. If the taxpayer is making more
than one change in method of account-
ing under Rev. Proc. 2015-12, the tax-
payer must include on an attachment to
Form 3115:

(i) the information required by Part IV,
line 26 for each change in method of
accounting (including the amount of the
§ 481(a) adjustment for each change in
method of accounting, which includes the
portion of the § 481(a) adjustment attrib-
utable to UNICAP);

(ii) the information required by Part II,
line 14 of Form 3115 that is associated
with each change; and

(iii) the citation to the paragraph of
Rev. Proc. 2015-12 that provides for each
proposed method of accounting.

(4) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change to a method of accounting
provided in section 5 or 6 of Rev. Proc.
2015-12 is "208." The designated auto-
matic accounting method change number
for a change to a method of accounting
provided in section 7 of Rev. Proc. 2015-12
is "209."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Merrill Feldstein at (202)
317-5100 (not a toll-free call).

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# 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 im-
proper method) to a specific charge-off
method that complies with § 166. For pro-
cedures applicable to banks, see § 585(c)
and the regulations thereunder and section
25 of this revenue procedure.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
4.01 is "5."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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 au-
tomatically 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 K. Scott Brown at (202)
317-6945 (not a toll-free call).

## 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 amor-
tization 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 call).

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

(1) Description of change. This change
applies to a taxpayer that wants to change its
method or methods of accounting to comply
with the requirements of § 163(e)(3), which
defers certain deductions attributable to
original issue discount debt instruments held
by related foreign persons. Any portion of
the original issue discount will not be allow-
able as a deduction to the U.S. person issuer
until paid.

(2) Accelerated § 481(a) adjustment
period in certain situations. In addition to
the circumstances set forth in section
7.03(4) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, the § 481 adjustment period
provided in section 7.03 of Rev. Proc.
2015-13 will be accelerated for a U.S.
person with a remaining balance of a
§ 481(a) adjustment that arose by reason
of a change in method of accounting 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."

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(4) Contact information. For further in-
formation regarding a change under this
section, contact Michael Kaercher at (202)
317-6934 (not a toll-free call).

#### 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) (as
in effect on the day before the date of
enactment of Public Law 115-97, 131
Stat. 2054 (Dec. 22, 2017) (the "Act")),
§ 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 6.07 of this revenue procedure for
property disposed of before the year of
change).

(b) Taxpayer has not adopted a method
of accounting for the item of property. If a
taxpayer does not satisfy section 6.01(1)
(a)(i) of this revenue procedure for an
item of depreciable or amortizable prop-
erty because this item of property is
placed in service by the taxpayer in the

taxable year immediately preceding the
year of change ("1-year depreciable prop-
erty"), the taxpayer may change from the
impermissible method of determining de-
preciation to the permissible method of de-
termining depreciation for the 1-year depre-
ciable property by filing a Form 3115 for
this change, provided the § 481(a) adjust-
ment reported on the Form 3115 includes
the amount of any adjustment that is attrib-
utable to all property (including the 1-year
depreciable property) subject to the Form
3115. Alternatively, the taxpayer may
change from the impermissible method of
determining depreciation to the permissible
method of determining depreciation for a
1-year depreciable property by filing an
amended federal tax return for the proper-
ty'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 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable);

(iii) any property for which a taxpayer
is making a change in depreciation under
§ 1.446-1(e)(2)(ii)(d)(2)(vi) or (vii);

(iv) any property subject to § 167(g)
regarding property depreciated under the
income forecast method;

(v) any § 1250 property that a taxpayer
is reclassifying to an asset class of Rev.
Proc. 87-56, 1987-2 C.B. 674 (as 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.
2018-1, 2018-1 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) (as
in effect on the day before the date of
enactment of the Act) or § 167 (other than
under § 168, § 1400I, § 1400L(c), former
§ 168, or any additional first year deprecia-
tion 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 adjust-
ments in the applicable taxable year pro-
vided under § 1.446-1(e)(2)(ii)(d)(5)(iv).
However, this section 6.01(1)(c)(vii) does
not apply if the taxpayer is changing to or
from a useful life, recovery period, or amor-
tization period that is specifically assigned
by the Code (for example, § 167(f)(1),
§ 168(c)), the regulations thereunder, or other
guidance published in the Internal Revenue
Bulletin and, therefore, this change is a change
in method of accounting (unless section
6.01(1)(c)(xv) of this revenue procedure ap-
plies). See § 1.446-1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable property for which
the use changes in the hands of the same
taxpayer. See § 1.446-1(e)(2)(ii)(d)(3)(ii);

(ix) 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 (but
see section 11.08 of this revenue proce-
dure for making such a change in method
of accounting under the final tangible
property regulations);

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(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 amortizable
property and the adoption of a method of
accounting for depreciation requiring an
election under § 167, § 168, § 1400I,
§ 1400L(c), former § 168, § 13261(g)(2)
or (3) of the 1993 Act, or any additional
first year depreciation deduction provision
of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)) (for
example, a change in the treatment of the
space consumed in landfills placed in ser-
vice in 2006 from nondepreciable to de-
preciable property (assuming 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

11.02 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
11.06 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 tax-
payer has claimed a federal income tax
credit (e.g., the rehabilitation credit under
§ 47).

(2) Certain eligibility rules inappli-
cable. The eligibility rule in section
5.01(1)(d) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, does not apply to
this change. If during any of the five
taxable years ending with the year of
change, a taxpayer requested or made a
change in method of accounting from
expensing to capitalizing, or vice versa,
the cost or other basis of an asset, the
eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 is not applicable to
a change under this section 6.01 for that
same asset.

(3) Additional requirements. A 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
describing the taxpayer's business or
income-producing activities. Also, if the
taxpayer has more than one business or
income-producing activity, a statement
describing the taxpayer's business or
income-producing activity in which the
item of property at issue is primarily
used by the taxpayer;

(iii) to the extent not provided 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
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

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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. 2018-31 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, qualified improve-
ment property as defined in § 168(e)(6)
(as amended by § 13204 the Act), 19-year
real property, 18-year real property, or
15-year real property] to an asset class of
[Insert, as appropriate, either: Rev. Proc.

87-56, 1987-2 C.B. 674, or Rev. Proc.
83-35, 1983-1 C.B. 745] that does not
explicitly include § 1250 property, is
§ 1245 property for depreciation pur-
poses."

(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 (Rev. December 2015) to
make this change:

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

(b) The signature section at the bot-
tom of page 1;

(c) Part I;

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

(e) Part IV, all lines except line 25;
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(6) 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(7) 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) (as in effect
on the day before the date of enactment of
the Act), § 167, § 168, § 197, § 1400I, or
§ 1400L(c), or former § 168. This amount,
however, may be limited by other provi-
sions 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
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) (as in ef-
fect on the day before the date of enact-
ment of the Act) is determined by using
the depreciation method, recovery period
or useful life, as applicable, and conven-
tion provided for under § 56(g)(4)(A) (as
in effect on the day before the date of
enactment of the Act) that applies for the
property's placed-in-service date.

(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

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(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)
(as in effect on the day before the date of
enactment of the Economic Stimulus Act
of 2008, Pub. L. No. 110-185, 122 Stat.
613 (February 13, 2008)) and § 1.168(k)-
1), qualified disaster assistance property
(as defined in § 168(n)(2)), qualified New
York Liberty Zone (Liberty Zone) prop-
erty (as defined in § 1400L(b)(2) and
§ 1.1400L(b)-1), qualified Gulf Opportu-
nity Zone (GO Zone) property (as defined
in § 1400N(d)(2) and sections 2.02 and
2.03 of Notice 2006-77, 2006-2 C.B.
590, as clarified, modified, and amplified
by Notice 2007-36, 2007-1 C.B. 1000),
specified Gulf Opportunity Zone exten-
sion property (GO Zone extension prop-
erty) (as defined in § 1400N(d)(6) and
section 4 of Notice 2007-36), or qualified
Recovery Assistance (RA) property (as
defined in sections 2.02 and 2.03 of No-
tice 2008-67, 2008-32 I.R.B. 307), the
depreciation allowable for that computer
software under § 167(f)(1) is also deter-
mined by taking into account the additional
first year depreciation deduction provided
by § 168(k), § 168(n), § 1400L(b), or
§ 1400N(d), or by § 15345(a)(1) and (d)(1)
of the Food, Conservation, and Energy Act
of 2008, 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 prop-
erty, by also taking into account the addi-
tional first year depreciation deduction pro-
vided by § 168(k), § 168(n), § 1400L(b), or
§ 1400N(d), or by § 15345(a)(1) and (d)(1)
of the Food, Conservation, and Energy Act
of 2008, as applicable, unless the taxpayer
made a timely valid election not to deduct
the additional first year depreciation (or
made a deemed election not to deduct the
additional first year depreciation; for further
guidance, see, for example, Rev. Proc.
2002-33, 2002-1 C.B. 963, Rev. Proc.
2003-50, 2003-2 C.B. 119, Notice 2006-
77, Notice 2008-67, section 5 of Rev. Proc.
2011-26, 2011-16 I.R.B. 664, or Rev. Proc.
2015-48, 2015-40 I.R.B. 469) 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) and (3)) or qualified
cellulosic biofuel plant property (as de-
fined in former § 168(l)(2) and (3)), by
also taking into account the additional first
year depreciation deduction provided by
§ 168(l)(1), unless the taxpayer made a
timely valid election not to deduct the
additional first year depreciation for the
property; and

(iv) if the property is qualified reuse
and recycling property (as defined in
§ 168(m)(2)), by also taking into account
the additional first year depreciation 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 deprecia-
tion 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-
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

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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 12.01, 12.02, 12.08, or 12.12 of this
revenue procedure (as applicable) for the
same year of change should file a single
Form 3115 for both changes, in which case
the taxpayer must enter the designated au-
tomatic accounting method change numbers
for both changes on the appropriate line on
that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes. For example, a
qualified small taxpayer must include on the
single Form 3115 the information required
by section 6.01(4)(a) of this revenue 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 14 and 15, Part IV, and
Schedule D, and must include a separate
response to each line on Form 3115 that is
applicable to both changes (such as Part II
lines 6b, 7, 8b, 14, and, as applicable for this
change, Part IV) for which the taxpayer's
response is different for this change and the
change to a UNICAP method.

(9) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
6.01 is "7."

(10) Contact information. For further
information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).

.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)
(as in effect on the day before the date of
enactment of the Act) or § 167 to another
permissible method of accounting for de-
preciation under § 56(g)(4)(A)(iv) (as in
effect on the day before the date of enact-
ment of Public Law 115-97, 131 Stat.
2054 (Dec. 22, 2017) (the "Act")) or
§ 167. Pursuant to § 1.167(a)-7(a) and (c),

a taxpayer may account for depreciable
property either by treating each individual
asset as an account or by combining two
or more assets in a single account and, for
each account, depreciation allowances are
computed separately.

(2) Applicability.

(a) In general. This change applies to
any taxpayer wanting to make a change in
method of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure for the property in an account:

(i) for which the present and proposed
methods of accounting for depreciation
specified in section 6.02(4) of this revenue
procedure are permissible methods for the
property under § 56(g)(4)(A)(iv) (as in
effect on the day before the date of enact-
ment of the Act) 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 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable);

(ii) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;

(iii) any property described in § 167(f)
(regarding certain property excluded from
§ 197);

(iv) any property subject to § 167(g)
(regarding property depreciated under the
income forecast method);

(v) any property for which depreciation
is determined under § 56(a)(1), § 56(g)(4)
(A)(i), (ii), (iii), or (v) (as in effect on the
day before the date of enactment of the
Act), § 168, § 1400I, § 1400L(c), § 168
prior to its amendment in 1986 (former
§ 168), or any additional first year depreci-
ation deduction provision of the Code (for
example, § 168(k), § 168(l), § 1400L(b), or
§ 1400N(d));

(vi) any property that the taxpayer
elected under § 168(f)(1) or former
§ 168(e)(2) to exclude from the applica-

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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) (cer-
tain changes for § 1245 property), or
§ 1.167(e)-1(d) (certain changes for § 1250
property). These changes must be made pro-
spectively and are not permitted under the
cited regulations for property for which the
depreciation is determined under § 168,
§ 1400I, § 1400L(c), former § 168, or any
additional first year depreciation deduc-
tion provision of the Code (for example,
§ 168(k), § 168(l), § 1400L(b), or
§ 1400N(d)); or

(ix) any distributor commissions (as de-
fined by section 2 of Rev. Proc. 2000-38,
2000-2 C.B. 310, as modified by Rev.
Proc. 2007-16, 2007-1 C.B. 358) for
which the taxpayer is changing the useful
life under the distribution fee period method
or the useful life method (both described in
Rev. Proc. 2000-38). A change in this use-
ful life is corrected by adjustments in the
applicable taxable year provided under
§ 1.446-1(e)(2)(ii)(d)(5)(iv).

(3) Certain eligibility rule inapplicable.
The eligibility rule in section 5.01(1)(d) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to this change.

(4) Changes covered. This section 6.02
only applies to the following changes in
methods of accounting for depreciation:

(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 dif-
ferent proper percentage of the straight-
line rate;

(c) a change from the sum-of-the-years-
digits method to the sinking fund method,
the declining-balance method using any
proper percentage of the straight-line rate,
or the straight-line method;

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

(e) a change from the sinking fund
method to the straight-line method, the
unit-of-production method, the sum-of-
the-years-digits method, or the declining-
balance method using any proper 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 distorts the de-
preciation 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 depreci-
ation 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 esti-
mated salvage value or actual salvage
proceeds to the depreciation reserve,
with any excess of salvage proceeds
over estimated salvage value credited to
ordinary income) with the salvage pro-
ceeds 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-
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.

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(d) Public utility property. If any item of
property is public utility property within the
meaning of former § 167(l)(3)(A), the tax-
payer (including a qualified small taxpayer
as defined in section 6.01(4)(b) of this rev-
enue procedure) must attach to the Form
3115 a statement providing that the taxpayer
agrees to the following additional terms and
conditions:

(i) a normalization method of 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 (Rev. Decem-
ber 2015) to make this change:

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

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

(c) Part I;

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

(e) Part IV, line 25; and

(f) Schedule E.

(7) Section 481(a) adjustment. Because
the adjusted basis of the property is not
changed as a result of a method change
made under this section 6.02, no items are
being duplicated or omitted. Accordingly,
a § 481(a) adjustment is neither required
nor permitted.

(8) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets.

(b) A taxpayer making both this change
and a change to a UNICAP method under
section 12.01, 12.02, 12.08, or 12.12 of this
revenue procedure (as applicable) for the
same year of change should file a single
Form 3115 for both changes, in which case
the taxpayer must enter the designated au-
tomatic accounting method change numbers
for both changes on the appropriate line on

that Form 3115. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes. For example, a
qualified small taxpayer must include on the
single Form 3115 the information required
by section 6.02(6) of this revenue procedure
for this change and the information required
by the lines on Form 3115 applicable to the
UNICAP method change, including Part II
line 14 and 15, Part IV, and Schedule D, and
must include a separate response to each
line on Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer's response is differ-
ent 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 Charles Magee at (202)
317-7005 (not a toll-free call).

.03 Sale, lease, or financing
transactions.

(1) Description of change and scope.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting from:

(i) improperly treating property as sold
by the taxpayer to properly treating 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 pur-
chased by the taxpayer to properly treat-
ing property as leased by the taxpayer;
and

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

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

(i) a rent-to-own dealer that wants to
change its method of accounting for rent-
to-own contracts described in section 3 of
Rev. Proc. 95-38, 1995-2 C.B. 397; or

(ii) a taxpayer that holds assets for sale
or lease, if any asset so held is not the
subject of a sale or lease transaction as of
the beginning of the year of change.

(2) Manner of making change.

(a) The change in method of account-
ing under 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
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.

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(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 call).

.04 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 ac-
count treatment. Accordingly, a § 481(a)
adjustment is neither permitted nor required.
See § 1.168(i)-1(h)(2)(ii) and (iii) for more
information regarding how to establish the
general asset account when a change in the
use of MACRS property occurs pursuant to
§ 1.168(i)-4(d).

(b) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. Decem-
ber 2015) to make this change:

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

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

(iii) Part I;

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

(v) Part IV, line 25; 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
6.04 is "87."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).

.05 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-
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 (Rev. Decem-
ber 2015) to make this change:

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

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

(c) Part I;

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

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

(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the 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
6.05 is "88."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).

### .06 Depreciation of qualified non- personal use vans and light trucks.

(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for depreciation
for certain vehicles in accordance with
§ 1.280F-6(f)(2)(iv). Section 1.280F-
6(f)(2)(iv) applies to a truck or van that is
a qualified nonpersonal use vehicle as 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 (Rev. Decem-
ber 2015) to make this change:

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

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

(c) Part I;

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

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

(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the

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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
6.06 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 call).

.07 Impermissible to permissible method
of accounting for depreciation or
amortization for disposed depreciable or
amortizable property.

(1) Description of change. This change
applies to a taxpayer that wants to make
the change in method of accounting for
depreciation or amortization (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
6.07(4) of this revenue procedure) or any
prior taxable year.

(2) Applicability.

(a) In general. Except as provided in
section 6.07(2)(b) of this revenue proce-
dure, this section 6.07 applies to a tax-
payer that is changing from an imper-
missible 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 addi-

tional first year depreciation deduction pro-
vision of the Code (for example, § 168(k),
§ 168(l), § 1400L(b), or § 1400N(d)):

(i) that has been disposed of by the
taxpayer during the year of change (as
defined in section 6.07(4) of this revenue
procedure); and

(ii) for which the taxpayer did not take
into account any depreciation allowance,
or did take into account some depreciation
but less than the depreciation allowable
(hereinafter, both are referred to as
"claimed less than the depreciation allow-
able"), in the year of change (as defined in
section 6.07(4) of this revenue procedure)
or any prior taxable year.

(b) Inapplicability. This section 6.07
does not apply to:

(i) any property to which § 1016(a)(3)
(regarding property held by a tax-exempt
organization) applies;

(ii) any property for which a taxpayer
is revoking a timely valid depreciation
election, or making a late depreciation
election, under the Code or regulations
thereunder, or under other guidance 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
6.07(2)(b)(iv) does not apply to property
disposed of by the taxpayer in a § 1031 or
§ 1033 transaction if the taxpayer elects
under § 1.168(i)-6(i) and (j) to treat the
entire basis (that is, both the exchanged
and excess basis (as defined in § 1.168(i)-
6(b)(7) and (8), respectively) of the 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 6.07(4) of this revenue procedure),
provided the taxpayer files the original
Form 3115 in accordance with section
6.03(1)(a) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419.

(b) Change made on an amended 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 6.07(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 6.07(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 6.07(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 6.07.

(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
6.07(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 Covington,
KY, no later than when the original Form
3115 is filed with the amended federal tax
return for the year of change. If a taxpayer

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is making this change in accordance with
section 6.07(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 (Rev. Decem-
ber 2015) to make this change:

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

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

(iii) Part I;

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

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

(vi) Schedule E.

(7) Section 481(a) adjustment period.
A taxpayer must take the entire § 481(a)
adjustment into account in computing 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
6.07 is "107."

(10) Contact information. For further
information regarding a change under this
section, contact Charles Magee at (202)
317-7005 (not a toll-free call).

.08 Tenant construction allowances.

(1) Description of change and scope.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for tenant 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;

(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 6.08, the term "tenant construction
allowance(s)" means any amount received
by a lessee from a lessor to construct,
acquire, or improve property for use by
the lessee pursuant to a lease.

(3) Manner of making the change.

(a) The change in method of account-
ing under this section 6.08 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 6.08.

(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 qual-
ified small taxpayers. A qualified small tax-
payer, as defined in section 6.01(4)(b) of
this revenue procedure, is required to com-
plete only the following information on
Form 3115 (Rev. December 2015) to make
this change in accordance with section
6.08(3)(a) of this revenue procedure:

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

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

(c) Part I;

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

(e) Part IV, line 25; and

(f) Schedule E.

(5) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change made in ac-
cordance with section 6.08(3)(a) of this
revenue procedure. 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
6.08 is "145."

(8) Contact information. For further in-
formation regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).

.09 Safe harbor method of accounting
for determining the depreciation of
certain tangible assets used by wireless
telecommunications carriers under Rev.
Proc. 2011-22.

(1) Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2011-22, 2011-18
I.R.B. 737, and wants to change to the
recovery periods described in section 5 of
Rev. Proc. 2011-22 and any collateral
change to the depreciation methods for all,
or some of, the assets listed in that section.

(2) Reduced filing requirement for
qualified small taxpayers. A qualified
small taxpayer, as defined in section
6.01(4)(b) of this revenue procedure, is
required to complete only the following
information on Form 3115 (Rev. Decem-
ber 2015) to make this change:

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

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

(c) Part I;

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

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

(f) Schedule E.

(3) Concurrent automatic change. A
taxpayer making this change for more
than one asset for the same year of change
should file a single Form 3115 for all such
assets and provide a single net § 481(a)
adjustment for all the changes included in
that Form 3115. If one or more of the
changes in that single Form 3115 generate
a negative § 481(a) adjustment and other
changes in that same Form 3115 generate
a positive § 481(a) adjustment, the 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
6.09 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 call).

.10 Partial dispositions of tangible
depreciable assets to which the IRS's
adjustment pertains (§ 168; § 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change applies to
a taxpayer that is described in § 1.168(i)-
8(d)(2)(iii) and, pursuant to § 1.168(i)-
8(d)(2)(iii), that wants to make the partial
disposition election specified in § 1.168(i)-
8(d)(2)(i) to the disposition of a portion of
an asset to which the IRS's adjustment (as
described in § 1.168(i)-8(d)(2)(iii)) 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; or

(ii) Any partial disposition election spec-
ified in § 1.168(i)-8(d)(2)(i) that is not
made pursuant to § 1.168(i)-8(d)(2)(iii) (for
example, this change does not apply to the
partial disposition election specified in

§ 1.168(i)-8(d)(2)(i) that is made pursuant
to § 1.168(i)-8(d)(2)(iv)).

(2) Change in method of accounting.
The IRS will treat the making of the late
election specified in section 6.10(1) of this
revenue procedure as a change in method
of accounting.

(3) Certain eligibility rules inappli-
cable. 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
(Rev. December 2015) to make this
change:

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

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

(iii) Part I;

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

(v) Part IV, all lines except line 25; and
(vi) Schedule E.

(b) A taxpayer (including a qualified
small taxpayer) making this change must:

(i) Apply § 1.168(i)-8(h)(1) and (3)
(accounting for asset disposed of);

(ii) If the asset (as determined under
§ 1.168(i)-8(c)(4)) of which the disposed
portion is a part is properly included in
one of the asset classes 00.11 through 00.4
of Rev. Proc. 87-56, 1987-2 C.B. 674,
classify the replacement portion of such
asset under the same asset class as the
disposed portion of the asset in the taxable
year in which the replacement portion is
placed in service by the taxpayer;

(iii) If the taxpayer's present method of
accounting is not in accord with § 1.168(i)-
8(c)(4) (determination of asset disposed of),
change to the appropriate asset as deter-
mined under § 1.168(i)-8(c)(4);

(iv) If the taxpayer continues to deduct
depreciation for the disposed portion of
the asset (as determined under § 1.168(i)-
8(c)(4)) under the taxpayer's present
method of accounting, change from depre-
ciating such disposed portion to recogniz-
ing gain or loss for the disposed portion
or, if § 280B and § 1.280B-1 apply to the
disposition, change from depreciating
such disposed portion to capitalizing the

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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 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.

(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 6.10(1) of this revenue
procedure, the single Form 3115 should
provide a single net § 481(a) adjustment
for all such changes. If one or more of the
changes specified in section 6.10(1) of this
revenue procedure in that single Form
3115 generate a negative § 481(a) adjust-
ment and other changes specified in sec-
tion 6.10(1) of this revenue procedure in
that same Form 3115 generate a positive
§ 481(a) adjustment, the taxpayer may
provide a single negative § 481(a) 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 au-
tomatic accounting method change number
for a change to the method of accounting
under this section 6.10 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 call).

.11 Depreciation of leasehold
improvements (§ § 167, 168, and 197;
§ 1.167(a)-4).

(1) Description of change. This
change, as described in Rev. Proc. 2014-
17, 2014-12 I.R.B. 661, applies to a 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 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 a taxpayer
making this change.

(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
(Rev. December 2015) to make this
change:

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

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

(iii) Part I;

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

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

(vi) Schedule E.

(b) If any leasehold improvement is
public utility property within the meaning
of § 168(i)(10) or former § 167(l)(3)(A), a

taxpayer (including a qualified small 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 12.01, 12.02, 12.08, or 12.12 of this
revenue procedure (as applicable) for the
same year of change should file a single
Form 3115 for all such changes and must
enter the designated automatic accounting
method change numbers for the changes on
the appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required by section 6.11(3)(a)

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of this revenue procedure for this change
and the information required by the lines on
Form 3115 applicable to the UNICAP
method change, including Part II line 14 and
15, Part IV, and Schedule D, and must in-
clude a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer's response is differ-
ent 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 6.11 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 call).

.12 Permissible to permissible method of
accounting for depreciation of MACRS
property (§ 168; § § 1.168(i)-1,
1.168(i)-7, and 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as 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 6.12(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, 2017.

(ii) If a taxpayer makes both a change
under this section 6.12 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, 2017, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.12(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.

(3) Changes covered. This section 6.12
only applies to the following changes in
methods of accounting for depreciation of
MACRS property:

(a) For the items of MACRS property
not subject to a general asset account 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 accounts
(or pools) for the same assets, or vice versa,
in accordance with § 1.168(i)-7;

(ii) a change from grouping specific
items of MACRS property in multiple 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 identify-
ing which assets in multiple asset accounts
or which portions of assets have been dis-
posed 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 identify-
ing which assets in multiple asset accounts
or which portions of assets have been dis-
posed 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 identification method under
§ 1.168(i)-8(g)(1);

(v) a change in the method of identifying
which assets in multiple asset accounts or
which portions of assets have been disposed
of by the taxpayer from the FIFO method of
accounting under § 1.168(i)-8(g)(2)(i) to

the modified FIFO method of accounting
under § 1.168(i)-8(g)(2)(ii), or vice versa;

(vi) a change in the method of identify-
ing 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
under § 1.168(i)-8(g)(2)(i) or the mod-
ified FIFO method of accounting under
§ 1.168(i)-8(g)(2)(ii) to a mortality
dispersion table in accordance with
§ 1.168(i)-8(g)(2)(iii);

(viii) a change in the method of 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

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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 6.12(3)(a)(i) and
(ii) and section 6.12(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
6.12(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
6.12(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
6.12(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 ac-
counting specified in section 6.12(3)
(a)(iii), (vi), (ix), and (x) and section
6.12(3)(b)(ii), (v), and (viii) of this reve-
nue procedure are made using a cut-off
method and apply to dispositions occur-
ring on or after the beginning of the year
of change.

(c) Even though the changes in meth-
ods of accounting specified in section
6.12(3)(a)(iv), (v), (vii), and (viii) and
section 6.12(3)(b)(iii), (iv), (vi), and (vii)
of this revenue procedure are changes
from one permissible method of account-
ing to another permissible method of ac-
counting, these changes are made with a
§ 481(a) adjustment. However, see section
6.12(4)(f) of this revenue procedure for an
exception. For the changes in methods of
accounting specified in section 6.12(3)
(b)(iii), (iv), (vi), and (vii) of this revenue
procedure, the § 481(a) adjustment should
be zero unless § 1.168(i)-1(e)(3) applies to
the asset subject to the change.

(d) A qualified small taxpayer, as de-
fined in section 6.01(4)(b) of this revenue
procedure, is required to complete only
the following information on Form 3115
(Rev. December 2015) 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;

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(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.12(3)(a)(ix) and (x) and section 6.12(3)
(b)(viii) of this revenue procedure;

(v) Part II, all lines except lines 13, 15b,
16c, 17, and 19 if the qualified small tax-
payer is making a change in method of
accounting specified in section 6.12(3)
(a)(ix) or (x) or section 6.12(3)(b)(viii) of
this revenue procedure;

(vi) Part IV; and

(vii) Schedule E.

(e) If any asset subject to this change is
public utility property within the meaning
of § 168(i)(10), a taxpayer (including a
qualified small taxpayer) making this
change must attach to its Form 3115 a
statement providing that the taxpayer
agrees to the following additional terms
and conditions:

(i) A normalization method of 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 6.12(3)(a)(iv), (v), (vii), or
(viii) or section 6.12(3)(b)(iii), (iv), (vi),
or (vii) of this revenue procedure made for
the public utility property subject to the
change; and

(iii) Within 30 calendar days of filing
the federal income tax return for the year
of change, the taxpayer will provide a
copy of the completed Form 3115 to any
regulatory body having jurisdiction over
the public utility property subject to the
change.

(f) A taxpayer that met the scope re-
quirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that
changed its method of accounting under
section 6.37(3)(a)(iv), (a)(v), (a)(vii), or
(a)(viii) of Rev. Proc. 2015-14 (which is
now section 6.12(3)(a)(iv), (a)(v), (a)(vii),
or (a)(viii) of this revenue procedure) by
following section 5 of Rev. Proc. 2015-20
is required to calculate a § 481(a) adjust-
ment as of the first day of the year of

change that takes into account only dispo-
sitions in taxable years beginning on or
after January 1, 2014.

(5) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.12(4)(f) of this revenue proce-
dure that takes into account only disposi-
tions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of
Rev. Proc. 2015-13 for dispositions sub-
ject to a change under section 6.12(3)(a)
(iv), (a)(v), (a)(vii), or (a)(viii) of this
revenue procedure in taxable years begin-
ning before January 1, 2014. See section
5.03 of Rev. Proc. 2015-20.

(6) Concurrent change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets. If the change for more than
one asset included in that Form 3115 is
specified in section 6.12(3)(a)(iv), (v),
(vii), or (viii) or section 6.12(3)(b)(iii),
(iv), (vi), or (vii) of this revenue 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 6.12(3)(a)
(iv), (v), (vii), or (viii) or section
6.12(3)(b)(iii), (iv), (vi), or (vii) of this
revenue procedure in that single Form
3115 generate a negative § 481(a) adjust-
ment and other changes specified in sec-
tion 6.12(3)(a)(iv), (v), (vii), or (viii) or
section 6.12(3)(b)(iii), (iv), (vi), or (vii) of
this revenue procedure in that same Form
3115 generate a positive § 481(a) adjust-
ment, 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 section 6.12(6)(b)(i)-
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter the
designated automatic accounting method
change numbers for the changes on the ap-
propriate line on the Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for infor-
mation on making concurrent changes. For
example, a qualified small taxpayer must

include on the single Form 3115 the infor-
mation required to be completed on Form
3115 by a qualified small taxpayer under
this revenue procedure for each change in
method of accounting included on that Form
3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.13 of this
revenue procedure;

(iii) A change under section 6.14 of
this revenue procedure;

(iv) A change under section 6.15 of this
revenue procedure; and

(v) A change under section 11.07(3)(c)
of this revenue procedure.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to a method of ac-
counting under this section 6.12 is "200."

(8) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

.13 Disposition of a building or structural
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
6.13(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
specified changes are consistent with
§ § 1.168(i)-8(b)(2), 1.168(i)-8(c)(4)
(ii)(A), (B), and (D), 1.168(i)-8(f),
and 1.168(i)-8(g), as applicable. This
change also affects the determination of
gain or loss from disposing of the build-
ing, the structural component, or the
portion of the building (including its
structural components) and may affect
whether the taxpayer must capitalize
amounts paid to restore a unit of prop-
erty (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

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under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(ii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.15 of this revenue procedure for making
a change in method of accounting for 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
taxpayer's present method of accounting,
or will be treated as a single building under
the taxpayer's proposed method of account-
ing, pursuant to § 1.1250-1(a)(2)(ii);

(iv) Any disposition of a portion of an
asset in a transaction described in the last
sentence in § 1.168(i)-8(d)(1) for which
the taxpayer did not make a partial
disposition election in accordance with
§ 1.168(i)-8(d)(2)(ii), (iii), or (iv), as ap-
plicable (but see section 6.10 of this rev-
enue 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 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, 2017.

(ii) If a taxpayer makes both a change
under this section 6.13 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, 2017, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.13(10)(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 6.13
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 determined
under § 1.168(i)-8(c)(4)(ii)(A), (B), or (D), as
applicable;

(b) If the taxpayer makes the change
specified in section 6.13(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.13(3)(a) of this revenue proce-
dure 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, a change
from depreciating the disposed asset to
recognizing gain or loss upon disposition
or, if § 280B and § 1.280B-1 apply to the
disposition, change from depreciating
such disposed asset to capitalizing the loss
sustained on account of the demolition to
the land on which the demolished struc-
ture was located;

(c) If the taxpayer makes the change
specified in section 6.13(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of a portion of the asset as deter-
mined under section 6.13(3)(a) of this
revenue procedure in a transaction de-
scribed in the first sentence in § 1.168(i)-
8(d)(1) in a taxable year prior to the year
of change but under its present method of
accounting continues to deduct deprecia-
tion for such disposed portion, a change
from depreciating the disposed portion to
recognizing gain or loss upon disposition
or, if § 280B and § 1.280B-1 apply to the
disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demoli-
tion to the land on which the demolished
structure was located;

(d) If the taxpayer's present method of
accounting for its buildings (including
their structural components), 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 depre-
ciated 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 deter-
mined under § 1.168(i)-8(c)(4)(ii)(A), (B), or
(D), as applicable, in a taxable year prior to the
year of change but under its present method of
accounting continues to deduct depreciation
for such disposed asset, a change from depre-
ciating the disposed asset to recognizing gain
or loss upon disposition or, if § 280B and
§ 1.280B-1 apply to the disposition, change
from depreciating such disposed asset to cap-
italizing the loss sustained on account of the
demolition to the land on which the demol-
ished structure was located;

(e) 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 a portion of
an asset as determined under § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable, in a
transaction described in the first sentence in
§ 1.168(i)-8(d)(1) in a taxable year prior to
the year of change but under its present
method of accounting continues to deduct
depreciation for such disposed portion, a
change from depreciating the disposed por-
tion to recognizing gain or loss upon dispo-
sition or, if § 280B and § 1.280B-1 apply to
the disposition, change from depreciating
such disposed portion to capitalizing the
loss sustained on account of the demolition
to the land on which the demolished struc-
ture was located;

(f) 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;

(g) 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 taxpay-
er's records to determine the unadjusted
depreciable basis of the disposed asset, a

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change in the method of determining the
unadjusted depreciable basis of the disposed
asset from a method of not using the tax-
payer's records to a method of using the
taxpayer's records;

(h) 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;

(i) 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;

(j) 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

(k) 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 made the
change specified in section 6.11 of Rev.
Proc. 2016-29, 2016-21 I.R.B. 880, sec-
tion 6.34 of Rev. Proc. 2015-14, 2015-5
I.R.B. 450, or section 6.34 of the APPEN-
DIX to 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,
Rev. Proc. 2014-17, 2014-12 I.R.B. 661,

and Rev. Proc. 2014-54, 2014-41
I.R.B. 675 (revocation of a general asset
account election); (B) the taxpayer made
a qualifying disposition election under
§ 1.168(i)-1T(e)(3)(iii) in a taxable year
prior to the year of change for the dis-
position of such asset; (C) the taxpay-
er's present method of accounting for
such asset is in accord with § 1.168(i)-
8(c)(4)(ii)(A), (B), or (D), as applicable;
and (D) the taxpayer recognized a gain
or loss under § 1.168(i)-8T upon the
disposition of such asset in a taxable
year prior to the year of change.

(4) Examples. The following examples
illustrate the covered changes specified in
section 6.13(3) of this revenue procedure.

(a) Example 1. X, a calendar-year taxpayer, 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 6.13(3)(a)
of this revenue procedure solely for purposes of
§ 1.168(i)-8(c)(4).

(b) Example 2. Y, a calendar year taxpayer, 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 described in
section 6.13(3)(e) of this revenue procedure solely for
purposes of § 1.168(i)-8.

(c) Example 3. The facts are the same as in
Example 2, except a tornado did not occur, but Y still
replaced the entire roof of the building in 2000.
Because the original roof was not disposed of as a
result of any of the events described in the first
sentence in § 1.168(i)-8(d)(1) that require a partial
disposition, a partial disposition election must be
made to change from depreciating the original roof
to recognizing a loss upon its retirement. Pursuant to
section 6.13(1)(b)(iv) of this revenue procedure, sec-
tion 6.13 does not apply to the disposition of the
original roof in 2000.

(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 6.13(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 6.13(3)(f) 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 6.13(3)(h) or
(j) 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 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
(Rev. December 2015) to make this
change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.13(3)(h) and (j) of this revenue proce-
dure;

(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small
taxpayer is making a change in method of
accounting specified in section 6.13(3)(h)
or (j) of this revenue procedure;

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

(vi) Schedule E.

(6) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.13(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining
what asset is disposed of by the taxpayer
and 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) A taxpayer changing its method of
accounting under this section 6.13 may
use statistical sampling in determining the
§ 481(a) adjustment by following the
guidance provided in Rev. Proc. 2011-42,
2011-37 I.R.B. 318.

(b) A taxpayer that met the scope re-
quirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that
changed its method of accounting under
section 6.38 of Rev. Proc. 2015-14
(which is now this section 6.13) by fol-
lowing section 5 of Rev. Proc. 2015-20 is
required to calculate a section § 481(a)
adjustment as of the first day of the year of
change that takes into account only dispo-
sitions in taxable years beginning on or
after January 1, 2014.

(8) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:

(i) If the taxpayer is making the change
specified in section 6.13(3)(a) of this 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;

(ii) If the taxpayer is making the
change specified in section 6.13(3)(k) of
this revenue procedure; or

(iii) If the taxpayer is a qualified tax-
payer as defined in section 4.01 of Rev.
Proc. 2015-56, 2015-49 I.R.B. 827, and
that is within the scope of section 3 of
Rev. Proc. 2015-56, and is making the
change specified in section 5.02(5)(b) of
Rev. Proc. 2015-56 on or before the first
taxable year that the qualified taxpayer
uses the remodel-refresh safe harbor pro-
vided in section 5.02 of Rev. Proc. 2015-
56.

(b) If section 6.13(8)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(c) Example. (i) Y, a fiscal year taxpayer with a
taxable year beginning December 1 and ending No-
vember 30, acquired and placed in service a building
and its structural components in 2000. Y depreciates
this building and its structural components under
§ 168. The roof is a structural component of the
building. Y replaced the entire roof in June 2010. On
its federal tax return for the taxable year ended
November 30, 2010, Y did not recognize a loss on
the retirement of the original roof and continues to
depreciate the original roof. Y also capitalized the
cost of the replacement roof and has been depreci-
ating this roof under § 168 since June 2010. The
adjusted depreciable basis of the original roof at the
time of its retirement in 2010 (taking into account
the applicable convention) is $11,000, and Y
claimed depreciation of $1,000 for such roof after its
retirement (taking into account the applicable con-
vention) and before the taxable year ended Novem-
ber 30, 2013 (2012 taxable year). Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year, $500 for the
taxable year ended November 30, 2014 (2013 tax-
able year), and $500 for the taxable year ended
November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-8T(c)(4)(ii)
(A) and (B) and section 6.29(3)(a) and (b) of the
APPENDIX to Rev. Proc. 2011-14, as modified by
Rev. Proc. 2012-20, 2012-14 I.R.B. 700, Y filed
with its federal income tax return for the taxable year
ended November 30, 2013, a Form 3115 to treat the
building as an asset and each structural component
of the building as a separate asset for disposition
purposes and also to change from depreciating the
original roof to recognizing a loss upon its retire-
ment. The amount of the net negative § 481(a) ad-
justment on this Form 3115 is $10,000 (adjusted
depreciable basis of $11,000 for the original roof at

the time of its retirement (taking into account the
applicable convention) less depreciation of $1,000
claimed for such roof after its retirement (taking into
account the applicable convention) and before the
2012 taxable year).

(iii) Y complies with § 1.168(i)-8 beginning
with its taxable year ended November 30, 2016
(2015 taxable year). For Y's 2015 taxable year, the
late partial disposition election under section 6.10 of
Rev. Proc. 2016-29 does not apply. Y also decides
not to file a private letter ruling requesting an exten-
sion of time under § 301.9100-3 of the Procedure
and Administration Regulations to make a partial dis-
position election for the original roof. In accordance
with section 6.13(3)(a) of this revenue procedure, Y
files a Form 3115 with its federal income tax return for
the 2015 taxable year to change to treating the original
building (including its original roof and other original
structural components) as an asset and the replacement
roof as a separate asset for disposition purposes. Be-
cause the late partial disposition election under section
6.10 of Rev. Proc. 2016-29 does not apply for Y's
2015 taxable year and Y did not receive a private
letter ruling granting an extension of time under
§ 301.9100-3 to make a partial disposition election for
the original roof , Y does not recognize the net loss of
$10,000 upon the retirement of the original roof under
§ 1.168(i)-8 and Y will continue to depreciate the
original roof. Thus, the net positive § 481(a) adjustment
for this change is $8,500 (net loss of $10,000 claimed
on the 2012 return for the retirement of the original roof
less depreciation of $1,500 for the original roof for the
2012, 2013, and 2014 taxable years) and is included in
Y's taxable income for the 2015 taxable year.

(9) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.13(7)(b) of this revenue proce-
dure that takes into account only disposi-
tions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of
Rev. Proc. 2015-13 for dispositions sub-
ject to a change under this section 6.13 in
taxable years beginning before January 1,
2014. See section 5.04 of Rev. Proc.
2015-20.

(10) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single 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

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Form 3115 generating such positive ad-
justment.

(b) A taxpayer making this change and
any change listed in section 6.13(10)(b)(i)-
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all of such changes and must
enter the designated automatic accounting
method change numbers for the changes on
the appropriate line on the Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13 for
information on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included on
that Form 3115. The listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.12 of this
revenue procedure;

(iii) A change under section 6.14 of
this revenue procedure; and

(iv) A change under section 6.15 of this
revenue procedure.

(11) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.13 is
"205."

(12) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

.14 Dispositions of tangible depreciable
assets (other than a building or its
structural components) (§ 168;
§ 1.168(i)-8).

(1) Description of change.

(a) Applicability. This change, as 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
6.14(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)-3(e) or
(f)) under § 1.263(a)-3(k).

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

(i) Any asset (as determined under
§ 1.168(i)-8(c)(4)) that is not depreciated
under § 168 under the taxpayer's present
method of accounting and, if applicable,
under the taxpayer's proposed method of
accounting;

(ii) Any building (including its structural
components), condominium unit (including
its structural components), cooperative unit
(including its structural components), or an
improvement or addition (including its
structural components) thereto (but see sec-
tion 6.13 of this revenue procedure for mak-
ing this change);

(iii) Any asset subject to a general asset
account election under § 168(i)(4) and the
regulations thereunder (but see section
6.15 of this revenue procedure for making
a change for dispositions of tangible de-
preciable assets subject to a general asset
account election); or

(iv) Any disposition of a portion of an
asset in a transaction described in the last
sentence in § 1.168(i)-8(d)(1) for which the
taxpayer did not make a partial disposition
election in accordance with § 1.168(i)-
8(d)(2)(ii), (iii), or (iv), as applicable (but
see section 6.10 of this revenue procedure
for making a partial disposition election pur-
suant 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, 2017.

(ii) If a taxpayer makes both a change
under this section 6.14 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, 2017, on a single Form 3115
for the same asset for the same year
of change in accordance with section
6.14(9)(b) or (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 6.14
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 6.14(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of the asset as determined under
section 6.14(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 makes the change
specified in section 6.14(3)(a) of this rev-
enue procedure, and if the taxpayer dis-
posed of a portion of the asset as deter-
mined under section 6.14(3)(a) of this
revenue procedure in a transaction de-
scribed in the first sentence in § 1.168(i)-
8(d)(1) in a taxable year prior to the year
of change but under its present method of
accounting continues to deduct deprecia-
tion for such disposed portion, a change
from depreciating the disposed portion to
recognizing gain or loss upon disposition;

(d) If the taxpayer's present method of
accounting for its § 1245 property, depre-
ciable land improvements, or improve-
ments or additions thereto is in accord
with § 1.168(i)-8(c)(4)(i) or (ii), as appli-
cable, and if the taxpayer disposed of an
asset as determined under § 1.168(i)-
8(c)(4)(i) or (ii), as applicable, in a taxable
year prior to the year of change but under
its present method of accounting contin-
ues to deduct depreciation for this dis-
posed asset, a change from depreciating

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the disposed asset to recognizing gain or
loss upon disposition;

(e) If the taxpayer's present method of
accounting for its § 1245 property, depre-
ciable land improvements, or improve-
ments or additions thereto is in accord
with § 1.168(i)-8(c)(4)(i) or (ii), as appli-
cable, and if the taxpayer disposed of a
portion of an asset as determined under
§ 1.168(i)-8(c)(4)(i) or (ii), as applicable,
in a transaction described in the first sen-
tence in § 1.168(i)-8(d)(1) in a taxable
year prior to the year of change but under
its present method of accounting contin-
ues to deduct depreciation for such dis-
posed portion, a change from depreciating
the disposed portion to recognizing gain
or loss upon disposition;

(f) 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;

(g) 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
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 the
disposed asset from a method of not using
the taxpayer's records to a method of us-
ing the taxpayer's records;

(h) 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;

(i) 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;

(j) 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

(k) 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
made the change specified in section 6.11
of Rev. Proc. 2016-29, section 6.34 of
Rev. Proc. 2015-14, or section 6.34 of the
APPENDIX to Rev. Proc. 2011-14 (revo-
cation of a general asset account election);
(B) the taxpayer made a qualifying dispo-
sition election under § 1.168(i)-1T(e)
(3)(iii) in a taxable year prior to the year
of change for the disposition of such asset;
(C) the taxpayer's present method of ac-
counting 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 disposi-
tion 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) mak-
ing this change must attach to its Form 3115
a statement with the following:

(i) A description of the assets to which
this change applies;

(ii) If the taxpayer is making a change
specified in section 6.14(3)(a) of this 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 6.14(3)(f) 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 6.14(3)(h) or
(j) 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 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
(Rev. December 2015) to make this
change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.14(3)(h) and (j) of this revenue proce-
dure;

(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small

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taxpayer is making a change in method of
accounting specified in section 6.14(3)(h)
or (j) of this revenue procedure;

(v) Part IV, all lines except line 25; and
(vi) Schedule E.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.14(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-8(c)(4) for determining
what asset is disposed of by the taxpayer
and does not create any presumption that
the proposed asset is permissible under
§ 1.168(i)-8(c)(4). The director will 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) A taxpayer changing its method of
accounting under section 6.14 of the rev-
enue procedure may use statistical sam-
pling in determining the § 481(a) adjust-
ment by following the guidance provided
in Rev. Proc. 2011-42, 2011-37 I.R.B.
318.

(b) A taxpayer that met the scope re-
quirements of section 4 of Rev. Proc.
2015-20, 2015-9 I.R.B. 694, and that
changed its method of accounting under
section 6.39 of Rev. Proc. 2015-14
(which is now this section 6.14) by fol-
lowing section 5 of Rev. Proc. 2015-20 is
required to calculate a section § 481(a)
adjustment as of the first day of the year of
change that takes into account only dispo-
sitions in taxable years beginning on or
after January 1, 2014.

(7) Section 481(a) adjustment period.

(a) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:

(i) If the taxpayer is making the change
specified in section 6.14(3)(a) of this 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 6.14(3)(k) of
this revenue procedure.

(b) If section 6.14(7)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(8) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 6.14(6)(b) of this revenue proce-
dure that takes into account only disposi-
tions in taxable years beginning on or
after January 1, 2014, does not receive
audit protection under section 8.01 of
Rev. Proc. 2015-13 for dispositions sub-
ject to a change under this section 6.14 in
taxable years beginning before January 1,
2014. See section 5.05 of Rev. Proc.
2015-20.

(9) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment
and other changes in that same Form 3115
generate a positive § 481(a) adjustment,
the taxpayer may provide a single 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 section 6.14(9)(b)(i)-
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all of such changes and must
enter the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making 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 6.12 of this
revenue procedure;

(iii) A change under section 6.13 of
this revenue procedure; and

(iv) A change under section 6.15 of this
revenue procedure.

(10) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 6.14 is
"206."

(11) Contact information. For further
information regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

.15 Dispositions of tangible depreciable
assets in a general asset account
(§ 168(i)(4); § 1.168(i)-1).

(1) Description of change.

(a) Applicability. This change, as
described in Rev. Proc. 2014-54,
2014-41 I.R.B. 675, applies to a tax-
payer that wants to make a change in
method of accounting that is specified in
section 6.15(3) of this revenue proce-
dure for disposing of an asset subject to
a general asset account election under
§ 168(i)(4) and the regulations thereun-
der. These specified changes are consis-
tent 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 prop-
erty (as determined under § 1.263(a)-
3(e) or (f)) under § 1.263(a)-3(k).

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

(i) Any asset (as determined under
§ 1.168(i)-1(e)(2)(viii)) that is not 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 6.13 and 6.14 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.

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(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, 2017.

(ii) If a taxpayer makes both a change
under this section 6.15 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, 2017, on a single Form 3115
for the same asset for the same year of
change in accordance with section
6.15(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.

(3) Covered changes. This section 6.15
only applies to the following changes in
methods of accounting for an asset subject
to a general asset account election under
§ 168(i)(4) and the regulations thereunder:

(a) For purposes of applying § 1.168(i)-
1(e)(2)(viii) (determination of asset dis-
posed of), a change to the appropriate asset
as determined 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 6.15(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 6.15(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 6.15(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 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
(Rev. December 2015) to make this
change:

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

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

(iii) Part I;

(iv) Part II, all lines except lines 13,
15b, 16, 17, and 19 if the qualified small
taxpayer is not making a change in
method of accounting specified in section
6.15(3)(a) and (d) of this revenue proce-
dure;

(v) Part II, all lines except lines 13,
15b, 16c, 17, and 19 if the qualified small
taxpayer is making a change in method of
accounting specified in section 6.15(3)(a)
or (d) of this revenue procedure;

(v) Part IV, all lines except line 25; and
(vi) Schedule E.

(5) No ruling on asset. The consent
granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
6.15(3)(a) of this revenue procedure is not
a determination by the Commissioner that
the taxpayer is using the appropriate asset
under § 1.168(i)-1(e)(2)(viii) for 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) A taxpayer must take the entire
amount of the § 481(a) adjustment into
account in computing taxable income for
the year of change:

(i) If the taxpayer makes the change
specified in section 6.15(3)(a) of this rev-

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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; or

(iii) If the taxpayer is a qualified tax-
payer as defined in section 4.01 of Rev.
Proc. 2015-56, 2015-49 I.R.B. 827, and
that is within the scope of section 3 of
Rev. Proc. 2015-56, and is making the
change specified in section 5.02(5)(b) of
Rev. Proc. 2015-56 on or before the first
taxable year that the qualified taxpayer uses
the remodel-refresh safe harbor provided in
section 5.02 of Rev. Proc. 2015-56.

(b) If section 6.15(6)(a) of this revenue
procedure does not apply, see section 7.03
of Rev. Proc. 2015-13 for the § 481(a)
adjustment period.

(c) Example. (i) X, a fiscal year taxpayer with a
taxable year beginning December 1 and ending No-
vember 30, acquired and placed in service a building
and its structural components in 2000. X depreciates
this building and its structural components under
§ 168. The roof is a structural component of the
building. X replaced the entire roof in June 2010. On
its federal tax return for the taxable year ended
November 30, 2010, X did not recognize a loss on
the retirement of the original roof and continues to
depreciate the original roof. X also capitalized the
cost of the replacement roof and has been depreci-
ating this roof under § 168 since June 2010. The
adjusted depreciable basis of the original roof at the
time of its retirement in 2010 (taking into account
the applicable convention) is $11,000, and X
claimed depreciation of $1,000 for such roof after its
retirement (taking into account the applicable con-
vention) and before the taxable year ended Novem-
ber 30, 2013 (2012 taxable year). Also the 12-month
allowable depreciation deduction for the original
roof is $500 for the 2012 taxable year, $500 for the
taxable year ended November 30, 2014 (2013 tax-
able year), and $500 for the taxable year ended
November 30, 2015 (2014 taxable year).

(ii) In accordance with § 1.168(i)-1T and section
6.32(1)(a) of the APPENDIX to Rev. Proc. 2011-14,
as modified by Rev. Proc. 2012-20, 2012-14 I.R.B.
700, X filed with its federal tax return for the taxable
year ended November 30, 2013, a Form 3115 to: (1)
make a late general asset account election to include

the building (including its structural components)
placed in service in 2000 in one general asset 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 ended November 30, 2016 (2015
taxable year). In accordance with section 6.15(3)(a)
of this revenue procedure, X files a Form 3115 with
its federal income tax return for the 2015 taxable
year to change to treating the building (including its
original roof and other original structural compo-
nents) placed in service in 2000 as an asset and the
replacement roof as a separate asset for disposition
purposes. As a result, X must include the original
roof that X retired in 2010 in the general asset
account. Thus, the net positive § 481(a) adjustment
for this change is $8,500 (net loss of $10,000
claimed on the 2012 return for the retirement of the
original roof less depreciation of $1,500 for the
original roof for the 2012, 2013, and 2014 taxable
years) and is included in X's taxable income for the
2015 taxable year.

(7) Concurrent automatic change.

(a) A taxpayer making this change for
more than one asset for the same year of
change should file a single Form 3115 for
all such assets and provide a single net
§ 481(a) adjustment for all the changes
included in that Form 3115. If one or more
of the changes in that single Form 3115
generate a negative § 481(a) adjustment and
other changes in that same Form 3115 gen-
erate a positive § 481(a) adjustment, the
taxpayer may provide a single negative
§ 481(a) adjustment for all the changes that
are included in that Form 3115 generating
such negative adjustment and a single pos-
itive § 481(a) adjustment for all the changes
that are included in that Form 3115 gener-
ating such positive adjustment.

(b) A taxpayer making this change and
any change listed in section 6.15(7)(b)(i)-
(iv) of this revenue procedure for the same
year of change should file a single Form
3115 for all of such changes and must
enter the designated automatic 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. The
listed changes are:

(i) A change under section 6.01 of this
revenue procedure;

(ii) A change under section 6.12 of this
revenue procedure;

(iii) A change under section 6.13 of
this revenue procedure; and

(iv) A change under section 6.14 of this
revenue procedure.

(8) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change to the method of accounting
under this section 6.15 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 call).

.16 Summary of certain changes in
methods of accounting related to
dispositions of MACRS property.

(1) Final regulations. The following chart
summarizes the changes in methods of ac-
counting under § 1.167(a)-4, § 1.168(i)-1,
§ 1.168(i)-7, and § 1.168(i)-8 that a taxpayer
may make under this revenue procedure.

FINAL REGULATION SECTION

SECTION # in REV. PROC. 2018-31

DESIGNATED CHANGE NUMBER (DCN)

§ 1.167(a)-4, Depreciation of leasehold improvements

6.11

199

General Asset Accounts:

a. § 1.168(i)-1(c), Change in grouping assets

6.12

200

b. § 1.168(i)-1(e)(2)(viii), Change in determining asset disposed of

6.15

207

c. § 1.168(i)-1(j)(2), Change in method of identifying which assets or por-

6.12

200

tions of assets have been disposed of from one method to another method specified in § 1.168(i)-1(j)(2)

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FINAL REGULATION SECTION

SECTION # in REV. PROC. 2018-31

DESIGNATED CHANGE NUMBER (DCN)

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)

6.15

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

6.12

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

6.15

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 as- set or disposed portion of asset

6.15

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

6.12

200

b. § 1.168(i)-7(c), Change in grouping assets in multiple asset accounts

6.12

200

Dispositions of MACRS Property (not in a general asset account):

a. § 1.168(i)-8(c)(4), Change in determining asset disposed of

6.13 (Building or struc-

205

tural component) 6.14 (Property other than a building or structural component)

206

b. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted depreciable basis of disposed asset in a multiple asset account or disposed portion of an asset from one reasonable method to another reasonable method when it is impracticable from the taxpayer's records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset

6.12

200

c. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted depreciable

6.13 (Building or struc-

205

basis of disposed asset in a multiple asset account or disposed portion of an asset from not using to using the taxpayer's records when it is practi- cable from the taxpayer's records to determine the unadjusted depreciable basis of disposed asset or disposed portion of asset

tural component) 6.14 (Property other than a building or structural component)

206

d. § 1.168(i)-8(f)(2) or (3), Change in determining unadjusted depreciable

6.13 (Building or struc-

205

basis of disposed asset in a multiple asset account or disposed portion of

tural component)

206

an asset from an unreasonable method to a reasonable method when it is impracticable from the taxpayer's records to determine the unadjusted de- preciable basis of disposed asset or disposed portion of asset

6.14 (Property other than a building or structural component)

e. § 1.168(i)-8(g), Change in method of identifying which assets in a mul- tiple 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)

6.12

200

f. § 1.168(i)-8(g), Change in method of identifying which assets in a mul-

6.13 (Building or struc-

205

tiple asset account or portions of assets have been disposed of from a

tural component) 6.14 (Property other than a building or structural component)

206

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)

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FINAL REGULATION SECTION

SECTION # in REV. PROC. 2018-31

DESIGNATED CHANGE NUMBER (DCN)

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

6.13 (Building or struc-

205 206

tural component) 6.14 (Property other than a building or structural component)

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

6.10

198

.17 Depreciation of fiber optic transfer
node and fiber optic cable used by a cable
system operator (§ § 167 and 168).

(1) Description of change.

(a) Applicability. This change applies
to a cable system operator that is within
the scope of Rev. Proc. 2015-12, 2015-2
I.R.B. 266, and wants to change to the
safe harbor method of accounting 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 distribu-
tion 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 rule inapplicable.
The eligibility rule in section 5.01(1)(d) of
Rev. Proc. 2015-13 does not apply to a
taxpayer that makes this change.

(3) Concurrent automatic change.

(a) A taxpayer that wants to make this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets and provide
a single net § 481(a) adjustment for all the
changes included in that Form 3115. If
one or more of the changes in that single
Form 3115 generate a negative § 481(a)
adjustment and other changes in that same
Form 3115 generate a positive § 481(a)
adjustment, the taxpayer may provide a
single negative § 481(a) adjustment for all
the changes that are included in that Form

3115 generating such adjustment and a
single positive § 481(a) adjustment for all
the changes that are included in that Form
3115 generating such adjustment.

(b) A taxpayer that wants to make both
this change and a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure, as
applicable, for the same year of change
should file a single Form 3115 for all such
changes and must enter the designated
automatic accounting method change
numbers for the changes on the appropri-
ate line on the 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 to the method of
accounting under this section 6.17 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 call).

## 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 expendi-
tures 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 ex-
penses under § 174(b), § 174(b)(2) and
§ 1.174-4(b)(2) provide that the taxpayer
may, with consent, change to a different
method of treating research or experimental
expenditures or to a different period of amor-
tization for deferred expenses.

(2) Applicability.

(a) In general. This change applies to
any taxpayer that is changing:

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(i) from treating research and exper-
imental expenditures for a particular
project or projects as expenses under
§ 174(a) to treating such expenditures as
deferred expenses under § 174(b), or
vice versa;

(ii) to a different period of amortiza-
tion for research and experimental ex-
penditures for a particular project or
projects that are being treated as de-
ferred 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, 2000-2 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 different
amortization period is to be used is waived
for this change. However, see section 6.03
of Rev. Proc. 2015-13 for filing require-

ments applicable to a change under this sec-
tion 7.01.

(c) The consent granted under section 9
of Rev. Proc. 2015-13 satisfies the consent
required under § § 174(a)(2)(B), 174(a)(3),
and 174(b)(2), and § § 1.174-3(b)(2),
1.174-3(b)(3), and 1.174-4(b)(2).

(5) Additional requirement. A taxpayer
must attach to its Form 3115 a written
statement providing:

(a) the information required in § 1.174-
3(b)(2) if the taxpayer is changing to treat-
ing research and experimental expenditures
as expenses under § 174(a);

(b) the information required in § 1.174-
3(b)(3) if the taxpayer is changing from
treating research and experimental expendi-
tures as expenses under § 174(a); or

(c) the information required in § 1.174-
4(b)(2) if the taxpayer is changing from
treating research and experimental expendi-
tures as deferred expenses under § 174(b) or
is changing to a different period of amorti-
zation for research and experimental expen-
ditures being treated as deferred expenses
under § 174(b).

(6) No audit protection. A taxpayer
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 in
connection with this change. See section
8.02(2) of Rev. Proc. 2015-13.

(7) Designated automatic accounting
method change number. The designated auto-
matic 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 Elizabeth Binder at (202)
317-7005 (not a toll-free call).

# SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D)

## .01 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 taxpayer
that wants to change its method of account-
ing to deduct under § 179D amounts paid or
incurred for the installation of energy effi-
cient commercial building property, as de-
fined in § 179D(c)(1). The deduction for
energy efficient commercial building prop-
erty is subject to the limits of § 179D(b) and
must be claimed in the taxable year in which
the property is placed in service. The basis

of the energy efficient commercial building
property is reduced by the amount of the
§ 179D deduction taken and the remaining
basis of the energy efficient commercial
building property is depreciated over its re-
covery 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 Covington, KY, and any additional cop-
ies) a statement with a detailed description
of the tax treatment of the property under
the taxpayer's present and proposed meth-
ods of accounting.

(5) Certification requirement. In addi-
tion to the statement required by section
8.01(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 8.01 is
not a determination by the Commis-
sioner that the taxpayer qualifies for a
deduction under section 179D. The di-
rector will ascertain whether the tax-
payer qualifies for a deduction under
section 179D (including a review of the
required certifications). See section 12
of Rev. Proc. 2015-13.

(7) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
8.01 is "152."

(8) Contact information. For further
information regarding a change under
this section, contact Jennifer Bernardini
at (202) 317-6853 (not a toll-free call).

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# SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§ § 162, 167, and 197)

## .01 Computer software expenditures.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for the costs of
computer software to a method described
in Rev. Proc. 2000-50, 2000-2 C.B. 601,
as modified by Rev. Proc. 2007-16,
2007-1 C.B. 358. Section 5 of Rev. Proc.
2000-50 describes the methods applicable
to the costs of developing computer soft-
ware. Section 6 of Rev. Proc. 2000-50 de-
scribes the method applicable to the costs of
acquired computer software. Section 7 of
Rev. Proc. 2000-50 describes the method
applicable to leased or licensed computer
software.

(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 call).

# SECTION 10. START-UP EXPENDITURES AND ORGANIZATIONAL FEES (§ § 195, 248, AND 709)

.01 Start-up expenditures.

(1) Description of change and scope.

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

method of accounting under § 195 to
change:

(i) the characterization of an item as a
start-up expenditure;

(ii) the determination of the taxable
year in which the taxpayer begins the ac-
tive trade or business to which the start-up
expenditures relate; or

(iii) the amortization period of a
start-up expenditure to 180 months.

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

(i) start-up expenditures paid or in-
curred before October 23, 2004; or

(ii) start-up expenditures paid or in-
curred after October 22, 2004, and before
August 17, 2011, if the period of limita-
tions on assessment of tax for the taxable
year the election under § 1.195-1(b) is
deemed made has expired.

## (2) No rulings.

(a) Characterization of item. The con-
sent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
10.01(1)(a)(i) of this revenue procedure is
not a determination by the Commissioner
that the taxpayer has properly character-
ized an item as a start-up expenditure and
does not create any presumption that the
proposed characterization of an item as a
start-up expenditure is permissible under
§ 195(c)(1). The director will ascertain
whether the taxpayer's characterization of
an item as a start-up expenditure is per-
missible.

(b) When active trade or business be-
gins. The consent granted under section 9
of Rev. Proc. 2015-13 for a change spec-
ified in section 10.01(1)(a)(ii) of this rev-
enue procedure is not a determination by
the Commissioner that the taxpayer has
properly determined the taxable year in
which the taxpayer begins the active trade
or business to which the start-up expendi-
tures relate and does not create any pre-
sumption that the proposed taxable year in
which the taxpayer begins the active trade
or business to which the start-up expendi-
tures relate is permissible under § 195(c)(2).
The director will ascertain whether the tax-
payer's determination of the taxable year in
which the taxpayer begins the active trade or
business to which the start-up expenditures
relate is permissible.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change

number for a change to a method of ac-
counting under this section 10.01 is
"223."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Elizabeth Binder at (202)
317-7005 (not a toll-free call).

.02 Organizational expenditures under
§ 248.

(1) Description of change and scope.

(a) Applicability. This change applies
to a corporation that wants to change its
method of accounting under § 248 to
change:

(i) the characterization of an item as an
organizational expenditure;

(ii) the determination of the taxable
year in which the corporation begins busi-
ness to which the organizational expendi-
tures relate; or

(iii) the amortization period of an or-
ganizational expenditure to 180 months.

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

(i) organizational expenditures paid or
incurred before October 23, 2004; or

(ii) organizational expenditures paid or
incurred after October 22, 2004, and be-
fore August 17, 2011, if the period of
limitations on assessment of tax for the
taxable year the election under § 1.248-
1(c) is deemed made has expired.

(2) No rulings.

(a) Characterization of items. The con-
sent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
10.02(1)(a)(i) of this revenue procedure is
not a determination by the Commissioner
that the corporation has properly character-
ized an item as an organizational expendi-
ture and does not create any presumption
that the proposed characterization of an item
as an organizational expenditure is permis-
sible under § 248(b) and § 1.248-1(b). The
director will ascertain whether the corpora-
tion's characterization of an item as an or-
ganizational expenditure is permissible.

(b) When the corporation begins busi-
ness. The consent granted under section 9
of Rev. Proc. 2015-13 for a change spec-
ified in section 10.02(1)(a)(ii) of this rev-
enue procedure is not a determination by
the Commissioner that the corporation has
properly determined the taxable year in
which the corporation begins business to
which the organizational expenditures re-

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late and does not create any presumption
that the proposed taxable year in which
the corporation begins business to which
the organizational expenditures relate is
permissible under § 1.248-1(d). The di-
rector will ascertain whether the corpora-
tion's determination of the taxable year in
which the corporation begins business to
which the organizational expenditures re-
late is permissible.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.02 is "228."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.03 Organization fees under § 709.

(1) Description of change and scope.

(a) Applicability. This change applies
to a partnership that wants to change its
method of accounting under § 709 to
change:

(i) the characterization of an item as an
organizational expense;

(ii) the determination of the taxable
year in which the partnership begins busi-
ness to which the organizational expenses
relate; or

(iii) the amortization period of an or-
ganizational expense to 180 months.

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

(i) organizational expenses paid or in-
curred before October 23, 2004; or

(ii) organizational expenses paid or in-
curred after October 22, 2004, and before
August 17, 2011, if the period of limita-
tions on assessment of tax for the taxable
year the election under § 1.709-1(b) is
deemed made has expired.

(2) No rulings.

(a) Characterization of items. The con-
sent granted under section 9 of Rev. Proc.
2015-13 for a change specified in section
10.03(1)(a)(i) of this revenue procedure is
not a determination by the Commissioner
that the partnership has properly charac-
terized an item as an organizational ex-
pense and does not create any presump-
tion that the proposed characterization of
an item as an organizational expense is
permissible under § 709(b)(3). The direc-
tor will ascertain whether the partner-

ship's characterization of an item as an
organizational expense is permissible.

(b) When the partnership begins busi-
ness. The consent granted under section 9
of Rev. Proc. 2015-13 for a change spec-
ified in section 10.03(1)(a)(ii) of this rev-
enue procedure is not a determination by
the Commissioner that the partnership has
properly determined the taxable year in
which the partnership begins business to
which the organizational expenses relate
and does not create any presumption that
the proposed taxable year in which the
partnership begins business to which the
organizational expenses relate is permis-
sible under § 1.709-2(c). The director
will ascertain whether the partnership's
determination of the taxable year in which
the partnership begins business to which
the organizational expenses relate is per-
missible.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
10.03 is "229."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Meghan Howard at (202)
317-5055 (not a toll-free call).

## SECTION 11. CAPITAL EXPENDITURES (§ 263)

.01 Package design costs.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
method of accounting for package design
costs that are within the scope of Rev.
Proc. 97-35, 1997-2 C.B. 448, as 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 capitalization and 60-
month amortization method, and (iii) the
pool-of-cost capitalization and 48-month
amortization method.

(b) Inapplicability. This change does
not apply to a taxpayer that wants to
change to the capitalization method for
costs of developing or modifying any
package design that has an ascertainable
useful life.

(2) Additional requirements. If a 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
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
11.01 is "19."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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 11.02 must change to a permissible
method of accounting for depreciation for
the cost of that gas as part of this change.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.02 is "20."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.03 Removal costs.

(1) Description of change.

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(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, as modified by
this revenue procedure, 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
disposal of the component is not a dispo-
sition for federal tax purposes. To make
that change, see section 11.08 of this rev-
enue 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 (Rev. Decem-
ber 2015):

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

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

(iii) Part I, line 1(a);

(iv) Part II, all lines except lines 13, 15,
16, 17, and 19, if the change is not to
depreciating property;

(v) Part II, all lines except lines 13,
15b, 16, 17, and 19, if the change is to
depreciating property;

(vi) Part IV, lines 26 and 27; and

(vii) Schedule E, if applicable.

(2) Additional requirements.

(a) Except for assets for which 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 inapplicable.
The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to this change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.03 is "21."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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 intangi-
ble (including any property for which a
timely election under § 13261(g)(2) of the
Revenue Reconciliation Act of 1993,
1993-3 C.B. 1, 128, was made).

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to distributor commissions
paid or incurred on or after the beginning
of the year of change. Accordingly, a
§ 481(a) adjustment is neither permitted
nor required.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
11.04 is "47."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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
11.05 is "78."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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
11.06 is "109."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

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.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 11.07 may treat its repairable and
reusable spare parts as tangible property
for which depreciation is allowable at the
time that the related equipment is placed
in service by the taxpayer. The method of
computing depreciation for the repairable
and reusable spare parts is the same
method of computing depreciation for the
related equipment.

(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 11.07, 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 qual-
ified small taxpayers. A qualified small tax-
payer, as defined in section 6.01(4)(b) of
this revenue procedure, is required to com-
plete 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,
15b, 16, 17, and 19; and

(v) Part IV, all lines except line 25.

(3) Concurrent automatic change.

(a) A taxpayer making both this change
and a change to a UNICAP method under
section 12.01, 12.02, 12.08, or 12.12 of
this revenue procedure (as applicable) for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, for information on
making concurrent changes. For example,
a qualified small taxpayer, as defined in
section 6.01(4)(b) of this revenue proce-
dure, must include on the single Form
3115 the information required by section
11.07(2)(b) of this revenue procedure and
the information required by the lines on
Form 3115, applicable to the UNICAP
method change, including Part II line 14
and 15, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer's response is 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 repairable and re-
usable spare parts are acquired, under sec-
tion 6 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 for
information on making concurrent changes.
For example, a qualified small taxpayer
must include on the single Form 3115 the
information required to be completed on
Form 3115 by a qualified small taxpayer
under this revenue procedure for each
change in method of accounting included on
that Form 3115.

(c) A taxpayer making this change also
may establish pools for the repairable and

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reusable spare parts or may identify dis-
posed repairable and reusable spare parts
in accordance with section 6.12 of this
revenue procedure. A taxpayer making
both this change and the change under
section 6.12 of this revenue procedure for
the same year of change should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes. For example, a qualified small
taxpayer must include on the single Form
3115 the information required to be 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
11.07 is "121".

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.08 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 11.08(3) of this revenue
procedure and permitted under:

(i) Section 1.162-3, § 1.162-4,
§ 1.263(a)-1, § 1.263(a)-2, or § 1.263(a)-3
(the final tangible property regulations) for
taxable years beginning on or after January 1,
2012; or

(ii) Section 1.446-1(e)(2)(ii)(d)(2) if
the property for which the taxpayer is
otherwise changing its method of 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

6.10, 6.13, 6.14, and 6.15 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 under § 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);

(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); or

(viii) Amounts paid or incurred for re-
pair and maintenance costs that the tax-
payer is changing from capitalizing to de-
ducting and for which the taxpayer has
(A) claimed a federal income tax credit,
(B) elected to apply § 168(k)(4) (as in
effect on the day before the date of enact-
ment of Public Law 115-97, 131 Stat.
2054 (Dec. 22, 2017) (the "Act")), or (C)
received a payment for specified energy
property in lieu of tax credits under sec-
tion 1603 of the American Recovery and
Reinvestment Tax Act of 2009, Div. B of
Pub. L. No. 111-5, 123 Stat. 115 (Febru-
ary 17, 2009), as amended by section 707
of the Tax Relief, Unemployment Insur-
ance Reauthorization, and Job Creation
Act of 2010, Pub. L. No. 111-312, 124
Stat. 3296 (December 17, 2010).

(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, 2017.

(b) Concurrent automatic change. If
the taxpayer makes both a change under
this section 11.08 and a change to a UNI-
CAP method under section 12.01, 12.02,

12.08, or 12.12 of this revenue procedure
(as applicable) for any taxable year begin-
ning before January 1, 2017, on a single
Form 3115 for the same year of change in
accordance with section 11.08(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 11.08
only applies to the following changes in
methods of accounting:

(a) A change to deducting amounts
paid or incurred to acquire or produce
non-incidental materials and supplies in
the taxable year in which they are first
used in the taxpayer's operations or con-
sumed in the taxpayer's operations in ac-
cordance with § § 1.162-3(a)(1) and
1.162-3(c)(1);

(b) A change to deducting amounts to
acquire or produce incidental materials
and supplies in the taxable year in which
paid or incurred in accordance with
§ § 1.162-3(a)(2) and 1.162-3(c)(1);

(c) A change to deducting amounts
paid or incurred to acquire or produce
non-incidental rotable and temporary
spare parts in the taxable year which the
taxpayer disposes of the parts in accor-
dance with § § 1.162-3(a)(3) and 1.162-
3(c)(2);

(d) A change to the optional method of
accounting for rotable and temporary spare
parts in accordance with § 1.162-3(e);

(e) 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 under
§ 1.263(a)-3(e)(2) for purposes of making
the change to deducting the amounts;

(f) A change to capitalizing amounts
paid or incurred for improvements to
tangible property in accordance with
§ 1.263(a)-3 and, if depreciable, to de-
preciating such property under § 167 or
§ 168, including a change, if any, in
identifying the unit of property under
§ 1.263(a)-3(e) or, in the case of a building,
identifying the building structure or building
systems under § 1.263(a)-3(e)(2) for pur-

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poses of making the change to capitalizing
the amounts;

(g) A change by a dealer in property to
deduct amounts paid or incurred for com-
missions and other costs that facilitate the
sale of property in accordance with
§ 1.263(a)-1(e)(2);

(h) A change by a non-dealer in prop-
erty to capitalizing amounts paid or in-
curred for commissions and other costs
that facilitate the sale of property in ac-
cordance with § 1.263(a)-1(e);

(i) A change to capitalizing amounts
paid or incurred to acquire or produce
property in accordance with § 1.263(a)-2,
and if depreciable, to depreciating such
property under § 167 or § 168;

(j) A change to deducting amounts paid
or incurred in the process of investigating
or otherwise pursuing the acquisition of
real property if the amounts meet the re-
quirements of § 1.263(a)-2(f)(2)(iii); and

(k) A change to the optional regulatory
accounting method in accordance with
§ 1.263(a)-3(m) to determine whether
amounts paid or incurred to repair, main-
tain, or improve tangible property 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 14 of Form
3115, the taxpayer must include the fol-
lowing:

(i) The citation to the paragraph of the
final tangible property regulations that pro-
vides for the proposed method, or methods,
of accounting to which the taxpayer is
changing (for example, § 1.162-3(a),
§ 1.263(a)-3(i), § 1.263(a)-3(k)); and

(ii) If the taxpayer is changing any
unit(s) of property under § 1.263(a)-3(e) or,
in the case of a building, is changing the
identification of any building structure(s)
or building system(s) under § 1.263-3(e)
(2) for purposes of determining whether
amounts are deducted as repair and mainte-
nance costs under section § 1.162-4 or
capitalized as improvement costs under
§ 1.263(a)-3, the taxpayer must include a
detailed description of the unit(s) of prop-
erty, building structure(s), or buildings sys-
tem(s) used under its present method of ac-
counting and a detailed description of the
unit(s) of property, building structure(s), and
building system(s) under its proposed
method of accounting, together with a cita-

tion to the paragraph of the final tangible
property regulations under which the unit of
property is permitted.

(iii) A taxpayer changing its method of
accounting under this section 11.08 to
capitalizing amounts paid or incurred and
to depreciating such property under § 167
or § 168, as applicable, must complete
Schedule E of Form 3115.

(b) Reduced filing requirement for qual-
ified small taxpayers. A qualified small tax-
payer, as defined in section 6.01(4)(b) of
this revenue procedure, is required to com-
plete 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, line 1(a);

(iv) Part II, all lines except lines 13, 15,
16, 17, and 19, if the change is to not
depreciating property;

(v) Part II, all lines except line 13, line
15b, 16, 17, and 19, if the change is to
depreciating property;

(vi) Part IV, lines 26 and 27; and

(vii) Schedule E, if applicable.

(5) Concurrent automatic change.

(a) A taxpayer making two or more
changes in method of accounting pursuant
to this section 11.08 should file a single
Form 3115 for all of these changes and
must enter the designated automatic 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 11.08 and a
change to a UNICAP method under sec-
tion 12 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 11.08(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 14
and 15, Part IV, and Schedule D, and must
include a separate response to each line on
Form 3115 that is applicable to both
changes (such as Part II lines 6b, 7, 8b, 14,
and, as applicable for this change, Part IV)
for which the taxpayer's response is 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 11.08(6)(b) of this revenue proce-
dure, a taxpayer changing to a method of
accounting provided in this section 11.08
must apply § 481(a) and take into account
any applicable § 481(a) adjustment in the
manner provided in section 7.03 of Rev.
Proc. 2015-13.

(b) Limited adjustment for certain
changes.

(i) Final tangible property regula-
tions. A taxpayer changing to a method
of accounting under § 1.162-3 (except
§ 1.162-3(e)), § 1.263(a)-2(f)(2)(iii),
§ 1.263(a)-2(f)(3)(ii), § 1.263(a)-3(m),
§ 1.263A-1(e)(2)(i)(A), and § 1.263A-
1(e)(3)(ii)(E) is required to calculate a
§ 481(a) adjustment as of the first day of
the taxpayer's taxable year of change
that takes into account only amounts paid
or incurred in taxable years beginning on or
after January 1, 2014. Optionally, a taxpayer
may take into account amounts paid or in-
curred in taxable years beginning on or after
January 1, 2012.

(ii) Small business exception. A tax-
payer that met the scope requirements of
section 4 of Rev. Proc. 2015-20, 2015-9
I.R.B. 694, and that changed its method of
accounting under section 10.11(3)(a) of
Rev. Proc. 2015-14 (which is now section
11.08(3) of this revenue procedure) by
following section 5 of Rev. Proc. 2015-20
is required to calculate a § 481(a) adjust-
ment as of the first day of the year of
change that takes into account only
amounts paid or incurred in taxable years
beginning on or after January 1, 2014.

(c) Itemized listing on Form 3115. A
taxpayer changing to a method of ac-
counting provided in this section 11.08
must include on Form 3115 (Rev. Decem-
ber 2015), Part IV, line 26, the total
§ 481(a) adjustment for each change in
method of accounting being made. If the
taxpayer is making more than one change in

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method of accounting under the final tangi-
ble property regulations, the taxpayer (in-
cluding a qualified small taxpayer) must in-
clude on an attachment to Form 3115:

(i) The information required by Part
IV, line 26 of Form 3115 (Rev. December
2015) for each change in method of ac-
counting (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 14 of Form 3115 (Rev. December
2015) for each change; and

(iii) The citation to the paragraph of the
final tangible property regulations that
provides for each proposed method of ac-
counting.

(d) Repair allowance property. A taxpayer
changing to a method of accounting provided

by § 1.263(a)-3 under this section 11.08 must
not include in the § 481(a) adjustment any
amount attributable to property for which
the taxpayer elected to apply the repair al-
lowance under § 1.167(a)-11(d)(2) for any
taxable year in which the repair allowance
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 11.08(6)(b) of
this revenue procedure, a taxpayer chang-
ing its method of accounting under this
section 11.08 may use statistical sampling
in determining the § 481(a) adjustment by
following the guidance provided in Rev.
Proc. 2011-42, 2011-37 I.R.B. 318.

(7) No audit protection. A taxpayer
calculating a § 481(a) adjustment under
section 11.08(6)(b)(ii) of this revenue pro-
cedure that takes into account only

amounts paid or incurred in taxable years
beginning on or after January 1, 2014,
does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for
amounts subject to a change under this
section 11.08 that are paid or incurred in
taxable years beginning before January 1,
2014. See section 5.02 of Rev. Proc.
2015-20.

(8) 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 11.08.

(a) Changes under the final tangible
property regulations.

Description of Change

DCN

Citation

A change to deducting amounts paid or incurred for repair and maintenance or a change to capitalizing amounts paid or incurred for improvements to tangible property and, if depreciable, to depreciating such property under § 167 or § 168. Includes a change, if 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 incurred.

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 facili- tate 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 de- preciating such property under § 167 or § 168.

192

§ 1.263(a)-2

Change to deducting certain costs for investigating or pursuing the acquisition of real property (whether and which).

193

§ 1.263(a)- 2(f)(2)(iii)

(8) Contact information. For further in-
formation regarding a change under this
section, contact Lewis Saideman at (202)
317-5100 (not a toll-free call).

.09 Railroad track structure expenditures.

(1) Description of change. This change
applies to a taxpayer that wants to change its
method of accounting for railroad track struc-
tures 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
11.09 is "213."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.10 Remodel-refresh safe harbor method.

(1) Description of change.

(a) Applicability. This change applies
to a qualified taxpayer as defined in sec-

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tion 4.01 of Rev. Proc. 2015-56, 2015-49
I.R.B. 827, and within the scope of Rev.
Proc. 2015-56 that wants to change to the
remodel-refresh safe harbor method of ac-
counting provided in section 5.02 of Rev.
Proc. 2015-56 for its qualified costs, in-
cluding the making of a late general asset
account election as provided under section
5.02(6)(d) of Rev. Proc. 2015-56.

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

(i) The revocation of a partial disposi-
tion election that is made pursuant to sec-
tion 5.02(4)(b)(ii)(B) of Rev. Proc. 2015-
56;

(ii) A change in determination of the
asset disposed of described in section
5.02(5) of Rev. Proc. 2015-56 (which is
made under section 6.13(3)(a) or
6.15(3)(a) of this revenue procedure, as
applicable). See section 11.10(5)(b) of
this revenue procedure for making the
change under section 6.13(3)(a) or
6.15(3)(a) of this revenue procedure as a
concurrent change;

(iii) The making of a late general asset
account election not provided under sec-
tion 5.02(6)(d) of Rev. Proc. 2015-56;

(iv) If section 5.02(4)(c) of Rev. Proc.
2015-56 applies to a qualified building
(partial disposition election made in a
prior year and the qualified taxpayer did
not revoke such election within the time
and in the manner provided in section
5.02(4)(b)(ii) of Rev. Proc. 2015-56), any
qualified costs paid for that qualified
building prior to the year of change for a
Form 3115 filed to make the change to the
remodel-refresh safe harbor method of ac-
counting under this section 11.10; or

(v) If section 5.02(5)(b) of Rev. Proc.
2015-56 applies to a qualified building (rec-
ognized gain or loss under § 1.168(i)-1T or
§ 1.168(i)-8T, or in a taxable year begin-
ning before January 1, 2012, for disposition
of a component of a qualified building) and
the qualified taxpayer did not make the re-
quired change in method of accounting to be
in accord with § 1.168(i)-1(e)(2)(viii) or
§ 1.168-8(c)(4), as applicable, on or before
the first taxable year that the qualified tax-
payer uses the remodel-refresh safe harbor
and takes the entire amount of the § 481(a)
adjustment into account in computing the
qualified taxpayer's taxable income for that
year of change, any qualified costs paid for
that qualified building prior to the first tax-

able year that the qualified taxpayer or the
IRS makes the change specified in section
6.13(3)(a) or 6.15(3)(a) of this revenue pro-
cedure, as applicable, for that qualified
building and takes into account the entire
amount of the § 481(a) adjustment in com-
puting taxable income for the year of
change.

(2) No audit protection. If section
5.02(4)(c) or 5.02(5)(b) of Rev. Proc.
2015-56 applies to a qualified building
(and, in the case of section 5.02(5)(b), the
qualified taxpayer does not make the re-
quired change on or before the first tax-
able year that the qualified taxpayer uses
the remodel-refresh safe harbor), the qual-
ified taxpayer does not receive audit pro-
tection under section 8.01 of Rev. Proc.
2015-13 in connection with this change
for that qualified building. See section
8.02(2) of Rev. Proc. 2015-13.

(3) Manner of making change.

(a) Reduced filing requirement for qual-
ified small taxpayers. A qualified small tax-
payer, as defined in section 6.01(4)(b) of
this revenue procedure, may 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, line 1(a);

(iv) Part II, all lines except lines 5, 13,
15, 16, 17, and 19;

(v) Part IV, lines 25, 26, and 27;

(vi) Schedule E; and

(vii) If applicable, the election state-
ment described in section 11.10(3)(b)(ii).

(b) Late general asset account election.

(i) In general. If under section
5.02(6)(d) of Rev. Proc. 2015-56 the
qualified taxpayer is required to make a
late general asset account election, the late
general asset account election change is
made using a modified cut-off method 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 new
method of accounting. The late general
asset account election change requires the
general asset account to include a begin-
ning balance for both the unadjusted de-
preciable basis and the depreciation re-
serve. The beginning balance for the
unadjusted depreciable basis of each gen-

eral 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.

(ii) Election statement. The qualified
taxpayer (including a qualified small tax-
payer) must attach to its Form 3115 a
statement providing that the qualified tax-
payer agrees to the following additional
terms and conditions:

(A) The qualified taxpayer consents to,
and agrees to apply, all of the provisions
of § 1.168(i)-1 to the assets that are sub-
ject to the election specified in section
5.02(6)(d) of Rev. Proc. 2015-56; and

(B) Except as provided in § 1.168(i)-
1(c)(1)(iii)(A),(e)(3), (g), or (h), the elec-
tion made by the qualified taxpayer under
section 5.02(6)(d) of Rev. Proc. 2015-56
is irrevocable and will be binding on the
qualified taxpayer for computing taxable
income for the year of change and for all
subsequent taxable years with respect to
the assets that are subject to this election.

(c) Cut-off method required for certain
changes.

(i) If section 5.02(4)(c) of Rev. Proc.
2015-56 applies to a qualified building,
the change to the remodel-refresh safe
harbor method of accounting for that qual-
ified building, and any improvements to
that qualified building, is made using a
cut-off method and applies only to quali-
fied costs paid or incurred for that quali-
fied building, and any improvements to
that qualified building, beginning in the
year of change for the change made to the
remodel-refresh safe harbor method of ac-
counting.

(ii) If section 5.02(5)(b) of Rev. Proc.
2015-56 applies to a qualified building
and the qualified taxpayer does not change
its present method of accounting to be in
accord with § 1.168(i)-1(e)(2)(viii) or
§ 1.168(i)-8(c)(4), as applicable, on or
before the first taxable year that the qual-
ified taxpayer used the remodel-refresh
safe harbor and take the entire amount of
the § 481(a) adjustment into account in
computing the qualified taxpayer's tax-

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able income for that year of change, the
change to the remodel-refresh safe harbor
method of accounting for that qualified
building, and any improvements to that
qualified building, is made using a cut-off
method and applies only to qualified costs
paid or incurred for that qualified building,
and any improvements to that qualified
building, beginning in the year of change for
the change made to comply with § 1.168(i)-
1(e)(2)(viii) or § 1.168(i)-8(c)(4), as appli-
cable. See section 6.13(3)(a) and section
6.15(3)(a) of this revenue procedure, as ap-
plicable.

(4) Section 481(a) adjustment.

(a) In general. A qualified taxpayer
changing its method of accounting under
this section 11.10 must apply § 481(a) and
take into account any applicable § 481(a)
adjustment in the manner provided in sec-
tion 7.03 of Rev. Proc. 2015-13. How-
ever, a § 481(a) adjustment is neither re-
quired nor permitted for the late general
asset account election under section
5.02(6)(d) of Rev. Proc. 2015-56 or, if
section 5.02(4)(c) or 5.02(5)(b) of Rev.
Proc. 2015-56 applies to a qualified build-
ing, and an improvement to a qualified
building (and, in the case of section
5.02(5)(b) of Rev. Proc. 2015-56, the
qualified taxpayer did not make the re-
quired change on or before the first tax-
able year that the qualified taxpayer uses
the remodel-refresh safe harbor), for the
change to the remodel-refresh safe harbor
method of accounting for that qualified
building and an improvement to that qual-
ified building.

(b) Repair allowance property. A qual-
ified taxpayer changing to the method of
accounting provided under this section
11.10 must not include in the § 481(a)
adjustment any amount attributable to
property for which the qualified taxpayer
elected to apply the repair allowance un-
der § 1.167(a)-11(d)(2) for any taxable
year in which the repair allowance elec-
tion was made.

(c) Statistical sampling. A qualified
taxpayer changing its method of account-
ing under this section 11.10 may use sta-
tistical sampling in determining the
§ 481(a) adjustment only by following the
sampling procedures provided in Rev.
Proc. 2011-42, 2011-37 I.R.B. 318.

(5) Concurrent automatic change.

(a) A qualified taxpayer making this
change for more than one asset for the
same year of change should file a single
Form 3115 for all such assets. The single
Form 3115 must provide a single net
§ 481(a) adjustment for all such changes.

(b) A qualified taxpayer making this
change, a change under section 6.13(3)(a)
of this revenue procedure, and any change
listed in section 6.12(3)(b) or section 6.15
of this revenue procedure for the same
year of change should file a single Form
3115 for all such changes and must enter
the designated automatic accounting
method change numbers for the changes
on the appropriate line on the Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the method of
accounting under this section 11.10 is
"222."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Merrill Feldstein at (202)
317-5100 (not a toll-free call).

## SECTION 12. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A)

.01 Certain uniform capitalization
(UNICAP) methods used by resellers
and reseller-producers.

(1) Description of change.

(a) Applicability. This change applies
to:

(i) a 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 permis-
sible UNICAP method in the first taxable
year that it does not qualify as a small re-
seller;

(iii) a reseller-producer that wants to
change from a permissible UNICAP
method for both its production and resale
activities to a permissible simplified resale
method described in § 1.263A-3(d)(3) in

any taxable year that it qualifies to use a
simplified resale method for both its
production and resale activities under
§ 1.263A-3(a)(4) (resellers 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-

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toric absorption ratio with the simplified
resale method to a permissible non-
UNICAP inventory capitalization method
under section 12.01(1)(a)(i) of this reve-
nue procedure.

(iii) Interest capitalization. This change
does not apply to a change in method of
accounting for interest capitalization (but
see section 12.14 of this revenue procedure
for making this change).

(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.

(v) Certain change with limited appli-
cability. A small reseller, as defined in
section 12.01(3)(b) of this revenue proce-
dure, is not permitted to make a change in
method of accounting described in section
12.01(1)(a)(i) of this revenue procedure
for any taxable year beginning after De-
cember 31, 2017.

(2) Certain eligibility rule inapplicable.
The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to the changes described in
section 12.01(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 al-
locate 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 standard cost method (§ 1.263A-
1(f)(3)), the direct reallocation method
(§ 1.263A-1(g)(4)(iii)(A)), the step-alloca-
tion method (§ 1.263A-1(g)(4)(iii)(B)), the
simplified service cost method (§ 1.263A-
1(h)) (with a labor-based allocation ratio),
and the simplified resale method without the
historic absorption ratio election (§ 1.263A-
3(d)), but does not include any other reason-
able allocation 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 pur-
chasing 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 section 12.01(1)(a)(i),
12.01(1)(a)(iii), or 12.01(1)(a)(iv) of this
revenue procedure generally must take any
applicable net positive § 481(a) adjustment
for such change into account ratably over
the same number of taxable years, not to
exceed four, that the taxpayer used its for-
mer method of accounting. A taxpayer
changing its method of accounting for costs
pursuant to section 12.01(1)(a)(ii), 12.01(1)
(a)(v), or 12.01(1)(a)(vi) of this revenue pro-
cedure 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
12.01 is "22."

(7) Example. The following example
illustrates the principles of this section
12.01 for small resellers and formerly
small resellers.

Assume X, a corporate reseller of per-
sonal property, incorporated January 2,
2005, adopted a taxable year ending De-
cember 31. In determining whether X is a
small reseller, as provided in section
12.01(3)(b) of this revenue procedure, X
calculates its average annual gross re-
ceipts for the three taxable years (or
fewer, if applicable) immediately preced-
ing the taxable year being analyzed. For
each of the taxable years 2005 through
2014, X calculates the corresponding av-
erage annual gross receipts for the three
immediately preceding taxable years (or
fewer, if applicable). The results are
shown in the table below:

Current

Average Annual Gross Receipts for the Three Taxable Years Immediately Preceding the Current Taxable Year

Taxable Year

2005

$0

2006

5,000,000

2007

6,000,000

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Current

Average Annual Gross Receipts for the Three Taxable Years Immediately Preceding the Current Taxable Year

Taxable

Year

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 following LIFO inventory balances determined
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
average 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) Adjustment:

2009 § 481(a) Adjustment

$80,000

Amount included in 2009 Taxable Income

&lt;20,000&gt;

Unamortized 2009 § 481(a) Adjustment-12/31/09

$60,000

Because X failed to satisfy the small reseller exception for 2010, X was required to continue using the UNICAP method for its
inventory costs. Furthermore, X was required to include $20,000 of the unamortized 2009 positive § 481(a) adjustment in 2010
taxable income. Assume 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.

X's 2010 Ending Inventory:

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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 voluntarily from the UNICAP method to a permissible
non-UNICAP inventory capitalization method (such a change for a current taxable year is provided in section 12.01 of this revenue
procedure). To reflect 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 addition, X must include $20,000 of the
unamortized 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 &lt;Negative&gt;

&lt;100,000&gt;

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 exception for 2012 and, therefore, is not required 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

&lt;20,000&gt;

Unamortized 2009 § 481(a) Adjustment-12/31/12

$ 0

In 2013, X fails to satisfy the small reseller exception and, therefore, must return to the UNICAP method (such a change for a
current taxable year is provided in section 12.01 of this revenue procedure). X changes to the simplified resale method without a
historic absorption 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

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one-half of the § 481(a) adjustment ($60,000) when computing taxable income for 2013 and 2014. Assume that X must add $10,000
of additional § 263A costs to the cost of its 2013 ending inventory because of the $100,000 increment 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

&lt;60,000&gt;

Unamortized 2013 § 481(a) Adjustment-12/31/13

$ 60,000

Because X fails to satisfy the small reseller exception for 2014, X must continue using the UNICAP method for its inventory costs.
Furthermore, X is required to include $60,000 of the unamortized 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
increment for 2014.

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 Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.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
12.01(3)(d) of this revenue procedure) or
a reseller-producer (as defined in section
12.01(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 producer 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 change in method of
accounting for interest capitalization (but
see section 12.14 of this revenue procedure
for making this change).

(iv) Recharacterizing costs under the
simplified production method. This change
does not include a change for purposes of
recharacterizing "section 471 costs" as "ad-
ditional § 263A costs" (or vice versa) under
the simplified production method.

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(2) Definition. A "UNICAP method spe-
cifically described in the regulations" in-
cludes the 90-10 de minimis rule to allocate
a mixed service department's costs to pro-
duction or resale activities (§ 1.263A-
1(g)(4)(ii)), the 1/3 - 2/3 rule to allocate
labor costs of personnel to purchasing activ-
ities (§ 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 spe-
cific 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 ser-
vice cost method (§ 1.263-1(h)) (with either a
labor-based allocation ratio or a production
cost allocation ratio), and the simplified pro-
duction method without the historic absorption
ratio election (§ 1.263A-2(b)), but does
not include any other reasonable allocation
method within the meaning of § 1.263A-
1(f)(4).

(3) Multiple changes. A taxpayer 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 au-
tomatic accounting method change number
for a change under this section 12.02 is
"23."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.03 Impact fees.

(1) Description of change. This change
applies to a taxpayer that incurs impact
fees as defined in Rev. Rul. 2002-9,
2002-1 C.B. 614, in connection with the
construction of a new residential rental
building that wants to capitalize the costs
to the building under § § 263(a) and 263A.
See Rev. Rul. 2002-9 for further informa-
tion.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.03 is "25."

(3) Contact information. For further in-
formation regarding a change under this

section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.04 Change to capitalizing
environmental remediation costs under
§ 263A.

(1) Description of change. This change
applies to a taxpayer that wants to
change its method of accounting for 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 au-
tomatic accounting method change number
for a change under this section 12.04 is
"77."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.05 Change in allocating environmental
remediation costs under § 263A.

(1) Description of change. This change
applies to a taxpayer that capitalizes envi-
ronmental remediation costs to inventory
under § 263A, but allocates these costs to
inventory using a method of accounting
that does not comply with the holding in
Rev. Rul. 2005-42, 2005-2 C.B. 67, and
wants to change to allocating these costs
to inventory produced during the taxable
year in which the costs are incurred under
§ 263A. See Rev. Rul. 2005-42 for 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
12.05 is "92."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.06 Safe harbor methods under § 263A
for certain dealerships of motor
vehicles.

(1) Description of change. This change
applies to a motor vehicle dealership, as
defined in section 4 of Rev. Proc. 2010-
44, 2010-49 I.R.B. 811, that is within the
scope of section 3 of Rev. Proc. 2010-44
and wants to change its method of 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
accounted for using the proposed
method (for example, to remove internal
profit from inventory costs) or to no
longer include negative amounts as ad-
ditional § 263A costs in the numerator
of the simplified resale method formula
or the simplified production method for-
mula. However, except as provided in
the preceding sentence, a change under
this section does not include a change
for purposes of recharacterizing "§ 471
costs" as "additional § 263A costs" (or
vice versa) under the simplified resale
method or the simplified production
method.

(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.

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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 desig-
nated automatic accounting method
change number for a change to treat
certain sales facilities as retail sales fa-
cilities as described in section 5.01 of
Rev. Proc. 2010-44 is "150." The des-
ignated automatic accounting method
change number for a change to be treated as
a reseller without production activities as
described in section 5.02 of Rev. Proc.
2010-44 is "151."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.07 Change to not apply § 263A to one
or more plants removed from the list of
plants that have a preproductive period
in excess of 2 years.

(1) Description of change. This change,
as described in Rev. Proc. 2013-20,
2013-14 I.R.B. 744, applies to a taxpayer
that is not a corporation, partnership, or tax

shelter required to use an accrual method of
accounting under § 447 or § 448(a)(3), and
either (a) wants to not apply § 263A, pur-
suant to § 263A(d)(1) and § 1.263A-
4(a)(2), to the production of one or more
plants that the IRS and the Treasury Depart-
ment have removed from the list of plants
that have a nationwide weighted average
preproductive period in excess of 2 years, or
(b) properly elected, pursuant to § 263A(d)
(3) and § 1.263A-4(d), to not apply § 263A
to the production of a plant or plants that
have been removed from the list of plants
that have a nationwide weighted average
preproductive period in excess of 2 years,
and wishes to revoke its § 263A(d)(3) elec-
tion with respect to those plants. See Notice
2013-18, 2013-14 I.R.B. 742, or its succes-
sor.

(2) Audit protection. If a taxpayer
currently does not apply § 263A to its
blackberry, raspberry, or papaya plants
in a manner that complies with the
requirements of § 263A(d)(1) and
§ 1.263A-4(a)(2), the IRS will not raise
such method of accounting for a taxable
year that ends on or before February 15,
2013. Also, if the use of such a method
of accounting by a taxpayer is an issue
under consideration (within the meaning
of section 3.08 of Rev. Proc. 2015-13)
for taxable years in examination, before
an Appeals office, or before the U.S.
Tax Court in a taxable year that ends on
or before February 15, 2013, the IRS
will not further pursue that issue.

(3) Manner of making change. A
change under this section 12.07 is made
with any necessary adjustments under
§ 481(a). For example, the revocation of
an election under § 263A(d)(3) results in a
§ 481(a) adjustment that must take into
account the change in depreciation from
the alternative depreciation system to
the general depreciation system included
within such revocation.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.07 is "181."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

.08 Change to a reasonable allocation
method described in § 1.263A-1(f)(4)
for self-constructed assets.

(1) Description of change.

(a) Applicability. This change, as de-
scribed in Rev. Proc. 2014-16, 2014-9
I.R.B. 606, applies to a producer (as de-
fined in section 12.01(3)(d) of this reve-
nue procedure) or a reseller-producer (as
defined in section 12.01(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 pro-
duced during the taxable year, including any
necessary changes in the identification of
costs subject to § 263A that will be ac-
counted for using the proposed method.
This section 12.08 also includes a change
from not capitalizing a cost subject to
§ 263A to capitalizing that cost for a pro-
ducer or reseller-producer under a reason-
able allocation method within the meaning
of § 1.263A-1(f)(4) that the producer or
reseller-producer is already using for self-
constructed assets, other than the methods
specifically described in § 1.263A-1(f)(2)
or (3). See section 12.02 of this revenue
procedure for a producer or reseller-
producer that wants to change to a method
described in § 1.263A-1(f)(2) or (3).

(b) Inapplicability. This change does
not apply to an allocation method based
on the number of units produced or an
allocation method that does not allocate
costs to the units of property produced.
This change does not apply to a change
described in another section of this reve-
nue procedure or in other guidance pub-
lished in the Internal Revenue Bulletin.
For example, this change does not apply
to a change described in section 12.01 or
12.02 of this revenue procedure.

(2) No ruling on reasonableness of
method. The consent granted in section 9
of Rev. Proc. 2015-13, 2015-5 I.R.B.
419, for this change is not a determination
by the Commissioner that the taxpayer is
using a reasonable allocation method for
costs subject to § 263A and does not 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).

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(3) Multiple changes. A taxpayer mak-
ing both this change and another change
in method of accounting under section
11.08 of this revenue procedure for the
same year of change must comply with
the ordering rules of § 1.263A-7(b)(2).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
12.08 is "194."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.09 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 trans-
action, where the taxpayer wants to change
its method of accounting to an otherwise
permissible method of accounting under
which the acquisition and holding costs for
real property acquired through foreclosure,
or similar transaction, are not capitalized
under § 263A(b)(2) and § 1.263A-3(a)(1).
To qualify for this change in method of
accounting, a taxpayer must:

(a) originate, or acquire and hold for
investment, loans that are secured by real
property; and

(b) acquire the real property that 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) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
12.09 is "195."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Roy Hirschhorn at (202)
317-7007 (not a toll-free call).

.10 Sales-Based Royalties.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
33, 2014-22 I.R.B. 1060, applies to a
taxpayer that wants to change its method
of 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.

(a) A taxpayer may not make a change
in method of accounting under this section
12.10 if the taxpayer wants to change to
capitalizing sales-based royalties and 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 12.10(1)(a) or 12.10(1)(c)
of this revenue procedure that uses a sim-
plified method to determine the additional
§ 263A costs allocable to inventory property
on hand at year end must remove sales-
based royalties allocated to cost of goods
sold from the formulas used to allocate ad-
ditional § 263A costs to ending inventory in
the same manner that the taxpayer included
these amounts in the formulas.

(c) A taxpayer making a change in
method of accounting under this section
12.10 that uses a simplified method with
an historic absorption ratio election (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) Concurrent automatic changes. A
taxpayer making a change under this sec-
tion 12.10 and one or more automatic
changes in method of accounting under
§ 263A for the same year of change may
file a single Form 3115 for all changes,
provided the taxpayer enters the 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.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of account-
ing under this section 12.10 is "201."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.11 Treatment of Sales-Based Vendor
Chargebacks under a Simplified Method.

(1) Description of change. This change, as
described in Rev. Proc. 2014-33, 2014-22
I.R.B. 1060, applies to a taxpayer that wants to
change its method of accounting to no longer
include cost adjustments for sales-based ven-
dor 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.

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(b) A taxpayer making a change in
method of accounting under this section
12.11 that uses a simplified method with
an historic absorption ratio election (see
§ § 1.263A-2(b)(4) and 1.263A-3(d)(4))
and currently includes sales-based vendor
chargebacks in any part of its historic 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) 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.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in method of account-
ing under this section 12.11 is "202".

(5) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.12 U.S. ratio method.

(1) Change to the U.S. ratio method.
(a) Description of change. This change
applies to a foreign person, as defined in
Notice 88-104, 1988-2 C.B. 443, as
modified by Notice 89-67, 1989-1 C.B.
723, that is required to capitalize costs
under § 263A and wants to change its
method of accounting to the U.S. ratio
method, as described in Notice 88-104.

(b) Manner of making change. A tax-
payer requesting a change on behalf of a
foreign person under section 12.12(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
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
12.12(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
12.12(1)(b)(iii) of this revenue procedure
is a trade or business conducted in the
United States by a "related person," as
defined in Notice 88-104, with respect to
the foreign person requesting a change
under this section. If the taxpayer is 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 12.12(1)(b)(iii) of this revenue proce-
dure is a trade or business conducted in
the United States by a "related person"
for purposes of Notice 88-104 for each
foreign person requesting a change in
method of accounting. Use § § 267(b) or
707(b), as applicable, to explain the 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
12.12(1)(b)(iii) of this revenue procedure
unless consent of the Commissioner is
obtained to use the U.S. ratio of a different
applicable U.S. trade or business under
§ 446(e) (see section 12.12(2) of this 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 12.12. In the case of
a controlled foreign partnership, the U.S.
partner must maintain records of the U.S.
ratio used by each foreign person to 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
12.12.

(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
12.12(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

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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 12.12(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
12.01, 12.02, or 12.08, as applicable, of
this revenue procedure or the non-
automatic change procedures of Rev.
Proc. 2015-13.

(2) Change within U.S. ratio method.
This change applies to a foreign person
currently using the U.S. ratio method that
wants to use the U.S. ratio of a different
applicable U.S. trade or business for pur-
poses of applying the U.S. ratio method as
described in section 12.12(2)(a) or
12.12(2)(b) of this revenue procedure.

(a) Required change in the applicable
U.S. trade or business.

(i) In general. A foreign person is per-
mitted to change its method of accounting
under this section 12.12(2)(a) to use the
U.S. ratio of a different applicable U.S.
trade or business, as defined in Notice
88-104, if the foreign person is no longer
able to obtain the U.S. ratio from the
applicable U.S. trade or business 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 inapplicable.
The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13 does not apply to the
change described in section 12.12(2)(a) of
this revenue procedure.

(iii) Manner of making change. A for-
eign person making a change in method of
accounting under this section 12.12(2)(a)

must make the change in accordance with
the requirement set forth in section
12.12(2)(c) of this revenue procedure.

(b) Other changes in the applicable
U.S. trade or business.

(i) In general. If the foreign person
cannot make the change in method of ac-
counting described in section 12.12(2)(a)
of this revenue procedure, or there is more
than one U.S. trade or business that can
reasonably be considered the "same as, or
most similar to" the foreign person's trade
or business, the foreign person is permit-
ted to change its method of accounting
under this section 12.12(2)(b) to use the
U.S. ratio of a different applicable U.S.
trade or business.

(ii) Manner of making change. A for-
eign person making a change in method of
accounting under this section 12.12(2)(b)
must make the change in accordance with
the requirement set forth in section
12.12(2)(c) of this revenue procedure.

(c) Short Form 3115 in lieu of a 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
12.12(2)(a) or 12.12(2)(b) of this revenue
procedure. The short Form 3115 (Rev.
December 2015) 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);

(iv) the information required under
section 12.12(1)(b) of this revenue proce-
dure; and

(v) a statement that the change in
method of accounting is made under sec-
tion 12.12(2)(a) or 12.12(2)(b) of Rev.
Proc. 2018-31, as applicable.

(3) Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change under this section
12.12 is "214."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.13 Depletion.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for depletion to
treat these amounts as an indirect cost that
is only properly allocable to property that
has been sold (that is, for purposes of
determining gain or loss on the sale of the
property) under § 1.263A-1(e)(3)(ii)(J).

(2) Limitation.

(a) A taxpayer making this change in
method of accounting that uses a 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)

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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 12.13 is
"215."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.14 Interest capitalization.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for interest from
not capitalizing any interest, capitalizing
interest in accordance with its method of
accounting for financial reporting pur-
poses, or applying an improper method of
capitalizing interest under § § 1.263A-8
through 14, with respect to the production
of designated property, to capitalizing in-
terest with respect to the production of
designated property in accordance with
§ § 1.263A-8 through 14.

(2) Manner of making change. A tax-
payer requesting a change under this sec-
tion 12.14 must attach a statement to the
Form 3115 with the following informa-
tion:

(a) Representations as to the following:

(i) The taxpayer's method is in accor-
dance with the avoided cost method under
§ 1.263A-9; and

(ii) The taxpayer will comply with
§ 1.263A-14 and Notice 88-89, 1988-2
C.B. 422, should the taxpayer incur aver-
age excess expenditures allocable to re-
lated persons; and

(b) Details with respect to the taxpay-
er's sub-methods of accounting for deter-
mining capitalizable interest in accor-
dance with § § 1.263A-8 through 14 (for
example, whether the taxpayer elects to
not trace debt under § 1.263A-9(d); the
computation period(s) used under the new
method; and whether the taxpayer will
suspend the capitalization of interest for
units of property for which production has
ceased for at least 120 consecutive days as
determined under § 1.263A-12(g)).

(3) Concurrent automatic changes. A
taxpayer making a change under this sec-
tion 12.14 and one or more automatic
changes in method of accounting under

§ 263A for the same year of change may
file a single Form 3115 for all changes,
provided the taxpayer enters the desig-
nated automatic change numbers for all
changes on the appropriate line on the
Form 3115 and complies with the ordering
rules of § 1.263A-7 (b) (2). See section 6.03
(1) (b) of Rev. Proc. 2015-13 for informa-
tion on making concurrent changes.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change in method of ac-
counting under this section 12.14 is
"224."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call).

## SECTION 13. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)

.01 Change to comply with § 267.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method or methods of accounting to
comply with the requirements of § 267,
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 interest that
is OID because it is not qualified stated
interest (as defined in § 1.1273-1(c)). See
section 5.02 of this revenue procedure for a
change to comply with § 163(e)(3) for OID
on an obligation held by a related foreign
person.

(2) Certain eligibility rules inapplicable.
The eligibility rules in sections 5.01(1)
(e) and (f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, do not apply to this change to
comply with § 267(a)(3).

(3) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 13.01 is
"26."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call). For further in-
formation regarding a change to comply

with § 267(a)(3), contact Michael Kaercher
at (202) 317-6934 (not a toll-free call).

# SECTION 14. DEFERRED COMPENSATION (§ 404)

.01 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
bonus is includible in the gross income of
the employee; or

(B) Bonuses that are subject to capi-
talization 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 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 capital-
ization under § 263A. If by the end of the
taxable year all the events have occurred
that establish the fact of the liability to pay
vacation pay and the amount of the liability
can be determined with reasonable accuracy
(see § 1.446-1(c)(1)(ii)), and the vacation

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pay is otherwise deductible but the vacation
pay is received by the employee after the
15th day of the 3rd calendar month after the
end of that taxable year, to treat the vacation
pay as deductible in the taxable year of the
employer in which the vacation pay is paid
to the employee; or

(B) Vacation pay that is subject to cap-
italization under § 263A. If by the end of
the taxable year all the events have oc-
curred that establish the fact of the liability
to pay vacation pay and the amount of the
liability can be determined with reasonable
accuracy (see § 1.446-1(c)(1)(ii)), and the
vacation pay is otherwise deductible (with-
out 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
14.01 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 12.01,
12.02, 12.08, or 12.12 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
14.01 is "28."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Thomas Scholz at (202)
317-5600 (not a toll-free call).

.02 Grace period contributions.

(1) Description of change. This change
applies to a taxpayer that wants to cease
deducting contributions made during the
§ 404(a)(6) grace period to a qualified
cash or deferred arrangement within the
meaning of § 401(k) or to a defined 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
14.02 is "29."

(3) Contact information. For further in-
formation regarding a change under this
section, contact John Ricotta at 202-317-
4102 or Joyce Kahn at 202-317-4148 (not
toll-free calls).

# SECTION 15. METHODS OF ACCOUNTING (§ 446)

.01 Change in overall method from the
cash method to an accrual method.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change its
overall method of accounting from the
cash receipts and disbursements method
(cash method) (as defined in section
15.01(2)(a) of this revenue procedure) to
an accrual method (as defined in section
15.01(2)(b) of this revenue procedure). A
change under this section 15.01 applies to
(1) a taxpayer required to make this
change by § 448, any other section of the
Code or regulations, or in other guidance
published in the Internal Revenue Bulletin
(IRB), 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 chang-
ing to an overall accrual method because
it is prohibited from using the overall cash
method under § 448 may use this section
15.01 regardless of whether the year of
change is the first taxable year that the
taxpayer is required by § 448 to change
from the cash method ("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 15.01 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 15.01(2)(c) of

this revenue procedure) for one or more
types of recurring items (see § 1.461-
5(d));

(ii) adopting or changing to a 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
automatically under any section of the
Code or regulations, or other guidance
published in the IRB (see Rev. Rul. 90-
38, 1990-1 C.B. 57 (regarding when a
taxpayer may adopt a method of account-
ing));

(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 15.01(2)(d) of this revenue pro-
cedure) and is either adopting this special
method or qualifies to change to this
special method using the automatic
change procedures of Rev. Proc.
2015-13 and a section of this revenue
procedure, or the change can be made
automatically under any section of the
Code or regulations, or other guidance
published in the IRB (see Rev. Rul.
90-38 (regarding when a taxpayer may
adopt a method of accounting));

Also, a taxpayer qualifies to use this
section 15.01 when that taxpayer, in the
taxable year immediately preceding the
year of change, has used a permissible
inventory method for that year, and, if that
taxpayer was subject to § 263A for that
year, has also used a permissible § 263A
method for that year, and the method(s)
continue to be used for the year of change.

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

(i) a taxpayer that is making a change
from a hybrid method of accounting (as

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defined in section 15.01(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
15.09 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 15.09;

(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 has included in its
§ 481(a) adjustment any amount of de-
ferred compensation that is described un-
der § 457A(d)(3) that is attributable to
services performed before January 1,
2009;

(v) a taxpayer that is engaged in two or
more trades or businesses, unless that 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;

(vi) 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;

(vii) a cooperative organization de-
scribed in § § 501(c)(12), 521, or 1381; or

(viii) 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 15.01, 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 15.01 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, 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 contrast, application of
the all-events test under a specific set of
facts is not a special method of account-
ing. See, for example, Rev. Rul. 69-314,
1969-1 C.B. 139 (concerning the treat-
ment 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
15.01, 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 15.01 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
15.01(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 15.01 and
changing to a special method, as permitted
under section 15.01(1)(a)(ii), (iii), or (iv),
must timely file a single Form 3115 for both
changes and must enter the designated au-
tomatic 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 15.01 and an automatic change
to the deferral method for advance pay-
ments under Rev. Proc. 2004-34 (see sec-
tion 16.07 of this revenue procedure) must
timely file a single Form 3115 for both
changes and enter the designated automatic
accounting method change numbers for
both changes on the appropriate line on that
Form 3115. See section 6.03(1)(b) of Rev.
Proc. 2015-13 for information on making
concurrent changes.

(ii) Two Forms 3115 required when a
concurrent change is being implemented
under section 32.01 of this revenue 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 15.01, that taxpayer must re-
quest the change for the interest income
under section 32.01 of this revenue pro-
cedure. The taxpayer must timely file in-
dividual Forms 3115 for each change re-

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quested. This section 15.01 will govern
the change to an overall accrual method.

(e) Concurrent change in accounting
method not permitted to be implemented
using the automatic change procedures of
Rev. Proc. 2015-13 and a section of this
revenue procedure, any section of the
Code or regulations, or other guidance
published in the IRB. A taxpayer that does
not qualify to change from the overall
cash method to an overall accrual method
under this section 15.01 because that 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. 2018-1,
2018-1 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 15.01, that taxpayer may
choose to make the change using this sec-
tion 15.01. 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 15.01. 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 15.01, 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 15.01, 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 15.01
is "122."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Evan Hewitt at (202) 317-
7007 (not a toll-free call).

.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 15.02(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 au-
tomatic accounting method change number
for a change under this section 15.02 is
"31."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Timothy Azarchs at (202)
317-5100 (not a toll-free call).

.03 Taxpayers changing to overall cash
method.

(1) Description of change.

(a) Applicability. This change applies
to either:

(i) 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,
2011-4 I.R.B. 330 (removing § 6.02(1)(a)
of Rev. Proc. 2001-10); or

(ii) 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 15.12(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-

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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).

(b) Inapplicability. This change does
not apply for any taxable year beginning
after December 31, 2017.

(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 15.03 and
a change to treat inventoriable items as
materials and supplies that are not inci-
dental pursuant to § 1.162-3 under section
22.03 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
15.12(2)(a) of this revenue procedure.
However, such a bank may be eligible to
change to the overall cash/hybrid method
under section 15.12 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 15.03(1)(a) of this revenue proce-
dure. However, a farming business is not
eligible to make this change under section
15.03(1)(b) of this revenue procedure. A
farming business that is not eligible under
this section 15.03 may still be eligible to
change to the overall cash method under
section 15.13 of this revenue procedure if
it meets the requirements of that section.

(6) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under section 15.03(1)(a) of
this revenue procedure is "32." The desig-
nated automatic accounting method change
number for a change under section
15.03(1)(b) of this revenue procedure is
"33."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Evan Hewitt at (202) 317-
7007 (not a toll-free call).

.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
sections 3.01(6) through 3.01(8) of Rev.
Proc. 2006-56, as modified and amplified
by Rev. Proc. 2011-46.

(2) Manner of making the change.

(a) Changes made with a § 481(a) 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 15.04
is considered a Form 3115 for purposes of
the automatic consent procedures of Rev.
Proc. 2015-13. However, the requirement
to file the Duplicate copy, under section
6.03(1)(a) of Rev. Proc. 2015-13, is
waived. See section 5.02 or 5.03 of Rev.
Proc. 2011-46, as applicable, for what
information is required to be provided on
the statement.

(3) Concurrent change to overall 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
15.04 and an automatic change to an over-
all accrual method under section 15.01 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 automatic
accounting method change numbers for
both changes on Form 3115. See section
6.03(1)(b) of Rev. Proc. 2015-13 for infor-
mation on making concurrent changes.

A taxpayer making both an automatic
change to, from, or within a NAE method
of accounting under this section 15.04 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 15.01 of this reve-

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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 15.04 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 ful-
fills the requirement of § 1.448-1(h)(2) to
type or print "Automatic Change to Accrual
\- Section 448" at the top of page 1 of the
Form 3115). The taxpayer must complete
all applicable sections of Form 3115, in-
cluding sections that apply to the change to
an overall accrual method and to the change
to the NAE method and must enter the des-
ignated 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 15.04 is "35."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.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
15.05 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 call).

.06 Film producer's treatment of certain
creative property costs.

(1) Description of change. This change
applies to a taxpayer that wants to change
the method of accounting for creative
property costs to the safe harbor method
provided by section 5 of Rev. Proc. 2004-
36, 2004-1 C.B. 1063. This safe harbor
method of accounting applies to a 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
15.06 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 call).

.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 purpose
of which is to encourage participating health
care providers to provide quality health care
to the taxpayer's subscribers in a cost-
efficient manner; (c) the taxpayer's liability
for the payment is dependent on the attain-
ment of one or more preestablished goals
during a performance period consisting of
not more than 12 consecutive months; (d)
the terms of the arrangement pursuant to
which the payment is made are established
unilaterally by the taxpayer, and are not
negotiated with the health care providers;
(e) the taxpayer normally makes payments
to health care providers under the arrange-
ment within 12 months after the close of the
performance period; (f) deferring the receipt
of income by the health care provider or
otherwise providing a tax benefit to the pro-
vider is not a principal purpose of the ar-
rangement; (g) the taxpayer records a liabil-
ity for the payment on its annual statement
filed for state regulatory purposes, and in-
cludes this liability in the determination of
discounted unpaid losses under § 846; and
(h) the health care provider is not an em-
ployee, and is not providing health care as
an agent, of the taxpayer. See Rev. Proc.
2004-41.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change

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number for a change under this section
15.07 is "90."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free call).

.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 au-
tomatic accounting method change number
for a change under this section 15.08 is
"108."

(4) Contact information. For further in-
formation regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).

.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
15.01 of this revenue procedure.

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

(i) a taxpayer that will not have all
items of income and expense on an ac-
crual method subsequent to the change
under this section 15.09;

(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;

(vii) a taxpayer that has included in its
§ 481(a) adjustment any amount of de-
ferred compensation that is described un-
der § 457A(d)(3) that is attributable to
services performed before January 1,
2009; and

(viii) any change that is specifically
provided in another section of this 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
15.09, a taxpayer must attach to its com-
pleted Form 3115 a full and complete de-
scription of each specific item for which the
change in method of accounting is being
made and how the accrual method of ac-
counting 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 in-
come and expense item is described with
specificity and how the all-events test (and
the economic performance requirement, if
applicable) applies to each item is described
under the facts and circumstances of the
taxpayer's trade or business. For example, a
taxpayer that merely states that it is chang-

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ing its accounting method for advertising
expenses from the cash method to an ac-
crual 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 ac-
counting 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 eco-
nomic performance occurs has fully and
completely described the item and the
change. See section 6.03 of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for additional
filing requirements.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.09 is "124."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Douglas Kim at (202)
317-7003 (not a toll-free call).

.10 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 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
15.10 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
15.10 is "125."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Timothy Azarchs at (202)
317-5100 (not a toll-free call).

.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 15.11 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
15.11(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 Transporta-
tion, Water Transportation, Truck Trans-
portation, Transit and Ground Passenger
Transportation, or Scenic and Sightsee-
ing 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 15.11(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 15.11(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 15.11(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 15.11(2)(a)(i)(A) or
(B) of this revenue procedure, and thus,
the taxpayer's business fails to meet the
criteria of section 15.11(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

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the description of a NAICS subsector
code in section 15.11(2)(a)(i)(A) or (B) of
this revenue procedure. While the rail
transportation activity satisfies the descrip-
tion of a NAICS subsector code in section
15.11(2)(a)(i)(A) of this revenue procedure,
the food service activity does not satisfy the
description of any NAICS subsector code in
section 15.11(2)(a)(i)(A) or (B) of this rev-
enue procedure, and thus, the taxpayer's
business fails to meet the criteria of section
15.11(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 de-
fined consistent with § 1.448-1T(f)(2)(iv).
Thus, gross receipts for a taxable year equal all
receipts that must be recognized under the
method of accounting actually used by the
taxpayer for that taxable year for federal in-
come tax purposes. See also § 448(c)(3)(C).

(e) Aggregation of gross receipts. For
purposes of computing gross receipts un-
der section 15.11(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 15.11
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
15.11 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 15.11.

(5) Contact information. For further in-
formation regarding a change under this
section, contact Evan Hewitt at (202) 317-
7007 (not a toll-free call).

.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 15.12(2)(a)
of this revenue procedure that wants to
change to an overall cash/hybrid method
described in section 15.12(2)(b) of this
revenue procedure.

(b) Inapplicability. A bank's change to
an overall cash/hybrid method under this
section 15.12 does not include any change
in the accounting treatment of an item for
which the bank uses a special method (as
described in section 15.12(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
15.12. Any change in the accounting treat-
ment of such an item must be made under an
applicable section of this revenue proce-
dure, under the non-automatic change pro-
cedures of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, or under another guidance pub-

lished in the Internal Revenue Bulletin, as
appropriate.

(2) Definitions. The following defini-
tions apply for purposes of this section
15.12.

(a) Bank. A bank is described in this
section 15.12(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 15.12(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.

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(3) Additional condition of change. To
change to an overall cash/hybrid method
under this section 15.12, 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 15.12. 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 15.12 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 15.12, 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 15.12
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 15.12.

(5) Computation of average annual
gross receipts. For purposes of section
15.12(2)(a)(iii) of this revenue procedure,
a bank's average annual gross receipts are
computed as described in this section
15.12(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 de-
fined consistent with § 1.448-1T(f)(2)(iv).
Thus, gross receipts for a taxable year equal all

receipts that must be recognized under the
method of accounting actually used by the
bank for that taxable year for federal income
tax purposes. See also § 448(c)(3)(C).

(c) Aggregation of gross receipts. For
purposes of computing gross receipts un-
der section 15.12(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
15.12(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
15.12 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 call).

.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 there-
under.

(3) Manner of making change. Gener-
ally, a taxpayer changing its method of
accounting under this section 15.13 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
15.13 is "128."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 or Charles Gorham at (202) 317-
7003 (not a toll-free call).

.14 Nonshareholder contributions to
capital under § 118.

(1) Description of change.

(a) Water and sewerage disposal utili-
ties under § 118(c) (as in effect on the day
before the date of enactment of Public
Law 115-97, 131 Stat. 2054 (Dec. 22,
2017) ("former § 118(c)")).

(i) This change applies to a regulated
public utility described in former § 118(c)
that wants to change its method of ac-
counting for payments received from cus-
tomers as customer connection fees,
which are not contributions to the capital
of the regulated public utility within the
meaning of former § 118(c), from exclud-
ing the payments from gross income as
nontaxable contributions to capital under
§ 118 to including the payments in gross
income under § 61. See Rev. Rul. 2008-
30, 2008-1 C.B. 1156.

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(ii) This change applies to a regulated
public utility described in former § 118(c)
that wants to change its method of ac-
counting for payments or property re-
ceived that are contributions in aid of con-
struction under former § 118(c) and
§ 1.118-2 and that meet the requirements
of former § 118(c)(1)(B) and (c)(1)(C)
from including the payments or the fair
market value of the property in gross in-
come under § 61 to excluding the payments
or the fair market value of the property from
income as nontaxable contributions to cap-
ital 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 former
§ 118(c) that are addressed in section
15.14(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 excluding the payments or the fair
market value of the property from gross
income as nontaxable contributions to
capital under § 118 to including the pay-
ments or the fair market value of the prop-
erty in gross income under § 61.

(2) Inapplicability. The change de-
scribed in section 15.14(1)(a)(ii) of this
revenue procedure does not apply to con-
tributions made after December 22, 2017,
the date of enactment of Public Law 115-
97.

(3) Additional requirement. A taxpayer
that is making a change described in sec-
tion 15.14(1)(a)(i) or (1)(b) of this reve-
nue procedure must complete Schedule E
of Form 3115 for the depreciable property
to which the change relates (as well as all
other relevant portions of the Form 3115).

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.14 is "129."

(5) Contact information. For further in-
formation regarding a change under this
section, contact David H. McDonnell at
(202) 317-4137 (not a toll-free call).

.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 au-
tomatic accounting method change number
for a change under this section 15.15 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 call).

.16 Transfers of interties under the safe
harbor described in Notice 2016-36
(§ 118).

(1) Description of change.

(a) Safe harbor applicable. This
change, as described in Notice 2016-36,
2016-25 I.R.B. 1029, applies to a utility
that wants to change to the safe harbor
method of accounting provided in section
III.C of Notice 2016-36 for the treatment
under § 118 of a transfer of an intertie,
including a dual-use intertie, by a gener-
ator to a utility. Under this safe harbor
method of accounting, such a transfer will
not be treated as gross income under
§ 118(a) or a contribution in aid of con-
struction (CIAC) under § 118(b) if all of
the conditions specified in section III.C of
Notice 2016-36 are met.

(b) Safe harbor terminates. This
change, as described in Notice 2016-36,
applies to a utility that is using the safe
harbor method of accounting provided in
section III.C of Notice 2016-36 and is
required to terminate that safe harbor
method of accounting because of the oc-
currence of an event specified in section
IV of Notice 2016-36. The occurrence of
such event will require the utility to rec-
ognize income as a consequence of the
transfer of an intertie, including a dual-use
intertie, to the utility by a generator.

(2) Definitions. For purposes of this
section 15.16, the terms "utility," "in-
tertie," "dual-use intertie," and "genera-

tor" are defined in section III.B of Notice
2016-36.

(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 a util-
ity making a change under this section
15.16.

(4) Manner of making change.

(a) The change in method of account-
ing under section 15.16(1)(a) of this rev-
enue procedure is made with a § 481 (a)
adjustment.

(b) The change in method of account-
ing under section 15.16(1)(b) of this rev-
enue procedure is made using a cut-off
method and applies to a transfer of an
intertie, including a dual-use intertie, by a
generator to a utility made on or after the
beginning of the taxable year in which the
safe harbor method of accounting termi-
nates.

(5) Concurrent automatic change. A
utility making a change under this section
15.16 for more than one transfer of an
intertie, including a dual-use intertie, for
the same year of change should file a
single Form 3115 for all such transfers.
The single Form 3115 must provide a
single net § 481(a) adjustment for all
changes under section 15.16(1)(a) of this
revenue procedure.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change to the methods of
accounting under this section 15.16 is
"226."

(7) Contact information. For further in-
formation regarding a change under this
section 15.16, contact Barbara Campbell
at (202) 317-4137 (not a toll-free call).

.17 Change to or from the net asset
value (NAV) method.

(1) Description of change. This change,
as described in Rev. Proc. 2016-39,
2016-30 I.R.B. 164, applies to a taxpayer
that holds shares in a money market fund
(MMF) as defined in § 1.446-7(b)(4) (giv-
ing effect to § 1.446-7(c)(5), under which
MMF holdings in different accounts are
treated as different MMFs) and that wants to
change its method of accounting for gain or
loss on the shares from a realization method
to the NAV method described in § 1.446-7

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or from the NAV method to a realization
method.

(2) Certain eligibility requirements in-
applicable. The eligibility rules in sec-
tions 5.01(1)(c), (d), and (f) of Rev. Proc.
2015-13 do not apply to this change.

(3) Definitions.

(a) "Rule 2a-7" means Rule 2a-7 (17
CFR 270.2a-7) under the Investment
Company Act of 1940.

(b) "Floating-NAV MMF" means an
MMF that is required to value its assets
using market factors and to round its price
per share to the nearest basis point (the
fourth decimal place, in the case of a fund
with a $1.0000 share price) under Rule
2a-7.

(c) "Stable-NAV MMF" means an
MMF that is not a floating-NAV MMF.

(4) Manner of making change.

(a) A change to or from the NAV
method is made on a cut-off basis. See
§ 1.446-7(c)(8). Accordingly, a § 481(a)
adjustment is neither permitted nor re-
quired. A taxpayer making a change to or
from the NAV method for shares in an
MMF applies the new method only to the
computation of gain or loss on the shares
beginning with the year of change. Under
§ 1.446-7(b)(7)(ii), a taxpayer changing
to the NAV method takes a starting basis
(as defined in § 1.446-7(b)(7)) in those
shares for the year of change equal to the
aggregate adjusted basis of the taxpayer's
shares in the MMF at the end of the im-
mediately preceding taxable year. A tax-
payer changing from the NAV method to
a realization method for shares in an
MMF must adjust the basis in the shares
beginning on the first day of the year of
change to account for gain or loss previ-
ously recognized under the NAV method.
Accordingly, the taxpayer generally takes
a basis in each MMF share at the begin-
ning of the year of change equal to the fair
market value of that share under § 1.446-
7(b)(3) used in computing the ending
value (as defined in § 1.446-7(b)(2)) of
the shares in that MMF for the final com-
putation period (as defined in § 1.446-
7(b)(1)) of the taxable year prior to the
year of change.

(b) Short Form 3115 in lieu of a 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 taxpayer changing from a
realization method to the NAV method, or
changing from the NAV method to a re-
alization method, for shares in an MMF.
Unless the change meets the requirements
of section 15.17(4)(c) of this revenue pro-
cedure, the taxpayer must file a short
Form 3115 that includes the following
information:

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

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

(iii) Part I, line 1(a);

(iv) a statement specifying whether the
taxpayer is changing from a realization
method to the NAV method or from the
NAV method to a realization method; and

(v) a statement specifying the MMF or
MMFs to which the change applies, if the
change does not apply to all MMFs in
which the taxpayer holds shares (and, to
the extent applicable, whether the change
applies only to shares of the MMF or
MMFs held in a particular account).

(c) No Form 3115 Required. In accor-
dance with § 1.446-1(e)(3)(ii), a taxpayer
changing to the NAV method for shares in
a stable-NAV MMF may change to the
NAV method on a federal tax return with-
out filing a Form 3115 if the following
requirements are satisfied:

(i) the taxpayer has not used the NAV
method for shares in the MMF for any
taxable year prior to the year of change;
and

(ii) prior to the year of change, either

(A) the taxpayer's basis in each share
of the MMF has been at all times equal to
the MMF's target share price, or

(B) the taxpayer has not realized any
gain or loss with respect to shares in the
MMF.

(5) Multiple changes. A taxpayer mak-
ing multiple changes under this section
15.17 for the same year of change on a
short Form 3115 should file a single short
Form 3115. The short Form 3115 will be
treated as applying to all shares that the
taxpayer holds in any MMF unless the
taxpayer specifies the MMFs to which the
change applies. If the taxpayer specifies
an MMF, the short Form 3115 will be
treated as applying to all shares in that
MMF held in any account by the taxpayer,

unless the short Form 3115 specifies the
accounts to which the change applies.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
15.17 is "227."

(7) Contact Information. For further
information regarding a change under this
section 15.17, contact Jason Kurth at
(202) 317-6842 (not a toll-free call).

# SECTION 16. TAXABLE YEAR OF INCLUSION (§ 451)

.01 Accrual of interest on nonperforming
loans.

(1) Description of change.

(a) This change applies to a taxpayer
using an overall accrual method of 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.

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(d) A taxpayer that changes its method
of accounting under this section 16.01
must do so for all of its loans.

(2) Section 481(a) adjustment. In gen-
eral, the § 481(a) adjustment for a method
change under this section 16.01 represents
the amount of qualified stated interest on
the taxpayer's nonperforming loans 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
16.01 is "36."

(4) Contact information. For further in-
formation regarding a change under this
section, contact K. Scott Brown at (202)
317-6945 (not a toll-free call).

.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
16.02 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 call).

.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
16.03 is "38."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Daniel Cassano at (202)
317-7011 (not a toll-free call).

.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
16.04 is "39."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Bill Ruane at (202) 317-
4718 (not a toll-free call).

.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
16.05 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 16.05 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 Kate Sleeth at (202) 317-
7053 (not a toll-free call).

.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-

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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 pursuing
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
16.06 is "82."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Kate Sleeth at (202) 317-
7053 (not a toll-free call).

.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 16.10 of this
revenue procedure. See also Notice 2018-
35, 2018-18 I.R.B. 520, and Announce-
ment 2004-48, 2004-1 C.B. 998; or

(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:

(i) a taxpayer that wants to use the
Deferral Method for payments described
in section 5.02(4)(a) of Rev. Proc.
2004-34 (other than allocable payments
described in section 5.02(4)(c) of Rev.
Proc. 2004-34) or for payments for which
a method under section 5.02(3)(b)(i) or
(iii) of Rev. Proc. 2004-34 applies. The
taxpayer must request any such change in
method of accounting using the non-
automatic change procedures in Rev.
Proc. 2015-13, 2015-5 I.R.B. 419. See
section 8.03 of Rev. Proc. 2004-34; or

(ii) a taxpayer that wants to make a
change in method of accounting under
section 16.07(1)(a)(ii) of this revenue pro-
cedure for any taxable year beginning af-
ter December 31, 2017.

(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 changes to a method of ac-
counting provided under section 16.07(1)
(a)(i) of this revenue procedure for the
taxpayer's first or second taxable year
ending on or after May 9, 2018.

(3) Concurrent automatic change to an
overall accrual method. A taxpayer mak-
ing both a change to its method of ac-
counting for advance payments under this
section 16.07 and a change to an overall
accrual method under section 15.01 of this
revenue procedure for the same year of
change must file a single Form 3115 for
both changes and enter the designated 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.

(4) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under section 16.07(1)(a)(i) of
this revenue procedure to use the full-
inclusion method is "83." The designated
automatic accounting method change num-
ber for a change under section 16.07(1)(a)(i)
of this revenue procedure to use the deferral
method is "84." The designated automatic
accounting method change number for a

change under section 16.07(1)(a)(ii) of this
revenue procedure is "216."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Peter Ford at (202) 317-
7011 (not a toll-free call).

.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.

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(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 16.08
is "94."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Kate Sleeth at (202) 317-
7053 (not a toll-free call).

.09 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 16.09 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 pay-
ables) for long-term contracts that must be
accounted for under the percentage-of-
completion method (PCM) under § 460.
Nor does this change apply to long-term
contracts otherwise accounted for under the
PCM or long-term contracts accounted for
under exempt percentage-of-completion
method or the completed contract method.
For the treatment of retainages under such
methods, see 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
16.09(2)(b) of this revenue procedure, a
taxpayer changing its method of account-
ing under this section 16.09 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
16.09 for retainages not received under
long-term contracts is "130." The desig-
nated automatic method change number
for a change under this section 16.09 for
retainages received under long-term con-
tracts is "217." A taxpayer making a
change under this section 16.09 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 call).

.10 Advance payments - change in
applicable financial statements (AFS).

(1) Description of change.

(a) Applicability.

(i) This change applies to a taxpayer
that: (A) receives advance payments, as
defined in Rev. Proc. 2004-34, 2004-1
C.B. 991, 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 defer-
ral method described in section 5.02(3)(a) of
Rev. Proc. 2004-34 for including those ad-
vance payments in gross income in accor-
dance 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 advance payments are included in
gross income under Rev. Proc. 2004-34.
See also Notice 2018-35, 2018-18 I.R.B.
520.

(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 16.10(1)(a)(i)(B)
of this revenue procedure and may change

its method of accounting under this sec-
tion if it is otherwise eligible.

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

(i) a taxpayer that uses a present
method of accounting for advance 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
16.10 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 Duplicate copy, un-
der 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 infor-
mation:

(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);

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(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 descrip-
tion of each type of item affected by the
change in revenue recognition and the
line number (or schedule) where the af-
fected 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 16.10(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 pay-
ments, 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 payments in
gross income in accordance with its AFS;
(iii) changed the manner in which advance
payments are recognized in revenues in its
AFS; and (iv) used its new AFS method
with respect to a timely filed original
federal income tax return in determining
the amount of advance payments in-
cluded in gross income under the defer-
ral method of Rev. Proc. 2004-34 with-
out securing the consent of the
Commissioner to that change in accor-
dance with § 446(e) and § 1.446-
1(e)(2)(i), the IRS will not assert that
the taxpayer's present method of ac-
counting for advance payments is not a
proper deferral method described in sec-
tion 5.02(3)(a) of Rev. Proc. 2004-34
solely on the ground that the taxpayer
failed to obtain the consent of the Com-
missioner for that change.

(6) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 16.10 is
"153."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

# SECTION 17. OBLIGATIONS ISSUED AT DISCOUNT (§ 454)

.01 Series E, EE or I U.S. savings
bonds.

(1) Description of change. This change
applies to a taxpayer that uses the overall
cash receipts and disbursements (cash)
method of accounting and that wants to
change its method of accounting for 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 desig-
nated 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. Ac-
cordingly, a § 481(a) adjustment is nei-
ther 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
17.01 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 Duplicate copy, un-
der 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) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
17.01 is "131."

(4) Contact information. For further in-
formation regarding a change under this
section, contact William E. Blanchard at
(202) 317-3900 (not a toll-free call).

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# SECTION 18. 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 18.01. 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
18.01 is "132."

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

section, contact Patrick Clinton at (202)
317-7005 (not a toll-free call).

# SECTION 19. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

.01 [Reserved].

## SECTION 20. TAXABLE YEAR INCURRED (§ 461)

In general. Applicable provisions of
the Code, regulations and other guidance
published in the Internal Revenue Bulletin
may prescribe the manner in which a 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 20 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 (in-
cluding any amounts not covered by insur-
ance, such as a "deductible" amount under
an insurance policy) relating to employee
medical expenses (including liabilities re-
sulting 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
20.01(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 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 20.01(1)(a)(ii) of this revenue pro-
cedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for 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
20.01(1) is "42."

(2) Bonuses.

(a) Description of change.

(i) Applicability. This change applies to a
taxpayer using an overall accrual method of
accounting that wants to change its method
of accounting to treat bonuses as incurred in
the taxable year in which all events have
occurred that establish the fact of the liabil-
ity to pay a bonus and the amount of the
liability can be determined with reasonable
accuracy (see § 1.446-1(c)(1)(ii)). Specifi-
cally, a taxpayer may change its method of
accounting under this section 20.01(2) to
one of the following methods:

(A) If all the events that establish the
fact of the liability to pay a bonus have
occurred by the end of the taxable year in
which the related services are provided,
and the bonus is received by the employee
no later than the 15th day of the 3rd calen-
dar month after the end of the taxable year

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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
20.01(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 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 20.01(2)(a)(ii) of this revenue pro-
cedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.01(2) is "133."

(3) Vacation pay, sick pay, and 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 va-
cation pay, sick pay, and severance pay and

the amount of the liability can be deter-
mined with reasonable accuracy (see
§ 1.446-1(c)(1)(ii)). Specifically, a taxpayer
may change its method of accounting under
this section 20.01(3) to one of the following
methods:

(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
20.01(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 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).

(b) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 20.01(3)(a)(ii) of this revenue pro-
cedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.

2015-13 for information on making con-
current changes.

(c) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.01(3) is "134."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Peter Ford at (202) 317-
7011 (not a toll-free call).

.02 Timing of incurring liabilities for
real property taxes, personal property
taxes, state income taxes, and state
franchise taxes.

(1) Background. A taxpayer using an
overall accrual method of accounting 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

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the taxpayer wants to change its method
of accounting under this section 20.02 if
the taxpayer is not capitalizing these costs,
unless the taxpayer concurrently changes
its method to capitalize these costs in con-
junction with a change to a UNICAP
method under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable).

(3) Concurrent automatic change. A
taxpayer making both this change and a
change to a UNICAP method described in
section 20.02(2)(b)(ii) of this revenue pro-
cedure under section 12.01, 12.02, 12.08,
or 12.12 of this revenue procedure (as
applicable) for the same year of change
should file a single Form 3115 for both
changes, in which case the taxpayer must
enter the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for 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
20.02 is "43."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Christine Merson at (202)
317-5100 (not a toll-free call).

.03 Timing of incurring liabilities under
a workers' compensation act, tort,
breach of contract, or violation of law.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using an overall accrual
method of accounting that wants to
change its method of accounting for self-
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
20.01(1) of this revenue procedure (if the
taxpayer is otherwise eligible).

(b) Inapplicability. This change does
not apply to a taxpayer that is required
under § 263A and the regulations there-
under to capitalize the costs with respect
to which the taxpayer wants to change its
method of accounting under this section
20.03 if the taxpayer is not capitalizing
these costs, unless the taxpayer concur-
rently changes its method to capitalize
these costs in conjunction with a change
to a UNICAP method under section 12.01,
12.02, 12.08, or 12.12 of this revenue
procedure (as applicable).

(2) Concurrent automatic change. A
taxpayer making both this change and
change to either a method provided in
section 20.01(1) of this revenue procedure
for self-insured employee medical ex-
penses or a UNICAP method described in
section 20.03(1)(b) of this revenue proce-
dure under section 12.01, 12.02, 12.08, or
12.12 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
20.03 is "44."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Christine Merson at (202)
317-5100 (not a toll-free call).

### .04 Timing of incurring certain liabilities for payroll taxes.

(1) Description of change.

(a) Applicability. This change applies
to:

(i) an employer using an overall 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

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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
20.04 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 12.01,
12.02, 12.08, or 12.12 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 20.04(1)(b) of this revenue proce-
dure under section 12.01, 12.02, 12.08, or
12.12 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 au-
tomatic accounting method change number
for a change under section 20.04(1)(a)(i) or
(ii) of this revenue procedure is "45." The
designated automatic accounting method
change number for a change under section
20.04(1)(a)(iii) of this revenue procedure is
"113."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 (not a toll-free call).

### .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
20.05 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 call).

### .06 Timing of incurring certain liabilities 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
20.06 is "106."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.07 Rebates and allowances.

(1) Description of change.

(a) Applicability. This change applies to
taxpayer using an overall accrual method of
accounting that wants to change its method
of accounting for treating its liability for
rebates and allowances to the recurring item
exception method under § 461(h)(3) and
§ 1.461-5.

(b) Inapplicability. This change does
not apply to a taxpayer's liability to pay a
refund.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.07 is "135."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Mon Lam at (202) 317-
5100 (not a toll-free call).

.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 ac-
counting. See § 1.461-1(c)(6), Examples (2)
\- (5). Accordingly, 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 re-

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questing consent is satisfied by filing a short
Form 3115 for this change. The taxpayer's
short Form 3115 must include all of the fol-
lowing information:

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

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

(iii) Part I, line 1(a); and

(iv) the information described in § 1.461-
1(c)(3)(ii)(a) through (f).

(c) 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
20.08 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 call).

.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.

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
20.09 is "154."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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 16.07 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
20.10 is "156."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.11 Timing of incurring liabilities under
the recurring item exception to the
economic performance rules.

(1) Description of change. This change
applies to a taxpayer using an overall 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
20.11 is "161."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.12 Economic performance safe harbor
for ratable service contracts.

(1) Description of change. This change
applies to an accrual method taxpayer that
wants to change its treatment of Ratable
Service Contracts to conform to the safe
harbor method provided by Rev. Proc.
2015-39, 2015-33 I.R.B. 195.

(2) Certain eligibility rules 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 a change un-
der this section 20.12 for the taxpayer's
first, second, or third taxable year ending
on or after July 30, 2015.

(3) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for changes in methods of accounting under
this section 20.12 is "220."

(4) Contact information. For further in-
formation regarding a change under this
section, contact David Christensen or Pe-
ter Ford at (202) 317-7011 (not a toll-free
call).

# SECTION 21. RENT (§ 467)

.01 Change from an improper method of
inclusion of rental income or expense to
inclusion in accordance with the rent
allocation.

(1) Description of change.

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

(i) is a party to § 467 rental agreements
(within the meaning of § 1.467-1(c)(1) for

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rental agreements entered into after May
18, 1999, and § 467(d) for all other agree-
ments); and

(ii) except as provided in section
21.01(1)(b)(ii) of this revenue procedure,
wants to change its method of accounting
for its fixed rent (as defined in § 1.467-
1(d)(2)) to the rent allocation method pro-
vided in § 1.467-1(d)(2)(iii).

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

(i) rental agreements for which taxpay-
ers are 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; and

(ii) rental agreements that provide a
specific allocation of fixed rent as de-
scribed in § 1.467-1(c)(2)(ii)(A)(2) that
allocate rent to periods other than when
such rents are payable.

(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 Commissioner
to be a disqualified leaseback or long-term
agreement described in § 1.467-(3)(b).

(4) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 21.01 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 call).

# SECTION 22. INVENTORIES (§ 471)

.01 Cash discounts.

(1) Description of change. This change
applies to a taxpayer that wants to change its
method of accounting for cash discounts
(that is, discounts granted for timely pay-
ment) when they approximate a fair interest
rate, from a method of consistently includ-
ing the price of the goods before discount in
the cost of the goods and including in gross
income any discounts taken (the "gross in-

voice method"), to a method of reducing the
cost of the goods by the cash discounts and
deducting as an expense any discounts not
taken (the "net invoice method"), or vice
versa. See Rev. Rul. 73-65, 1973-1 C.B.
216.

(2) 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
§ 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
22.01 is "48."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call).

.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

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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 without
obtaining the consent of the Commis-
sioner as required by § 446(e). See sec-
tions 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
22.02 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 call).

.03 Small taxpayer exception from
requirement to account for inventories
under § 471.

(1) Description of change.

(a) Applicability. This change applies
to either a taxpayer (other than a taxpayer
described § 448(a)(3)) with "average an-
nual gross receipts" (as defined in section
5.01 of Rev. Proc. 2001-10, as modified
by Announcement 2004-16 (regarding
placement of § 481(a) adjustment on the
Form 3115), and Rev. Proc. 2011-14 (re-
moving § 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 re-
ceipts" (as defined in section 5.02 of Rev.
Proc. 2002-28, as modified by Announce-
ment 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)) of
$10,000,000 or less that wants to change
from a method of accounting for invento-
riable items (including, if applicable, 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.

(b) Inapplicability. This change does
not apply for any taxable year beginning
after December 31, 2017.

(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 15.03 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.
2015-13, 2015-5 I.R.B. 419, for informa-
tion on making concurrent changes.

(4) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 22.03 for the
small taxpayer ($1,000,000) inventory ex-
ception contained in Rev. Proc. 2001-10 is
"50." The designated automatic accounting
method change number for a change under
this section 22.03 for the small taxpayer
($10,000,000) inventory exception con-
tained in Rev. Proc. 2002-28 is "51."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

## .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 recognized
in accordance with § 1.471-3(b). A "quali-
fying volume-related trade discount" means
a discount satisfying the following criteria:
(a) the taxpayer receives or earns the
discount based solely upon the purchase

of a particular volume of the merchandise
to which the discount relates;

(b) the taxpayer is neither obligated nor
expected to perform or provide any ser-
vices in exchange for the discount; and

(c) the discount is not a reimbursement
of any expenditure incurred or to be in-
curred by the taxpayer.

(2) Section 481(a) adjustment. The net
§ 481(a) adjustment attributable to the
change is computed in a manner similar to
the computation of a net § 481(a) adjust-
ment in the case of a change to the net
invoice method of accounting for cash
discounts. See section 22.01(2) of this rev-
enue procedure.

(3) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 22.04 is
"53."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call).

.05 Impermissible methods of
identification and valuation of
inventories.

(1) Description of change.

(a) Applicability. This change applies to
a taxpayer that wants to change from an
impermissible method of identifying or
valuing inventories to a permissible method
of identifying or valuing inventories. For
example, a taxpayer:

(i) using last-in, first-out (LIFO) as its
inventory-identification method may change
its inventory-valuation method from below
cost to cost;

(ii) using an impermissible method of
accounting described in § § 1.471-2(f)(1)
through (5) may change to a permissible
method of accounting that corrects the
impermissible method described in
§ § 1.471-2(f)(1) through (5);

(iii) using a method that is not in ac-
cordance with § 1.471-2(c) may change to
a permissible method of valuing "subnor-
mal goods" under § 1.471-2(c);

(iv) changing from a gross profit
method. For this purpose, a gross profit
method is a method in which the taxpayer
estimates the cost of goods sold by reduc-
ing its gross sales by a percentage "mark-
up" from cost. The estimated cost of
goods sold is subtracted from the sum of

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the beginning inventory and purchases
and the result is used as the ending inven-
tory; or

(v) changing from a method of deter-
mining market that is not in accordance
with § 1.471-4. For this purpose, an ex-
ample of a method of determining market
that is not in accordance with § 1.471-4 is
where a taxpayer, under ordinary circum-
stances, determines the market value of
purchased merchandise using judgment
factors, and not using the prevailing cur-
rent bid price on the inventory date for the
particular merchandise in the volume in
which it is usually purchased by the tax-
payer.

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

(i) any change for real property or im-
provements to the real property because
real property is not inventoriable property
under § 1.471-1;

(ii) a taxpayer who meets the definition
of a "dealer in securities" under both
§ 1.471-5 and § 475 because such dealer
is required to account for securities, as
defined in § 475, under § 475 and may not
use the rules described in § 1.471-5 for
those securities;

(iii) any change described in another
section of this revenue procedure or in
other guidance published in the Internal
Revenue Bulletin, or to any change within
the last-in, first-out (LIFO) inventory
method. For example, this change does
not apply to a taxpayer that wants to
change to a rolling-average method (but
see section 22.14 of this revenue proce-
dure);

(iv) any change to a method of allocat-
ing costs to inventory under § 471 or any
change to a method under § 263A (but see
sections 12.01 and 12.02 of this revenue
procedure); or

(v) a taxpayer that is currently deduct-
ing inventories (but see section 22.18 of
this revenue procedure).

(c) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method of identi-
fication or valuation, or both, specifically
permitted by the Code, the regulations, or
other guidance published in the Internal
Revenue Bulletin, or a decision of the
United States Supreme Court. However,
an otherwise permissible inventory
method is not permissible under this sec-

tion 22.05 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
22.05 is "54."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Natasha Mulleneaux at
(202) 317-7007 (not a toll-free call).

.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 concur-
rently 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 22.11 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
23.01(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 au-
tomatic accounting method change number
for a change under this section 22.06 is
"55."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 end-
ing 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
22.07 is "63."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.08 Replacement cost for heavy
equipment dealers' parts inventory.

(1) Description of change. This change
applies to a heavy equipment dealer that is
engaged in the trade or business of selling
heavy equipment parts at retail, that is
authorized under an agreement with one
or more heavy equipment manufacturers
or distributors to sell new heavy 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.

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(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 12 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
22.08 is "96."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 22.09,
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
22.09 is "110."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Charles Gorham at (202)
317-7003 (not a toll-free call).

.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 taxpayer using an
overall accrual method of accounting that is
required to use an inventory method of ac-
counting, that maintains inventories as pro-
vided in § 471 and the regulations thereun-
der, and that receives 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
22.10 is "111."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call).

.11 Permissible methods of identification
and valuation of inventories.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer that wants to change from
one permissible method of identifying or
valuing inventories to another permissible
method of identifying or valuing invento-
ries. For example, a taxpayer using the
first-in, first-out (FIFO) method as its
inventory-identification method may
change its inventory-valuation method
from cost to cost or market, whichever is
lower (LCM), or a taxpayer valuing “sub-
normal" goods at cost may change its val-
uation method to another permissible
method of valuing "subnormal goods" un-
der § 1.471-2(c).

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

(i) any change for real property or im-
provements to the real property because
real property is not inventoriable property
under § 1.471-1:

(ii) a taxpayer who meets the definition
of a "dealer in securities" under both
§ 1.471-5 and § 475 because such dealer
is required to account for securities, as
defined in § 475, under § 475 and may not
use the rules described in § 1.471-5 for
those securities;

(iii) any change described in another sec-
tion of this revenue procedure or in other
guidance published in the Internal Revenue
Bulletin, or to any change within the last-in,
first-out (LIFO) inventory method. For ex-
ample, this change does not apply to a tax-
payer that wants to change to a rolling-
average method (but see section 22.14 of
this revenue procedure); or

(iv) any change to a method of allocat-
ing costs to inventory under § 471 or any
change to a method under § 263A (but see
sections 12.01 and 12.02 of this revenue
procedure).

(c) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method of identi-
fication 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 22.11 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
22.11 is "137."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Steven Gee at (202) 317-
7007 (not a toll-free call).

.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

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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
22.12 is "138."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 au-
tomobiles or new light-duty trucks (“dealer-
ship") that wants to discontinue capitalizing
certain advertising costs as acquisition costs
under § 1.471-3(b). The change applies to
advertising costs that meet the following
criteria: (a) the dealership must pay this ad-
vertising 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 ve-
hicle; (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 man-
ufacturer are paid to local advertising asso-
ciations 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 advertising
costs under § 162 as the advertising services
are provided to the dealership. See § 1.461-
4(d)(2)(i).

(2) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
22.13 is "139."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.14 Rolling-average method of
accounting for inventories.

(1) Description of change. This change
applies to a taxpayer that uses a rolling-
average method to value inventories for
financial accounting purposes and wants
to use the same rolling-average method to
value inventories for federal income tax
purposes in accordance with Rev. Proc.
2008-43, 2008-30 C.B. 186, as modified
by Rev. Proc. 2008-52, 2008-2 C.B. 587
(see section 13).

(2) 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
22.14 is "114."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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) Concurrent automatic changes. A
taxpayer making both this change and the
change described in section 12.11 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.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for changes in methods of ac-
counting under this section 22.15 is
"203."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Sean Dwyer at (202) 317-
7005 (not a toll-free call).

.16 Certain changes to the cost
complement of the retail inventory
method.

(1) Description of change. This
change, as described in Rev. Proc. 2014-
48, 2014-36 I.R.B. 527, applies to a 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
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); or

(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 22.16 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
22.16 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
22.16 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.

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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 com-
putation of ending inventories after the be-
ginning of the year of change, and a
§ 481(a) adjustment is neither permitted nor
required if a change is made on a cut-off
basis.

(5) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for changes in methods of accounting under
this section 22.16 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 call).

.17 Certain changes within the retail
inventory method.

(1) Description of change. This change
applies to a taxpayer using the retail in-
ventory method that wants to change from
including to not including temporary
markups and markdowns in determining
the retail selling prices of goods on hand
at the end of the taxable year.

(2) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for changes in methods of accounting under
this section 22.17 is "225."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Natasha M. Mulleneaux
at (202) 317-7007 (not a toll-free call).

.18 Change from currently deducting
inventories to permissible methods of
identification and valuation of
inventories.

(1) Description of change.

(a) Applicability. This change applies to
a taxpayer that wants to change from cur-
rently deducting inventories to a permissible
method of identifying and valuing invento-
ries. For example, a taxpayer currently de-
ducting inventories may change to using the
first-in, first-out (FIFO) method as its
inventory-identification method and cost or
market, whichever is lower (LCM), as its
inventory-valuation method.

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

(i) any change for real property or im-
provements to the real property because

real property is not inventoriable property
under § 1.471-1;

(ii) a taxpayer who meets the definition
of a "dealer in securities" under both
§ 1.471-5 and § 475 because such dealer
is required to account for securities, as
defined in § 475, under § 475 and may not
use the rules described in § 1.471-5 for
those securities;

(iii) any change described in another sec-
tion of this revenue procedure or in other
guidance published in the Internal Revenue
Bulletin, or to any change within the last-in,
first-out (LIFO) inventory method. For ex-
ample, this change does not apply to a tax-
payer that wants to change to a rolling-
average method (but see section 22.14 of
this revenue procedure); or

(iv) any change to a method of allocat-
ing costs to inventory under § 471 or any
change to a method under § 263A (but see
sections 12.01 and 12.02 of this revenue
procedure).

(c) Permissible method defined. For
purposes of this change, a permissible
method is an inventory method of identi-
fication 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 22.18 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 changes in methods of ac-
counting under this section 22.18 is
"230."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Natasha M. Mulleneaux
at (202) 317-7007 (not a toll-free call).

# SECTION 23. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472)

.01 Change from the LIFO inventory
method.

(1) Description of change.

(a) In general. This change applies to a
taxpayer that wants to:

(i) change from the LIFO inventory
method for all its LIFO inventory or for
the entire content of one or more dollar-
value pools; and

(ii) change to a permitted method or meth-
ods as determined in section 23.01(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 23.01, 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 inapplicable.
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) be-
cause the taxpayer has applied or will apply
International Financial Reporting Standards
in its financial statements or because the
taxpayer has been acquired by an entity that
has not or will not use the LIFO method in
its financial statements.

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(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 Inventory
Method, in accordance with § 1.472-3.

(4) Effect of subchapter S election by
corporation. See section 7.03(4)(b) and
(c) of Rev. Proc. 2015-13.

(5) Additional requirements. The 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
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 23.10 of this revenue procedure and
then may change from the LIFO method
pursuant to this section 23.01. See section
23.10(2) of this 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 22.07, 22.08, and 22.14 of this revenue
procedure), the taxpayer's § 481(a) adjust-
ment is "the LIFO recapture amount" as
defined in § 312(n)(4)(B) and (C). A tax-
payer computing the § 481(a) adjustment
under this special rule must then compute its
ending inventory value for the year of
change using the proposed method (that is,
treat the deemed change from the first-in,
first-out (FIFO) method to the proposed
method on a cut-off basis).

(8) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.01 is "56."

(9) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.02 Determining current-year cost under
the LIFO inventory method.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to change its method of
determining current-year cost to:

(i) the actual cost of the goods most
recently purchased or produced (most-
recent-acquisitions method);

(ii) the actual cost of the goods 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 23.02.

(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 23.02 and a
change to a rolling-average method of ac-
counting for non-LIFO inventories under
Rev. Proc. 2008-43 (see section 22.14 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
23.02 is "57."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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-

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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 es-
tablish separate inventory pools for new
automobiles and new light-duty trucks,
unless the automobile dealer also con-
currently changes to the Vehicle-Pool
Method (see section 23.08 of this reve-
nue procedure). Further, the automobile
dealer must establish a separate inven-
tory pool for the parts and accessories.
See section 6.03(1)(b) of Rev. Proc.
2015-13, 2015-5 I.R.B. 419, for infor-
mation on making concurrent changes.

(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
23.03, the automobile dealer also must
attach to its Form 3115 a schedule setting
forth the classes of goods for which the

automobile dealer has elected to use the
LIFO method and the accounting method
changes being made under this section
23.03 for each class of goods.

(3) Concurrent change to the Vehicle-
Pool Method. A taxpayer making both a
change to the Alternative LIFO Method
under this section 23.03 and a change to
the Vehicle-Pool Method under Rev.
Proc. 2008-23 (see section 23.08 of this
revenue procedure) should file a single
Form 3115 for both changes, in which
case the taxpayer must enter the 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
23.03 is "58."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 23.04 except for complying
with this section 23.04(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-

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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 auto-
mobiles and new light-duty trucks, unless
the used vehicle dealer also concurrently
changes to the Vehicle-Pool Method (see
section 23.08 of this revenue procedure).
Further, the used vehicle dealer must estab-
lish a separate inventory pool for the parts
and accessories. See section 6.03(1)(b) of
Rev. Proc. 2015-13 for information on
making concurrent changes.

(5) Concurrent change to the Vehicle-
Pool Method. A taxpayer making both a
change to the Used Vehicle Alternative
LIFO Method under this section 23.04 and
a change to the Vehicle-Pool Method un-
der Rev. Proc. 2008-23 (see section 23.08
of this revenue procedure) should file a
single Form 3115 for both changes, in
which case the taxpayer must enter the
designated automatic accounting method
change numbers for both changes on the
appropriate line on that Form 3115. See
section 6.03(1)(b) of Rev. Proc. 2015-13
for information on making concurrent
changes.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.04 is "59."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.05 Determining the cost of used
vehicles purchased or taken as a trade-
in.

(1) Description of change.

(a) Applicability. This change applies
to a taxpayer using the LIFO inventory
method that wants to:

(i) determine the cost of used vehicles
acquired by trade-in using the average
wholesale price listed by an official used
vehicle guide on the date of the trade-in.
See Rev. Rul. 67-107, 1967-1 C.B. 115.
The taxpayer must consistently use the
official used vehicle guide selected unless

the taxpayer receives permission to use a
different guide;

(ii) use a different official used vehicle
guide for determining the cost of used
vehicles acquired by trade-in;

(iii) determine the cost of used vehicles
purchased for cash using the actual 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 23.04 of this
revenue procedure).

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to used vehicles acquired on
or after the beginning of the year of
change. Accordingly, a § 481(a) 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
23.05 is "60."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 23.06 except for complying
with section 23.06(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 23.02 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

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23.07 of this revenue procedure for the
same year of change may file a single
Form 3115, provided the taxpayer enters
the designated automatic accounting
method change numbers for both changes
on the appropriate line on that Form 3115.
See section 6.03(1)(b) of Rev. Proc.
2015-13 for information on making con-
current changes.

(c) A taxpayer making this change and
to change its method of pooling under
section 23.10 of this revenue procedure
for the same year of change may file a
single Form 3115, provided the taxpayer
enters the designated automatic 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
23.06 is "61."

(6) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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;

(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 com-
modity and service groupings and individ-
ual items, not seasonally adjusted) of the
monthly PPI Detailed Report (formerly, Ta-
ble 6). See § 1.472-8(e)(3)(iii)(C) for prin-
ciples concerning the assignment of inven-
tory 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 reas-
signed 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 23.02 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 inapplicable.
The eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to the changes described in
sections 23.07(1)(d), (f) in the case of a
taxpayer using the 10 percent method de-
scribed 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 23.07(1)(a),
(b), and (e) of this revenue procedure must
establish a new base year in the year of
change.

(4) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.07 is "62."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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 23.08
must comply with § 1.472-8(g).

(b) New base year. Instead of using the
earliest taxable year for which the reseller

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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 23.08 and a
change to the Alternative LIFO Method
under Rev. Proc. 97-36 (see section 23.03
of this revenue procedure) or the Used
Vehicle Alternative LIFO Method under
Rev. Proc. 2001-23 (see section 23.04 of
this revenue procedure) should file a 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
23.08 is "112."

(5) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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
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 ex-
ample, a change in the specific guide cate-

gory that a taxpayer uses to represent vehi-
cles 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 23.09 must establish a new base year
in the year of change.

(3) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
23.09 is "140."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

.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
resale pools;

(b) wants to change from using multiple
pools described in § 1.472-8(b)(3) to using
natural business unit (NBU) pools described
in § 1.472-8(b)(1), or vice versa; or

(c) wants to reassign items in NBU
pools described in § 1.472-8(b)(1) into
the same number or a greater number of
NBU pools.

(2) Manner of making change. This
change is made on a cut-off basis and
applies only to the computation of ending
inventories after the beginning of the year
of change. Accordingly, a § 481(a) adjust-
ment is neither permitted nor required. A
taxpayer that changes its method of pool-
ing pursuant to this section 23.10 must
combine or separate pools as required by
§ 1.472-8(g). If a taxpayer splits a pool
into two or more permissible pools pursu-
ant to this section 23.10, 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 23.01 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
23.10 is "141."

(4) Contact information. For further in-
formation regarding a change under this
section, contact Andrew Braden at (202)
317-7007 (not a toll-free call).

# SECTION 24. MARK-TO-MARKET ACCOUNTING METHODS (Including § 475 )

.01 Commodities dealers, securities
traders, and commodities traders electing
to use the mark-to-market method of
accounting under § 475(e) or (f).

(1) Description of change. This change
applies to certain taxpayers that have
elected to use the mark-to-market method
of accounting under § 475(e) or (f). Under
§ 475(e) and (f) and Rev. Proc. 99-17,
1999-1 C.B. 503, if a taxpayer makes 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 comply
with the election. A taxpayer that makes a
§ 475(e) or (f) election but fails to change its
method of accounting to comply with that
election is using an impermissible method.
See section 4 of Rev. Proc. 99-17.

(2) Applicability. This change applies
to a taxpayer if all of the following 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

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(c) the year of change is the election
year.

(3) Certain eligibility rule inapplicable.
The eligibility rule in section 5.01(1)(d) of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
does not apply to this change.

(4) Election under Rev. Proc. 99-17.
In accordance with section 5.03(1) of Rev.
Proc. 99-17, to make a § 475(e) or (f)
election, a taxpayer must file a statement
satisfying the requirements in section 5.04
of Rev. Proc. 99-17. The taxpayer must
file the statement not later than the due
date (without regard to any extension) of
the original federal income tax return
for the taxable year immediately preced-
ing the election year and must attach the
statement either to that return or, if appli-
cable, to a request for an extension of time
to file that return. For example, if a cal-
endar year individual taxpayer wants to
make a § 475(e) or (f) election for 2018
(the election year), the taxpayer must file
the statement on or before April 18, 2018,
with the taxpayer's timely filed (without
regard to any extension) federal income
tax return for 2017 or the taxpayer's
timely filed request for an extension of
time to file the 2017 federal income tax
return. On the Form 3115 filed for the year
of change, a taxpayer should indicate that
the taxpayer has filed the statement in
compliance with section 5.03(1) of Rev.
Proc. 99-17.

(5) Limited § 301.9100 relief. Section
301.9100-3 relief for failure to comply
with the requirements of this section 24.01
will be granted only in unusual and com-
pelling circumstances.

(6) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
24.01 is "64."

(7) Contact information. For further in-
formation regarding a change under this
section, contact Marsha Sabin at (202)
317-6945 (not a toll-free call).

.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-
ization method of accounting. For exam-
ple, this section 24.02 applies when a tax-
payer is required to change its method of
accounting to a realization method after re-
voking an election under § 475(e), (f)(1), or
(f)(2). This change is not limited to a change
required by § 475 (for example, this section
24.02 applies to a change from a mark-to-
market method of accounting for notional
principal contracts providing for nonperi-
odic payments even if the taxpayer is not
subject to § 475) and, in such a case, refer-
ences to § 475 in this section 24.02 are
interpreted accordingly. For purposes of this
section 24.02, a change to a realization
method of accounting includes a change in
which the taxpayer also is required to use a
mark-to-market method of accounting under
a specific Code section to account for all or
some of the taxpayer's securities or com-
modities (for example, § 1256 for commod-
ities).

(2) Exclusive procedure. The proce-
dure set forth in this section 24.02 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 24.02(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 24.02 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 24.02, including the require-
ment that it timely file the Notification
Statement described in section 24.02(6) of
this revenue procedure.

(4) 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.

(5) Manner of making change. This
change is made using a cut-off basis and
applies only to Section 475 Securities,
Section 475 Commodities, or both, that
are accounted for using the mark-to-
market method of accounting described in
§ 475 and for which a change in method is
requested under this section 24.02. 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 24.02(7) of this revenue procedure
permits the taxpayer to resume a mark-to-
market method and the taxpayer resumes
a mark-to-market method.

(6) Notification Statement required. In
addition to filing the Form 3115 required
under section 6.03(1) of Rev. Proc. 2015-
13, to change to a realization method of
accounting under this section 24.02, a tax-

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payer must also file a Notification State-
ment that satisfies the requirements in sec-
tion 24.02(6) of this revenue procedure.
The Notification Statement must be filed
not later than the due date (without regard
to any extension) of the original federal
income tax return for the taxable year
immediately preceding the year of change
and must be attached either to that return
or, if applicable, to a request for an exten-
sion 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 24.02(7)(a) of this revenue proce-
dure applies). A taxpayer that files the
Notification Statement described in this
section 24.02 but fails to change its
method of accounting using the proce-
dures described in Rev. Proc. 2015-13
and this section 24.02 is using an imper-
missible method.

(c) Limited § 301.9100 relief. Section
301.9100 relief for failure to comply with
the requirements of this section 24.02(6)
will be granted only in unusual and com-
pelling circumstances.

(7) Additional requirements.

(a) Resuming the mark-to-market method
of accounting. A taxpayer may not use the
automatic change procedures in Rev. Proc.
2015-13 and section 24.01 of this revenue
procedure to resume using the mark-to-
market method of accounting described in
§ 475 for the Section 475 Securities, Section
475 Commodities, or both, that are the sub-
ject of the method change being requested
using this section 24.02 during any of the
five taxable years beginning with the year of
change. To resume using the mark-to-
market method of accounting described in
§ 475 during this 5-year period, a taxpayer
must: (i) request the change using the non-
automatic change procedures in Rev. Proc.
2015-13, (ii) request the change by the date
an election for the year of change would be
due under section 5.03 of Rev. Proc. 99-17,
1999-1 C.B. 503, and (iii) include a state-
ment that satisfies all applicable require-
ments 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
24.02(6) of this revenue procedure to its
Form 3115 filed under this section 24.02.

(c) No audit protection for valuation. A
taxpayer does not receive audit protection
under section 8.01 of Rev. Proc. 2015-13
for the method of valuation used by the
taxpayer to determine the fair market
value of the taxpayer's Section 475 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 au-
tomatic accounting method change number
for a change under this section 24.02 is
"218".

(9) Contact information. For further in-
formation regarding a change under this
section, contact Marsha Sabin at (202)
317-6945 (not a toll-free call).

# SECTION 25. BANK RESERVES FOR BAD DEBTS (§ 585)

.01 Changing from the § 585 reserve
method to the § 166 specific charge-off
method.

(1) Description of change.

(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 25.01 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
25.01 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 25.01 is the amount
of the bank's reserve for bad debts as of the
close of the taxable year immediately before
the year of change. However, the amount of
the § 481(a) adjustment does not include the
amount of a bank's pre-1988 reserves (as
described in § 593(g)(2)(A)(ii), without tak-
ing into account § 593(g)(2)(B)) if the bank
changed in a prior year from the § 593
reserve method to the § 585 reserve method
and § 593(g) applied to that change. The
deemed liquidation of a bank occurring
solely because its parent makes a Qsub elec-
tion does not accelerate the § 481(a) adjust-
ment. 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

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Subchapter S Subsidiary Election, with re-
spect to the bank will constitute an agree-
ment by the bank to change its method of
accounting for bad debts from the § 585
reserve method to the § 166 specific charge-
off method effective as of the taxable year
for which the S corporation election or Qsub
election is effective (year of change) in ac-
cordance with all of the automatic change
procedures of Rev. Proc. 2015-13 and this
section 25.01. The resulting § 481(a) adjust-
ment is recognized built-in gain under § 1374,
unless the bank elects under § 1361(g) and
section 25.01(4)(b) of this revenue procedure
to take the § 481(a) adjustment into account in
determining taxable income for the taxable
year immediately preceding the year of
change. See § 1.1374-4(d).

(b) Election to include § 481(a) 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 25.01, from the
§ 585 reserve method to the § 166 specific
charge-off method for the first taxable
year for which the bank's S corporation
election is effective (year of change) may
elect under § 1361(g) to take into account
the amount of the resulting § 481(a) 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.

(iii) The following example illustrates
the principles of section 25.01(4)(b) of
this revenue procedure.

Example. X, a calendar year taxpayer, is a 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
25.01(4)(a) of this revenue procedure, the filing of
the Form 2553 constituted an agreement by X to
change from the § 585 reserve method to the § 166
specific charge-off method for 2015 in accordance
with all of the automatic change procedures of Rev.
Proc. 2015-13, and the applicable provisions of this
section 25.01. Thus, for example, X must file a Form
3115 for this 2015 change in duplicate, in 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 Covington, KY, office. The
amount of X's § 481(a) adjustment for the change is
the amount of X's bad debt reserve as of the close of
December 31, 2014. X wishes to elect under
§ 1361(g) to include the § 481(a) adjustment in
income in the taxable year ending December 31,
2014, the taxable year immediately preceding the
year of change. To make this election, X must (1) file
an original and copy of Form 3115 for the 2015
change under section 6.03(1) of Rev. Proc. 2015-13,
(2) file an additional copy of that Form 3115 with its
original (or amended) federal income tax return for
2014 filed no later than the date the original Form
3115 is properly filed under section 6.03(1) of Rev.
Proc. 2015-13, and (3) include the amount of its
§ 481(a) adjustment in gross income in its return for
2014. X must attach a statement to the original and
both copies of Form 3115 stating that X elects under
§ 1361(g) to take the § 481(a) adjustment into ac-
count in determining taxable income for 2014, the
taxable year immediately preceding the year of
change.

(5) Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under this section
25.01 is "66."

(6) Contact information. For further 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 toll-free calls).

# SECTION 26. 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's 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 26.01 applies to any insurance
company that is subject to tax under
§ 831(a) and determines its premiums
earned for insurance contracts during the
taxable year under § 832(b)(4) in accor-
dance with the provisions of § 1.832-4. The
automatic change does not apply to an ex-

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isting Blue Cross or Blue Shield organiza-
tion or any other organization 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 au-
tomatic accounting method change number
for a change under this section 26.01 is
"67."

(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 call).

.02 Certain changes in method of
accounting for organizations to which
§ 833 applies

(1) Description of change. This change
applies to an existing Blue Cross or Blue
Shield organization within the meaning of
§ 833(c)(2), or an organization described
in § 833(c)(3), that is required to change
its method of accounting for unearned
premiums by reason of failing to meet the
Medical Loss Ratio (MLR) requirements
of § 833(c)(5), or by reason of meeting the
MLR requirements of § 833(c)(5) after
failing to meet those requirements in a
prior year. See Notice 2011-4, 2011-2
I.R.B. 282.

(2) Certain eligibility rules 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
26.02 is required to effect another change
in method of accounting described in this
section 26.02. 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
26.02 is "155."

(5) Contact information. For further in-
formation regarding this section, contact
Rebecca L. Baxter at (202) 317-6995 (not
a toll-free call).

.03 Change in qualification as life/nonlife
insurance company under § 816.

(1) Description of change. This change
applies to an insurance company that
changes from being taxed as a life insur-
ance company under part I of subchapter
L to being taxed as a non-life insurance
company under part II of subchapter L, or
vice versa. Whether an insurance com-
pany is taxed under § 801 as a life insur-
ance company under part I of subchapter
L is determined under § 816.

(2) Certain eligibility rules inapplicable.
The eligibility rules in sections 5.01(1)(d)
and (f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, do not apply to this change.

(3) No audit protection or ruling on
qualification as a life insurance company.
The taxpayer does not receive either: (a)
any audit protection under section 8.01 of
Rev. Proc. 2015-13 or (b) ruling reliance
under section 10 of Rev. Proc. 2015-13 in
connection with the consent granted under
section 9 of Rev. Proc. 2015-13 for a
change under this section 26.03 regarding
whether the taxpayer qualifies as a life
insurance company. The director will as-
certain whether the taxpayer qualifies as a
life insurance company.

(4) Designated automatic accounting
method change number. The designated auto-
matic accounting method change number for a
change under this section 26.03 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 call).

# SECTION 27. DISCOUNTED UNPAID LOSSES (§ 846)

.01 Composite method for discounting
unpaid losses.

(1) Description of change. Section 846
defines "discounted unpaid losses" for

purposes of computing the insurance 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
27.01 is "68."

(3) Contact information. For further in-
formation regarding a change under this
section, contact Rebecca L. Baxter at
(202) 317-6995 (not a toll-free call).

# SECTION 28. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§ § 860A-860G)

.01 REMIC inducement fees.

(1) Description of change. A taxpayer
that receives an inducement fee in 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.

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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
28.01 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 call).

# 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 au-
tomatic 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 call).

# SECTION 30. ORIGINAL ISSUE DISCOUNT (§ § 1272, 1273)

.01 De minimis original issue discount
(OID).

(1) Description of change. This change
applies to a taxpayer that wants to change to
the principal-reduction method of account-
ing described in section 5 of Rev. Proc.
97-39, 1997-2 C.B. 485. The principal-
reduction method of accounting is an aggre-
gate 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 permissible
method for use by taxpayers to account for
discount on one or more categories of loans
described in section 4.02 or 4.03 of Rev.
Proc. 97-39. If the principal-reduction
method is used to account for any loans in a
category of loans, the method must be used
for the entire category of loans. The
principal-reduction method applies only to
loans described in section 3 of Rev. Proc.
97-39.

(4) Manner of making change.

(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
30.01 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 call).

.02 Proportional method of accounting
for OID on a pool of credit card
receivables.

(1) Description of change. This change
applies to a taxpayer that wants to change
to the proportional method of accounting
for OID on a pool of credit card 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) Designated automatic accounting
method change number. The designated au-
tomatic accounting method change number
for a change under this section 30.02 is
"183."

(4) Contact information. For further in-
formation regarding this section, please
contact Charles W. Culmer at (202) 317-
6945 (not a toll-free call).

# SECTION 31. MARKET DISCOUNT BONDS (§ 1278)

.01 Revocation of § 1278(b) election.

(1) Description of change. This change
applies to a taxpayer that wants to change
its method of accounting for market 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 for certain taxable years). For pur-
poses of this section 31.01, a taxpayer also

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is treated as having made a deemed
§ 1278(b) election for a taxable year if, for
one or more market discount bonds that
were acquired by the taxpayer during that
taxable year, the taxpayer includes in
gross income on the tax return for that
taxable year and on the tax return for the
following taxable year the market dis-
count attributable to each taxable year,
other than as a result of a disposition of
the bond or a partial principal payment on
the bond. The procedures for revoking a
§ 1278 election were formerly provided in
section 7 of Rev. Proc. 92-67.

(2) Revocation of election. The revoca-
tion of a § 1278(b) election (or a deemed
§ 1278(b) election) applies to all market
discount 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 market dis-
count bonds that are subsequently ac-
quired by the taxpayer. If a § 1278(b)
election (or a deemed § 1278(b) election)
is revoked, then for purposes of § 1278(a),
accrued market discount with respect to
any bond previously subject to the elec-
tion means accrued market discount as
defined in § 1276(b) less any market dis-
count included in income while the bond
was subject to the § 1278(b) election (or
the deemed § 1278(b) election).

(3) Manner of making change. This
change is made on a cut-off basis and
applies only to market discount accruing
on or after the beginning of the year of
change. Accordingly, a § 481(a) 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
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 sec-
tion 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 Commis-
sioner 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 au-
tomatic accounting method change number
for a change under this section 31.01 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 call).

# SECTION 32. SHORT-TERM OBLIGATIONS (§ 1281)

.01 Interest income on short obligations.

(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 au-
tomatic accounting method change number
for a change under this section 32.01 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 call).

.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.

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(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
32.02 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 call).

## EFFECTIVE DATE

.01 In general. Except as otherwise
provided under this EFFECTIVE DATE
section, this revenue procedure is effec-
tive for a Form 3115 filed on or after May
9, 2018, for a year of change ending on or
after September 30, 2017, that is filed under
the automatic change procedures of Rev.
Proc. 2015-13, 2015-5 I.R.B. 419, as clar-
ified 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 by section 17.02 of Rev. Proc. 2016-1,
2016-1 I.R.B. 1.

.02 Transition rules. The following
transition rules apply:

(1) Limited time period to convert a
Form 3115 filed under the non-automatic
change procedures in Rev. Proc. 2015-
13. If before May 9, 2018, a taxpayer
properly filed a Form 3115 under the non-
automatic change procedures in Rev.
Proc. 2015-13 requesting the Commis-
sioner's consent for a change in method of
accounting described in this revenue pro-
cedure, and the Form 3115 is pending
with the national office on May 9, 2018,
the taxpayer may choose to make the
change in method of accounting under the
automatic change procedures in Rev.
Proc. 2015-13 if the taxpayer is otherwise
eligible to use this revenue procedure and
the automatic change procedures in Rev.
Proc. 2015-13. The taxpayer must notify
the national office contact person (if un-
known, see section 9.08(6) of Rev. Proc.

2018-1, 2018-1 I.R.B. 1, 50 (or succes-
sor)) for the Form 3115 of the taxpayer's
intent to make the change in method of
accounting under the automatic change
procedures in Rev. Proc. 2015-13 before
the later of (a) June 8, 2018, or (b) the
issuance of a letter ruling granting or de-
nying consent for the change. The notifi-
cation should indicate that the taxpayer
chooses to convert the Form 3115 to the
automatic change procedures in Rev.
Proc. 2015-13. If the taxpayer timely no-
tifies the national office that it chooses to
convert the Form 3115 to the automatic
change procedures in Rev. Proc. 2015-13,
the national office will send a letter to the
taxpayer acknowledging its request and
will return the user fee submitted with the
Form 3115.

A taxpayer converting a Form 3115 to
the automatic change procedures in Rev.
Proc. 2015-13 for a change in method of
accounting described in this revenue proce-
dure must resubmit a Form 3115 that con-
forms to the automatic change procedures,
with a copy of the national office letter sent
acknowledging the taxpayer's request at-
tached, to the IRS in Covington, KY by the
earlier of (a) the 30th calendar day after the
date of the national office's letter acknowl-
edging the taxpayer's request, or (b) the date
the taxpayer is required to file the Duplicate
copy of the Form 3115 under SECTION
6.03(1)(a)(i)(B) of Rev. Proc. 2015-13. See
SECTION 6.03(3) of Rev. Proc. 2015-13
regarding additional required copies of
Form 3115.

For purposes of the eligibility rules in
SECTION 5 of Rev. Proc. 2015-13, the
Duplicate copy of the timely resubmitted
Form 3115 will be considered filed as of
the date the taxpayer originally filed the
converted Form 3115 under the non-
automatic change procedures in Rev.
Proc. 2015-13. This paragraph (1) does
not extend the date the taxpayer must file
the original (converted) Form 3115 under
SECTION 6.03(1)(a)(i)(A) of Rev. Proc.
2015-13.

A Form 3115 filed under the non-
automatic change procedures in Rev.
Proc. 2015-13 before May 9, 2018, for a
change in method of accounting described
in this revenue procedure, will be disre-
garded for purposes of the prior five year
change rules in SECTIONS 5.04 and 5.05
of Rev. Proc. 2015-13 if the taxpayer

converts the Form 3115 pursuant to this
paragraph (1).

(2) Forms 3115 for changes in methods
of accounting that can no longer be filed
under the automatic change procedures.
Except as provided in subsection .02(2)(a)
of this EFFECTIVE DATE section, the
following transition rules apply to the
changes in methods of accounting that can
no longer be filed under the automatic
change procedures in Rev. Proc. 2015-13
because of changes made in this revenue
procedure. Examples of such changes in
methods of accounting are described in
subsection .01(9) and (10) of the SIGNIF-
ICANT CHANGES section of this reve-
nue procedure.

(a) If before May 9, 2018, a taxpayer
properly filed the original, or the Dupli-
cate copy, of a Form 3115 under the
automatic change procedures in Rev.
Proc. 2015-13 for a change in method of
accounting that can no longer be filed
under the automatic change procedures
in Rev. Proc. 2015-13, the taxpayer may
make that change in method of account-
ing under the automatic change proce-
dures in Rev. Proc. 2015-13 for the year
of change. This paragraph (2)(a) does
not apply to a taxpayer that filed before
May 9, 2018, the original, or the Dupli-
cate copy, of a Form 3115 to make a
change under section 16.07(1)(a)(ii) of
this revenue procedure for any taxable
year beginning after December 31,
2017.

(b) If before May 9, 2018, a taxpayer
did not properly file the original, or the
Duplicate copy, of a Form 3115 under the
automatic change procedures in Rev.
Proc. 2015-13 for a change in method of
accounting that can no longer be filed
under the automatic change procedures in
Rev. Proc. 2015-13, the taxpayer must
make that change in method of accounting
under the non-automatic change proce-
dures in Rev. Proc. 2015-13. Notwith-
standing § 1.446-1(e)(3)(i), the taxpayer
may file a Form 3115 to request the Com-
missioner's consent to change the method
of accounting under the non-automatic
change procedures in Rev. Proc. 2015-13
for the taxpayer's last taxable year ending
before May 9, 2018, on or before the due
date of the federal income tax return for
that taxable year. Solely for purposes of
this paragraph (2)(b), the due date of the

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taxpayer's federal income tax return in-
cludes extensions, notwithstanding that
the taxpayer may not have extended the
due date.

# EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure amplifies
and modifies Rev. Proc. 2017-30, 2017-18
I.R.B. 1131. Rev. Proc. 2017-30, as ampli-
fied and modified is superseded in part. The
third sentence in the subsection .01 under
the EFFECT ON OTHER DOCUMENTS
section of Rev. Proc. 2017-30 remains in
effect (that is, the second sentences in sec-
tions 14.01 and 14.02, and sections 14.04,
14.05, 14.06, and 14.07 of Rev. Proc. 2011-
14, 2011-4 I.R.B. 330, remain in effect).
All other sections of Rev. Proc. 2017-30 are
superseded.

.02 Rev. Proc. 2011-46, 2011-42
I.R.B. 518, is modified as follows:

(1) Section 5.02(3)(a) is modified to
remove the first two sentences in the 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 autho-
rized for this change. Notwithstanding the
definition of Form 3115 in section 3.07 of
Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
the statement in lieu of a Form 3115 that
is permitted under this paragraph
5.02(3)(a) is considered a Form 3115 for
purposes of the automatic consent pro-
cedures in Rev. Proc. 2015-13. How-
ever, the requirement to file the Dupli-
cate copy, under section 6.03(1)(a) of
Rev. Proc. 2015-13, is waived.

(2) Section 5.03(2)(a) is modified to
remove the first two sentences in the 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 autho-
rized for this change. Notwithstanding the
definition of Form 3115 in section 3.07 of
Rev. Proc. 2015-13, the statement in lieu of
a Form 3115 that is permitted under this
paragraph 5.03(2)(a) is considered a Form
3115 for purposes of the automatic consent
procedures in Rev. Proc. 2015-13. How-

ever, the requirement to file the Duplicate
copy, under section 6.03(1)(a) of Rev. Proc.
2015-13, is waived.

.03 Rev. Rul. 2004-62, 2004-1 C.B.
1072, is modified to remove the second
sentence in the CHANGE IN METHOD
OF ACCOUNTING section and to 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. 2018-31, 2018-22 I.R.B. 637
(or successor).

.04 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
11.03 of Rev. Proc. 2018-31, 2018-22
I.R.B. 637 (or successor).

.05 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. 2018-31, 2018-22
I.R.B. 637 (or successor).

.06 Rev. Proc. 2007-48, 2007-2 C.B.
110, is modified to remove section 5.06(1)
and to substitute it with the following 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 22.09 of Rev.
Proc. 2018-31, 2018-22 I.R.B. 637 (or
successor).

## PAPERWORK REDUCTION ACT

The collection of information con-
tained in this revenue procedure has
been reviewed and approved by the Of-
fice of Management and Budget in ac-
cordance 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 in-
formation displays a valid OMB control
number.

The collections of information in this
revenue procedure are in sections 3, 5, 6,
7, 8, 9, 11, 12, 15, 16, 17, 18, 20, 21, 22,
23, 24, 25, 29, 30, and 31. 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 1/2 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.

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## SIGNIFICANT CHANGES

.01 Significant changes made by this
revenue procedure to the List of Auto-
matic Changes in Rev. Proc. 2017-30 in-
clude:

(1) Section 6.11, relating to a change in
the depreciation of leasehold improve-
ments, is modified to remove paragraph
(2)(b), relating to the temporary waiver of
the eligibility rule in section 5.01(1)(f) of
Rev. Proc. 2015-13, because it is obso-
lete. The waiver of the eligibility rule in
section 5.01(1)(d) of Rev. Proc. 2015-13
continues to apply to this change;

(2) Section 6.18 of Rev. Proc. 2017-
30, relating to the revocation of the partial
disposition election under the remodel-
refresh safe harbor described in Rev. Proc.
2015-56, is obsolete and is removed from
the revenue procedure in its entirety;

(3) Section 11.10, relating to a change
to the remodel-refresh safe harbor de-
scribed in Rev. Proc. 2015-56, is modified
to remove paragraph (2), relating to the
temporary waiver of the eligibility rules in
sections 5.01(1)(d) and (f) of Rev. Proc.
2015-13, because they are obsolete;

(4) Because of the amendments made
to § § 263A, 448, and 471 by § 13102 of
Public Law 115-97, 131 Stat. 2054 (Dec.
22, 2017) (the "Act"), the Department of
the Treasury and the Internal Revenue
Service expect to issue a revenue proce-
dure providing procedures for making
changes implementing § 13102 of the Act.
Accordingly, the following sections are
modified:

(a) Section 12.01, relating to certain
uniform capitalization (UNICAP) meth-
ods used by resellers and reseller-produc-
ers, is modified to provide that a small
reseller, as defined in section 12.01(3)(b)
of this revenue procedure, is not permitted
to make a change in method of accounting
described in section 12.01(1)(a)(i) of this

revenue procedure for any taxable year
beginning after December 31, 2017; and

(b) Section 15.03, relating to taxpayers
changing to overall cash receipts and dis-
bursements (cash) method, and section
21.03 (now section 22.03 of this revenue
procedure), relating to the small taxpayer
exception from requirement to account for
inventories under § 471, are modified to
provide that these changes do not apply
for any taxable year beginning after De-
cember 31, 2017;

(5) Because of the amendments made
to § 118 by § 13312 of the Act, section
15.14, relating to nonshareholder contri-
butions to capital, is modified to provide
that the change described in section
15.14(1)(a)(ii) does not apply to contribu-
tions made after December 22, 2017, the
date of enactment of the Act;

(6) Pursuant to Notice 2018-35, 2018-18
I.R.B. 520, section 16.07, relating to changes
for advance payments, is modified to pro-
vide that the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13, 2015-5
I.R.B. 419, does not apply to a taxpayer that
changes to a method of accounting provided
under section 16.07(1)(a)(i) of this revenue
procedure for the taxpayer's first or second
taxable year ending on or after May 9, 2018;

(7) Because of the amendments made
to § 451 by § 13221 of the Act, section
16.07 also is modified to provide that a
taxpayer is not permitted to make a
change in method of accounting described
in section 16.07(1)(a)(ii) of this revenue
procedure for any taxable year beginning
after December 31, 2017;

(8) Section 21.15 (now section 22.15
of this revenue procedure), relating to
sales-based vendor chargebacks, is modi-
fied to remove paragraph (2), relating to
the temporary waiver of the eligibility rule
in section 5.01(1)(f) of Rev. Proc. 2015-
13, because it is obsolete;

(9) Section 23.01 (now section 24.01
of this revenue procedure), relating to cer-

tain taxpayers that have elected the mark-
to-market method of accounting under
§ 475(e) or (f), is modified to provide that
the waiver of the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 no lon-
ger applies to this change. The waiver of
the eligibility rule in section 5.01(1)(d) of
Rev. Proc. 2015-13 continues to apply to
this change; and

(10) Section 23.02 (now section 24.02
of this revenue procedure), relating to a
taxpayer changing its method of account-
ing for securities or commodities from the
mark-to-market method of accounting de-
scribed in § 475 to a realization method of
accounting, is modified to provide that the
waiver of the eligibility rule in section
5.01(1)(f) of Rev. Proc. 2015-13 no lon-
ger applies to this change. The waiver of
the eligibility rule in section 5.01(1)(d) of
Rev. Proc. 2015-13 continues to apply to
this change.

# DRAFTING INFORMATION

The principal author of this revenue
procedure is Charles Magee of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Mr. Magee at (202) 317-7005 (not a toll-
free call).

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 (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 follow-
ing Offices of Associate Chief Counsel:
Corporate (CORP), Financial Institutions
and Products (FI&P), Income Tax & Ac-
counting (IT&A), International (INTL),
Passthroughs and Special Industries
(P&SI), or Tax Exempt and Government
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

Peter Ford

(202) 317-7011

IT&amp;A

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Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

3.02

3

Peter Ford

(202) 317-7011

IT&amp;A

3.03

4

Peter Ford

(202) 317-7011

IT&amp;A

3.04

86

Peter Ford

(202) 317-7011

IT&amp;A

3.05

See § 11.08

See § 11.08

See § 11.08

IT&amp;A

3.06

See § 11.08

See § 11.08

See § 11.08

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

182

Lewis Saideman

(202) 317-5100

IT&amp;A

3.11

208, 209

Merrill Feldstein

(202) 317-5100

IT&amp;A

4.01

5

Charles Gorham

(202) 317-7003

IT&amp;A

4.02

211

K. Scott Brown

(202) 317-6945

FI&amp;P

5.01

16

William E. Blanchard

(202) 317-3900

FI&amp;P

5.02

212

Michael Kaercher

(202) 317-6934

INTL

6.01

7

Charles Magee

(202) 317-7005

IT&amp;A

6.02

8

Charles Magee

(202) 317-7005

IT&amp;A

6.03

10

Edward Schwartz

(202) 317-7006

IT&amp;A

6.04

87

Elizabeth Binder

(202) 317-7005

IT&amp;A

6.05

88

Elizabeth Binder

(202) 317-7005

IT&amp;A

6.06

89

Bernard Harvey

(202) 317-7005

IT&amp;A

6.07

107

Charles Magee

(202) 317-7005

IT&amp;A

6.08

145

Elizabeth Binder

(202) 317-7005

IT&amp;A

6.09

157

Charles Magee

(202) 317-7005

IT&amp;A

6.10

198

Patrick Clinton

(202) 317-7005

IT&amp;A

6.11

199

Patrick Clinton

(202) 317-7005

IT&amp;A

6.12

200

Patrick Clinton

(202) 317-7005

IT&amp;A

6.13

205

Patrick Clinton

(202) 317-7005

IT&amp;A

6.14

206

Patrick Clinton

(202) 317-7005

IT&amp;A

6.15

207

Patrick Clinton

(202) 317-7005

IT&amp;A

6.16

Summary of changes related to dispositions of MACRS property

6.17

210

Charles Magee

(202) 317-7005

IT&amp;A

7.01

17

Elizabeth Binder

(202) 317-7005

IT&amp;A

8.01

152

Jennifer Bernardini

(202) 317-6853

P&amp;SI

9.01

18

Charles Magee

(202) 317-7005

IT&amp;A

10.01

223

Elizabeth Binder

(202) 317-7005

IT&amp;A

10.02

228

Charles Gorham

(202) 317-7003

IT&amp;A

10.03

229

Meghan Howard

(202) 317-5055

P&amp;SI

11.01

19

Charles Gorham

(202) 317-7003

IT&amp;A

11.02

20

Charles Gorham

(202) 317-7003

IT&amp;A

11.03

21

Charles Gorham

(202) 317-7003

IT&amp;A

11.04

47

Charles Gorham

(202) 317-7003

IT&amp;A

11.05

78

Charles Gorham

(202) 317-7003

IT&amp;A

11.06

109

Charles Gorham

(202) 317-7003

IT&amp;A

11.07

121

Charles Gorham

(202) 317-7003

IT&amp;A

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Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

11.08

184-193

Lewis Saideman

(202) 317-5100

IT&amp;A

11.09

213

Charles Gorham

(202) 317-7003

IT&amp;A

11.10

222

Merrill Feldstein

(202) 317-5100

IT&amp;A

12.01

22

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

12.02

23

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

12.03

25

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

12.04

77

Sean Dwyer

(202) 317-7005

IT&amp;A

12.05

92

Sean Dwyer

(202) 317-7005

IT&amp;A

12.06

150, 151

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

12.07

181

Patrick Clinton

(202) 317-7005

IT&amp;A

12.08

194

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

12.09

195

Roy Hirschhorn

(202) 317-7007

IT&amp;A

12.10

201

Sean Dwyer

(202) 317-7005

IT&amp;A

12.11

202

Sean Dwyer

(202) 317-7005

IT&amp;A

12.12

214

Sean Dwyer

(202) 317-7005

IT&amp;A

12.13

215

Sean Dwyer

(202) 317-7005

IT&amp;A

12.14

224

Steven Gee

(202) 317-7007

IT&amp;A

13.01

26

Steven Gee

(202) 317-7007

IT&amp;A

Michael Kaercher

(202) 317-6934

INTL

14.01

28

Thomas Scholz

(202) 317-5600

TEGE

14.02

29

John Ricotta

(202) 317-4102

TEGE

Joyce Kahn

(202) 317-4148

TEGE

15.01

122, 123

Evan Hewitt

(202) 317-7007

IT&amp;A

15.02

31

Timothy Azarchs

(202) 317-5100

IT&amp;A

15.03

32, 33

Evan Hewitt

(202) 317-7007

IT&amp;A

15.04

34, 35

Sean Dwyer

(202) 317-7005

IT&amp;A

15.05

71

William E. Blanchard

(202) 317-3900

FI&amp;P

15.06

85

Bernard Harvey

(202) 317-7005

IT&amp;A

15.07

90

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

15.08

108

K. Scott Brown

(202) 317-6945

FI&amp;P

15.09

124

Douglas Kim

(202) 317-7003

IT&amp;A

15.10

125

Timothy Azarchs

(202) 317-5100

IT&amp;A

15.11

126

Evan Hewitt

(202) 317-7007

IT&amp;A

15.12

127

K. Scott Brown

(202) 317-6945

FI&amp;P

15.13

128

Charles Gorham

(202) 317-7003

IT&amp;A

Mon Lam

(202) 317-5100

15.14

129

David H. McDonnell

(202) 317-4137

P&amp;SI

15.15

148

Charles W. Culmer

(202) 317-6945

FI&amp;P

15.16

226

Barbara Campbell

(202) 317-4137

P&amp;SI

15.17

227

Jason Kurth

(202) 317-6842

FI&amp;P

16.01

36

K. Scott Brown

(202) 317-6945

FI&amp;P

16.02

37

Daniel Cassano

(202) 317-7011

IT&amp;A

16.03

38

Daniel Cassano

(202) 317-7011

IT&amp;A

16.04

39

Bill Ruane

(202) 317-4718

IT&amp;A

16.05

80,81

Kate Sleeth

(202) 317-7053

FI&amp;P

16.06

82

Kate Sleeth

(202) 317-7053

FI&amp;P

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Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

16.07

83, 84, 216

Peter Ford

(202) 317-7011

IT&amp;A

16.08

94

Kate Sleeth

(202) 317-7053

FI&amp;P

16.09

130, 217

Peter Cohn

(202) 317-7011

IT&amp;A

16.10

153

Charles Gorham

(202) 317-7003

IT&amp;A

17.01

131

William E. Blanchard

(202) 317-3900

FI&amp;P

18.01

132

Patrick Clinton

(202) 317-7005

IT&amp;A

20.01

42, 133, 134

Peter Ford

(202) 317-7011

IT&amp;A

20.02

43

Christine Merson

(202) 317-5100

IT&amp;A

20.03

44

Christine Merson

(202) 317-5100

IT&amp;A

20.04

45, 113

Mon Lam

(202) 317-5100

IT&amp;A

20.05

46

Mon Lam

(202) 317-5100

IT&amp;A

20.06

106

Charles Gorham

(202) 317-7003

IT&amp;A

20.07

135

Mon Lam

(202) 317-5100

IT&amp;A

20.08

149

Daniel Cassano

(202) 317-7011

IT&amp;A

20.09

154

Charles Gorham

(202) 317-7003

IT&amp;A

20.10

156

Charles Gorham

(202) 317-7003

IT&amp;A

20.11

161

Charles Gorham

(202) 317-7003

IT&amp;A

20.12

220

David Christensen

(202) 317-7011

IT&amp;A

21.01

136

William Ruane

(202) 317-4718

IT&amp;A

22.01

48

Steven Gee

(202) 317-7007

IT&amp;A

22.02

49

Steven Gee

(202) 317-7007

IT&amp;A

22.03

50, 51

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

22.04

53

Steven Gee

(202) 317-7007

IT&amp;A

22.05

54

Natasha Mulleneaux

(202) 317-7007

IT&amp;A

22.06

55

Andrew Braden

(202) 317-7007

IT&amp;A

22.07

63

Andrew Braden

(202) 317-7007

IT&amp;A

22.08

96

Andrew Braden

(202) 317-7007

IT&amp;A

22.09

110

Charles Gorham

(202) 317-7003

IT&amp;A

22.10

111

Steven Gee

(202) 317-7007

IT&amp;A

22.11

137

Steven Gee

(202) 317-7007

IT&amp;A

22.12

138

Andrew Braden

(202) 317-7007

IT&amp;A

22.13

139

Andrew Braden

(202) 317-7007

IT&amp;A

22.14

114

Andrew Braden

(202) 317-7007

IT&amp;A

22.15

203

Sean Dwyer

(202) 317-7005

IT&amp;A

22.16

204

Natasha M. Mulleneaux

(202) 317-7007

IT&amp;A

22.17

225

Natasha M. Mulleneaux

(202) 317-7007

IT&amp;A

22.18

230

Natasha M. Mulleneaux

(202) 317-7007

IT&amp;A

23.01

56

Andrew Braden

(202) 317-7007

IT&amp;A

23.02

57

Andrew Braden

(202) 317-7007

IT&amp;A

23.03

58

Andrew Braden

(202) 317-7007

IT&amp;A

23.04

59

Andrew Braden

(202) 317-7007

IT&amp;A

23.05

60

Andrew Braden

(202) 317-7007

IT&amp;A

23.06

61

Andrew Braden

(202) 317-7007

IT&amp;A

23.07

62

Andrew Braden

(202) 317-7007

IT&amp;A

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Section Number

Designated Automatic Accounting Change Number

Contact Name

Telephone Number

Office

23.08

112

Andrew Braden

(202) 317-7007

IT&amp;A

23.09

140

Andrew Braden

(202) 317-7007

IT&amp;A

23.10

141

Andrew Braden

(202) 317-7007

IT&amp;A

24.01

64

Marsha Sabin

(202) 317-6945

FI&amp;P

24.02

218

Marsha Sabin

(202) 317-6945

FI&amp;P

25.01

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

26.01

67

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

26.02

155

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

26.03

219

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

27.01

68

Rebecca L. Baxter

(202) 317-6995

FI&amp;P

28.01

79

John W. Rogers, III

(202) 317-6895

FI&amp;P

29.01

70

Peter Merkel

(202) 317-4919

INTL

30.01

72

William E. Blanchard

(202) 317-3900

FI&amp;P

30.02

183

Charles W. Culmer

(202) 317-6945

FI&amp;P

31.01

73

William E. Blanchard

(202) 317-3900

FI&amp;P

32.01

74

William E. Blanchard

(202) 317-3900

FI&amp;P

32.02

75

William E. Blanchard

(202) 317-3900

FI&amp;P

26 CFR 601.601: Rules and Regulations.(Also Part
I, §§ 25, 103, 143; 1.25-4T, 1.103-1, 6a.103A-2.)

# Rev. Proc. 2018-33

## SECTION 1. PURPOSE

This revenue procedure provides guid-
ance with respect to the United States and
area median gross income figures that are
to be used by issuers of qualified mort-
gage bonds, as defined in § 143(a) of the
Internal Revenue Code, and issuers of
mortgage credit certificates, as defined in
§ 25(c), in computing the income require-
ments described in § 143(f).

## SECTION 2. BACKGROUND

.01 Section 103(a) provides that, ex-
cept as provided in § 103(b), gross income
does not include interest on any state or
local bond. Section 103(b)(1) provides
that § 103(a) shall not apply to any private
activity bond that is not a qualified bond
(within the meaning of § 141). Section
141(e) provides that the term "qualified
bond" includes any private activity bond
that (1) is a qualified mortgage bond, (2)
meets the applicable volume cap require-
ments under § 146, and (3) meets the
applicable requirements under § 147.

.02 Section 143(a)(1) provides that the
term "qualified mortgage bond" means a
bond that is issued as part of a "qualified
mortgage issue". Section 143(a)(2)(A)
provides that the term "qualified mortgage
issue" means an issue of one or more
bonds by a state or political subdivision
thereof, but only if (i) all proceeds of the
issue (exclusive of issuance costs and a
reasonably required reserve) are to be
used to finance owner-occupied residenc-
es; (ii) the issue meets the requirements of
subsections (c), (d), (e), (f), (g), (h), (i),
and (m)(7) of § 143; (iii) the issue does
not meet the private business tests of para-
graphs (1) and (2) of § 141(b); and (iv)
with respect to amounts received more
than 10 years after the date of issuance,
repayments of $250,000 or more of prin-
cipal on financing provided by the issue
are used not later than the close of the first
semi-annual period beginning after the
date the prepayment (or complete repay-
ment) is received to redeem bonds that are
part of the issue.

.03 Section 143(f) imposes eligibility
requirements concerning the maximum
income of mortgagors for whom financing
may be provided by qualified mortgage
bonds. Section 25(c)(2)(A)(iii)(IV) pro-

vides that recipients of mortgage credit cer-
tificates must meet the income requirements
of § 143(f). Generally, under §§ 143(f)(1)
and 25(c)(2)(A)(iii)(IV), these income re-
quirements are met only if all owner-
financing under a qualified mortgage bond
and all certified indebtedness amounts under
a mortgage credit certificate program are
provided to mortgagors whose family in-
come is 115 percent or less of the applicable
median family income. Under § 143(f)(6),
the income limitation is reduced to 100 per-
cent of the applicable median family income
if there are fewer than three individuals in
the family of the mortgagor.

.04 Section 143(f)(4) provides that the
term "applicable median family income"
means the greater of (A) the area median
gross income for the area in which the
residence is located, or (B) the statewide
median gross income for the state in
which the residence is located.

.05 Section 143(f)(5) provides for an
upward adjustment of the income limita-
tions in certain high housing cost areas.
Under § 143(f)(5)(C), a high housing cost
area is a statistical area for which the
housing cost/income ratio is greater than
1.2. The housing cost/income ratio is de-
termined under § 143(f)(5)(D) by dividing

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(a) the applicable housing price ratio by
(b) the ratio that the area median gross
income bears to the median gross income
for the United States. The applicable
housing price ratio is the new housing
price ratio (new housing average purchase
price for the area divided by the new
housing average purchase price for the
United States) or the existing housing price
ratio (existing housing average area pur-
chase price divided by the existing housing
average purchase price for the United
States), whichever results in the housing
cost/income ratio being closer to 1. This
income adjustment applies only to bonds
issued, and nonissued bond amounts
elected, after December 31, 1988. See
§ 4005(h) of the Technical and Miscella-
neous Revenue Act of 1988, 1988-3 C.B. 1,
311 (1988).

.06 The Department of Housing and
Urban Development (HUD) has computed
the median gross income for the United
States, the states, and statistical areas
within the states. The income information
was released to the HUD regional offices
on April 1, 2018, and may be obtained by
calling the HUD reference service at
1-800-245-2691. The income information
is also available at HUD's World Wide
Web site, http://www.huduser.gov/portal/
datasets/il.html, which provides a menu
from which you may select the year and
type of data of interest.

.07 The most recent nationwide aver-
age purchase prices and average area pur-
chase price safe harbor limitations were
published on May 14, 2018, in Rev. Proc.
2018-28, 2018-20 I.R.B. 592.

## SECTION 3. APPLICATION

.01 When computing the income re-
quirements of § 143(f), issuers of qualified
mortgage bonds and mortgage credit cer-
tificates must use either (1) the median
gross income for the United States, the
states, and statistical areas within the
states, as released to the HUD regional
offices on April 14, 2017, or (2) the me-
dian gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional
offices on April 01, 2018.

.02 If an issuer uses the median gross
income for the United States, the states,
and statistical areas within the states, as
released to the HUD regional offices on
April 14, 2017, to compute the housing
cost/income ratio under § 143(f)(5), the
issuer must use the median gross income
for the United States, the states, and sta-
tistical areas within the states, as released
to the HUD regional offices on April 14,
2017, for all purposes under § 143(f).
Likewise, if an issuer uses the median gross
income for the United States, the states, and
statistical areas within the states, as released
to the HUD regional offices on April 01,
2018, to compute the housing cost/income
ratio under § 143(f)(5), the issuer must use
the median gross income for the United
States, the states, and statistical areas within
the states, as released to the HUD regional
offices on April 01, 2018, for all purposes
under § 143(f).

## SECTION 4. EFFECT ON OTHER REVENUE PROCEDURES

.01 Rev. Proc. 2017-35, 2017-21
I.R.B. 1250, is obsolete except as pro-

vided in §§ 3.01, 3.02, or 5.01 of this
revenue procedure.

.02 This revenue procedure does not
affect the effective date provisions of Rev.
Rul. 86-124, 1986-2 C.B. 27. Those ef-
fective date provisions will remain opera-
tive at least until the Service publishes a
new revenue ruling that conforms the ap-
proach to effective dates set forth in Rev.
Rul. 86-124 to the general approach
taken in this revenue procedure.

## SECTION 5. EFFECTIVE DATES

.01 Issuers must use the United States
and area median gross income figures
specified in § 3.01 of this revenue proce-
dure for commitments to provide financ-
ing that are made, or (if the purchase
precedes the financing commitment) for
residences that are purchased, in the pe-
riod that begins on April 01, 2018, and
ends on the date when these United States
and area median gross income figures are
rendered obsolete by a new revenue pro-
cedure.

## DRAFTING INFORMATION

The principal authors of this revenue
procedure are David White and Timothy
Jones of the Office of Associate Chief
Counsel (Financial Institutions & Prod-
ucts). For further information regarding
this revenue procedure contact Mr. White
or Mr. Jones at (202) 317-6980 (not a
toll-free number).

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# 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.

GP-General Partner.

GR-Grantor.

COOP-Cooperative.

IC-Insurance Company.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

LE-Lessee.

D-Decedent.

LP-Limited Partner.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

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.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

CI-City.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

TT-Trustee.

U.S.C .- United States Code.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.
DR-Donor.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

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.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

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## Numerical Finding List1

Bulletin 2018-1 through 2018-22

### Announcements:

2018-01, 2018-9 I.R.B. 387
2018-02, 2018-9 I.R.B. 387
2018-03, 2018-9 I.R.B. 387
2018-04, 2018-10 I.R.B. 401
2018-05, 2018-13 I.R.B. 461
2018-07, 2018-16 I.R.B. 503
2018-08, 2018-19 I.R.B. 552

### Notices:

2018-01, 2018-3 I.R.B. 285
2018-02, 2018-2 I.R.B. 281
2018-03, 2018-2 I.R.B. 285
2018-05, 2018-6 I.R.B. 341
2018-06, 2018-3 I.R.B. 300
2018-07, 2018-4 I.R.B. 317
2018-08, 2018-7 I.R.B. 352
2018-10, 2018-8 I.R.B. 359
2018-11, 2018-11 I.R.B. 425
2018-12, 2018-12 I.R.B. 441
2018-13, 2018-6 I.R.B. 341
2018-14, 2018-7 I.R.B. 353
2018-15, 2018-9 I.R.B. 376
2018-16, 2018-10 I.R.B. 390
2018-17, 2018-9 I.R.B. 376
2018-18, 2018-12 I.R.B. 443
2018-19, 2018-12 I.R.B. 443
2018-20, 2018-12 I.R.B. 444
2018-21, 2018-15 I.R.B. 472
2018-22, 2018-14 I.R.B. 464
2018-23, 2018-15 I.R.B. 474
2018-24, 2018-17 I.R.B. 507
2018-25, 2018-15 I.R.B. 476
2018-26, 2018-16 I.R.B. 480
2018-27, 2018-20 I.R.B. 580
2018-28, 2018-16 I.R.B. 492
2018-29, 2018-16 I.R.B. 495
2018-30, 2018-21 I.R.B. 610
2018-31, 2018-16 I.R.B. 501
2018-32, 2018-17 I.R.B. 507
2018-33, 2018-17 I.R.B. 508
2018-34, 2018-19 I.R.B. 549
2018-35, 2018-18 I.R.B. 520
2018-36, 2018-20 I.R.B. 582
2018-37, 2018-18 I.R.B. 521
2018-38, 2018-18 I.R.B. 522
2018-39, 2018-20 I.R.B. 582
2018-40, 2018-20 I.R.B. 583
2018-41, 2018-20 I.R.B. 584
2018-43, 2018-20 I.R.B. 590
2018-44, 2018-21 I.R.B. 611
2018-45, 2018-21 I.R.B. 620
2018-46, 2018-21 I.R.B. 621
2018-47, 2018-21 I.R.B. 621

Notices :- Continued

2018-49, 2018-22

I.R.B. 624

2018-50, 2018-22

I.R.B. 626

2018-51, 2018-22

I.R.B. 628

2018-52, 2018-22

I.R.B. 629

2018-53, 2018-22

I.R.B. 631

## Proposed Regulations:

REG-119514-15, 2018-04 I.R.B. 325

REG-129260-16, 2018-14 I.R.B. 470

REG-118067-17, 2018-08 I.R.B. 360

REG-132197-17, 2018-10

I.R.B. 404

REG-132197-17, 2018-10 I.R.B. 404

REG-132434-17, 2018-16 I.R.B. 503

## Revenue Procedures:

2018-1, 2018-1 I.R.B. 1
2018-2, 2018-1 I.R.B. 106
2018-3, 2018-1 I.R.B. 130
2018-4, 2018-1 I.R.B. 146
2018-5, 2018-1 I.R.B. 244
2018-7, 2018-1 I.R.B. 282
2018-8, 2018-2 I.R.B. 286
2018-9, 2018-2 I.R.B. 290
2018-10, 2018-7 I.R.B. 355
2018-11, 2018-5 I.R.B. 334
2018-12, 2018-6 I.R.B. 349
2018-13, 2018-7 I.R.B. 356
2018-14, 2018-9 I.R.B. 378
2018-15, 2018-9 I.R.B. 379
2018-16, 2018-9 I.R.B. 383
2018-17, 2018-9 I.R.B. 384
2018-18, 2018-10 I.R.B. 392
2018-19, 2018-14 I.R.B. 466
2018-20, 2018-11 I.R.B. 427
2018-21, 2018-14 I.R.B. 467
2018-22, 2018-18 I.R.B. 524
2018-23, 2018-17 I.R.B. 516
2018-24, 2018-18 I.R.B. 525
2018-25, 2018-18 I.R.B. 543
2018-26, 2018-18 I.R.B. 546
2018-27, 2018-20 I.R.B. 591
2018-28, 2018-20 I.R.B. 592
2018-29, 2018-22 I.R.B. 634
2018-30, 2018-21 I.R.B. 622
2018-31, 2018-22 I.R.B. 637
2018-33, 2018-22 I.R.B. 734

## Revenue Rulings:

2018-01, 2018-2 I.R.B. 275
2018-02, 2018-2 I.R.B. 277
2018-03, 2018-2 I.R.B. 278
2018-04, 2018-4 I.R.B. 304
2018-05, 2018-6 I.R.B. 339
2018-06, 2018-10 I.R.B. 388
2018-07, 2018-13 I.R.B. 445
2018-09, 2018-14 I.R.B. 462

2018-10, 2018-16 I.R.B. 477
2018-11, 2018-18 I.R.B. 518
2018-12, 2018-20 I.R.B. 575
2018-13, 2018-20 I.R.B. 576

## Treasury Decisions:

9829, 2018-04 I.R.B. 308
9830, 2018-11 I.R.B. 423
9831, 2018-13 I.R.B. 459
9832, 2018-16 I.R.B. 477

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-27 through 2017-52 is in Internal Revenue Bulletin
2017-52, dated December 27, 2017.

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# Finding List of Current Actions on Previously Published Items1

Bulletin 2018-1 through 2018-22

Notices:

2003-65
Modified by
Notice 2018-30, 2018-21 I.R.B. 610

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2017-27 through 2017-52 is in Internal Revenue Bulletin
2017-52, dated December 27, 2017.

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# 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.
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