their respective maximum allowable val-ues. If the fair market value of any passen-ger automobile in the fleet exceeds theseamounts, the employer may determine thevalue of the personal use under regulationssection 1.61–21(f) (Commuting valuationrule) or the general valuation rules of sec-tion 1.61–21(b) or may determine the An-nual Lease Value of such automobile sepa-rately under the automobile lease valuationrule of section 1.61–21(d)(2) if the applica-ble requirements are met.

SECTION 4. EFFECTIVE DATE

This revenue procedure applies to em-ployer-provided passenger automobilesfirst made available to employees for per-sonal use in calendar year 2011.

SECTION 5. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Don M. Parkinson of the

Office of the Division Counsel/AssociateChief Counsel (Tax Exempt & Govern-ment Entities). For further informationregarding the maximum automobile val-ues for applying the valuation rules ofregulations section 1.61–21(e)(1)(iii)(A)(the vehicle cents-per-mile valuationrule), and section 1.61–21(d)(5)(v)(D)(the fleet average valuation rule), contactDon M. Parkinson at (202) 622–6040 (nota toll free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting.(Also Part I, §§ 56, 61, 77, 118, 162, 1.162–12, 166, 167, 168, 171, 174, 179D, 194, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467,471, 472, 475, 481, 585, 832, 833, 846, 860A–860G, 861, 904, 953, 985, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61–1, 1.61–4, 1.61–8, 1.77–1,1.77–2, 1.118–2, 1.162–1, 1.162–3, 1.162–4, 1.162–11, 1.162–12, 1.166–1, 1.166–4, 1.167(a)–2, 1.167(a)–3(b), 1.167(a)–7, 1.167(a)–8, 1.167(a)–11, 1.167(a)–14,1.167(e)–1, 1.168(d)–1, 1.168(i)–1, 1.168(i)–4, 1.168(i)–6, 1.168(k)–1, 1.171–4, 1.174–1, 1.174–3, 1.174–4, 1.179–5, 1.194–1, 1.197–2, 1.263(a)–1, 1.263(a)–2,1.263(a)–4, 1.263(a)–5, 1.263A–1, 1.263A–2, 1.263A–3, 1.263A–4, 1.263A–7, 1.267(a)–1, 1.280F–6, 1.404(b)–1T, 1.446–1, 1.446–1T, 1.446–2, 1.446–5, 1.446–6,1.448–2, 1.467–1, 1.471–4, 1.471–5, 1.471–8, 1.448–1T, 1.451–1, 1.454–1, 1.455–6, 1.460–1, 1.460–4, 1.461–1, 1.461–4, 1.461–5, 1.471–1, 1.471–2, 1.471–3,1.471–4, 1.472–1, 1.472–2, 1.472–6, 1.472–8, 1.481–1, 1.481–4, 1.832–4, 1.860A–6, 1.861–18, 1.985–5, 1.985–8, 1.1016–3, 1.1245–3, 1.1272–1, 1.1273–1, 1.1273–2,1.1363–2, 1.1374–4, 1.1400L(b)–1.)

Rev. Proc. 2011–14

TABLE OF CONTENTS

SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337.01 Change in method of accounting defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337.02 Securing permission to make a method change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338.03 Terms and conditions of a method change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338.04 No retroactive method change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338.05 Method change with a § 481(a) adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

(1) Need for adjustment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338(2) Adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

.06 Method change using a cut-off basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

.07 Consistency and clear reflection of income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

.08 Separate trades or businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

.09 Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.10 Change made as part of an examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

SECTION 3. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339.01 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339.02 Applicable provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339.03 Taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

(1) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339(2) Consolidated group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.04 Timely mailing as timely filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.05 Timely performance of acts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.06 Year of change.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.07 Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

.08 Under examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339(1) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339(2) Partnerships subject to TEFRA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(3) Certain foreign corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(4) Taxpayer before Joint Committee on Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(5) Taxpayer in Compliance Assurance Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

.09 Issue under consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

2011–4 I.R.B. 330 January 24, 2011

(1) Under examination.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(2) Before an appeals office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(3) Before a federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340(4) Certain foreign corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

.10 Change within the LIFO inventory method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

.11 Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

SECTION 4. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341.01 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341.02 Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

(1) Under examination.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341(2) Consolidated group member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341(3) Partnerships and S corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341(4) Section 381(a) transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

(a) No differences in methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341(b) Separate trades or businesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

(5) Final year of trade or business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341(6) Prior five-year overall method change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342(7) Prior five-year item change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

(a) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342(b) Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342(c) Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

.03 Nonautomatic changes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

SECTION 5. TERMS AND CONDITIONS OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343.02 Year of change.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343.03 Section 481(a) adjustment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343.04 Section 481(a) adjustment period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

(1) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(2) Short period as a separate taxable year.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(3) Shortened or accelerated § 481(a) adjustment periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

(a) De minimis rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(b) Cooperatives.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(c) Ceasing to engage in the trade or business or terminating existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

(i) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(ii) Examples of transactions that are treated as the cessation of a trade or business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(iii) Conversion to or from S corporation status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(iv) Certain transfers to which § 381(a) applies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(v) Certain transfers pursuant to § 351 within a consolidated group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

(A) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343(B) Exception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

.05 NOL carryback limitation for taxpayer subject to criminal investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

.06 Certain foreign corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

.07 Foreign division of a domestic corporation taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

.08 Foreign partnerships.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

.09 Change treated as initiated by the taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

SECTION 6. GENERAL APPLICATION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.01 Consent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345.02 Filing requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(1) Applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(a) Form.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(b) Separate applications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(i) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(ii) Single application for two or more changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(c) Contents.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(2) Waiver of taxable year filing requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

January 24, 2011 331 2011–4 I.R.B.

(3) Timely duplicate filing requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(a) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(i) Original application.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(ii) Copy of application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(A) National office copy of application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(B) Ogden copy of application in lieu of the national office copy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

(b) Certain foreign corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346(c) Additional copies required for a taxpayer under examination, before an appeals office, orbefore a federal court.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347(d) Limited relief for late application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

(i) Automatic extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347(ii) Other extensions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

(4) Designated automatic accounting method change number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347(5) Signature requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347(6) Authorized representative.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347(7) Where to file copy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

(a) National office copy of application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(b) Ogden copy of application in lieu of the national office copy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

(8) No acknowledgement of receipt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(9) No user fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(10) Single application for certain taxpayers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

.03 Taxpayer under examination.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(1) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(2) 90-day window period.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(3) 120-day window period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348(4) Consent of director.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349(5) Changes lacking audit protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349(6) Issue Pending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

.04 Taxpayer before an appeals office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

.05 Taxpayer before a federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

.06 Compliance with provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

SECTION 7. AUDIT PROTECTION FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.02 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

(1) Change not made or made improperly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350(2) Change in sub-method.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350(3) Prior year Service-initiated change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350(4) Criminal investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

SECTION 8. EFFECT OF CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.02 Retroactive change or modification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

SECTION 9. REVIEW BY DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.02 Changes not made in compliance with all applicable provisions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.03 National office consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

SECTION 10. REVIEW BY NATIONAL OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.02 Incomplete application.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

(1) 30-day rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351(2) Failure to provide additional information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

.03 National office determination.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351(1) Conference in the national office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351(2) Consent not granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351(3) Application changed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

2011–4 I.R.B. 332 January 24, 2011

SECTION 11. APPLICABILITY OF REV. PROCS. 2011–1 AND 2011–4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

SECTION 12. CHANGES TO REV. PROC. 97–27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.01 Changes to section 3.07, Under examination.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

(1) Change to section 3.07(1)(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(2) Change to section 3.07(1)(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(3) Change to section 3.07(2), Partnerships and S corporations subject to TEFRA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(4) Change to section 3.07(3), Taxpayer before Joint Committee on Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

.02 Changes to section 3.08, Issue under consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(1) Change to section 3.08(2), Before an appeals office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(2) Change to section 3.08(3), Before a federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

.03 Change to section 4.02, Scope, “Inapplicability”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

.04 Changes to section 6, PROCEDURES FOR TAXPAYERS UNDER EXAMINATION, BEFORE ANAPPEALS OFFICE, OR BEFORE A FEDERAL COURT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352(1) Change to section 6.02, Taxpayer before an appeals office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353(2) Change to section 6.03, Taxpayer before a federal court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

SECTION 13. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353.01 In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

(1) Rev. Proc. 2011–14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353(2) Rev. Proc. 97–27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

.02 Transition rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353(1) Forms 3115 filed under Rev. Proc. 97–27.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353(2) Application filed under Rev. Proc. 2008–52. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

(a) General rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353(b) Option to file an amended application.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

(i) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354(ii) Address to send the amended application to the national office or Ogden, as applicable. . . . . . . . . . . . . . . . . . . . . 354

(3) No application filed before January 10, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

SECTION 14. EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

SECTION 15. PAPERWORK REDUCTION ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

SECTION 16. SIGNIFICANT CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

DRAFTING INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

SECTION 1. GROSS INCOME (§ 61) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357.01 Up-front Payments for Network Upgrades received by Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

SECTION 2. COMMODITY CREDIT LOANS (§ 77). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.01 Treating amounts received as loans.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.01 Advances made by a lawyer on behalf of clients. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.02 ISO 9000 costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.03 Restaurant or tavern smallwares packages.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.04 Timber grower fertilization costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.05 Materials and supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358.06 Repair and maintenance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

SECTION 4. BAD DEBTS (§ 166) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360.01 Change from reserve method to specific charge-off method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

SECTION 5. AMORTIZABLE BOND PREMIUM (§ 171). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

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.01 Revocation of § 171(c) election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(A)(1), 56(G)(4)(A), 167, 168, 197, 280F(A), 1400I,1400L, OR 1400N(D), OR FORMER § 168). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361

.01 Impermissible to permissible method of accounting for depreciation or amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361

.02 Permissible to permissible method of accounting for depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

.03 Sale, lease, or financing transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366

.04 Modern golf course greens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

.05 Original and replacement tire costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

.06 Depreciation of gas pump canopies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

.07 Depreciation of utility assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

.08 Depreciation of cable TV fiber optics.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

.09 Change in general asset account treatment due to a change in the use of MACRS property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

.10 Change in method of accounting for depreciation due to a change in the use of MACRS property. . . . . . . . . . . . . . . . . . . . . . 370

.11 Depreciation of qualified non-personal use vans and light trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

.12 Depreciation of qualified revitalization building in the expanded area of a renewal community. . . . . . . . . . . . . . . . . . . . . . . . 370

.13 Loss disallowance rule upon a disposition of an insurance contract acquired in an assumptionre-insurance transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

.14 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

.15 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

.16 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

.17 Impermissible to permissible method of accounting for depreciation or amortization for disposeddepreciable or amortizable property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

.18 Depreciation of MACRS property acquired in a like-kind exchange or as a result of an involuntaryconversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

.19 Lessor improvements abandoned at termination of lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

.20 Repairable and reusable spare parts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

.21 Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

.22 Kansas additional first year depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

.23 Tenant construction allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

.24 Dispositions of structural components of a building (section 168). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

.25 Dispositions of tangible depreciable assets (other than a building or its structural components)(section 168). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378.01 Changes to a different method or different amortization period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379

SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379.01 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379.03 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379.04 Deduction for Energy Efficient Commercial Buildings (§ 179D). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379

SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380.01 Computer software expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380.02 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380

SECTION 10. CAPITAL EXPENDITURES (§ 263). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380.01 Package design costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380.02 Line pack gas or cushion gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.03 Removal costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.04 Distributor commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.05 Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381.06 Rotable spare parts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382.07 Repairable and reusable spare parts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382

SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

2011–4 I.R.B. 334 January 24, 2011

.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers. . . . . . . . . . . . . . . . . . . . . . . . . . . 383

.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers. . . . . . . . . . . . . . . . . . . . . . . . . . 386

.03 Change to no longer capitalize research and experimental expenditures under § 263A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

.04 Impact fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

.05 Change to capitalizing environmental remediation costs under § 263A.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

.06 Change in allocating environmental remediation costs under § 263A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

.07 Safe harbor methods under § 263A for certain dealerships of motor vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

SECTION 12. LOSSES, EXPENSES AND INTEREST WITH RESPECT TO TRANSACTIONS BETWEENRELATED TAXPAYERS (§ 267) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

.01 Change to comply with § 267.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

SECTION 13. DEFERRED COMPENSATION (§ 404). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388.01 Change to comply with § 404(a)(11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388.02 Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389.03 Grace period contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

SECTION 14. METHODS OF ACCOUNTING (§ 446) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389.01 Change in overall method from the cash method to an accrual method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389.02 Multi-year insurance policies for multi-year service warranty contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391.03 Taxpayers changing to overall cash method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392.04 Nonaccrual-experience method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392.05 Interest accruals on short-term consumer loans-Rule of 78’s method.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393.06 Film producer’s treatment of certain creative property costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393.07 Deduction of incentive payments to health care providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393.08 Change by bank for uncollected interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393.09 Change from the cash method to an accrual method for specific items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394.10 Multi-year service warranty contracts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395.11 Overall cash method for specified transportation industry taxpayers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395.12 Change to overall cash/hybrid method for certain banks.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396.13 Change to overall cash method for farmers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397.14 Nonshareholder contributions to capital under § 118.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397.15 Debt issuance costs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398

SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.01 Accrual of interest on nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.02 Advance rentals.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.03 State or local income or franchise tax refunds.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.04 Capital Cost Reduction Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.05 Credit card annual fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398.06 Credit card late fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399.07 Advance payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399.08 Credit card cash advance fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399.09 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400.10 Retainages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400.11 Advance payments — change in applicable financial statements (AFS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.01 Series E, EE or I U.S. savings bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.01 Prepaid subscription income.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.01 Change from exempt-contract method to percentage-of-completion method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402

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SECTION 19. TAXABLE YEAR OF DEDUCTION (§ 461) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403.01 Timing of incurring liabilities for employee compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403

(1) Self-insured employee medical benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403(2) Bonuses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403(3) Vacation pay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403

.02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes,and state franchise taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, orviolation of law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404

.04 Timing of incurring certain liabilities for payroll taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405

.05 Cooperative advertising.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405

.06 Timing of incurring certain liabilities for services or insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

.07 Rebates and allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

.08 Ratable accrual of real property taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

.09 California Franchise Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

.10 Gift cards issued as a refund for returned goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

SECTION 20. RENT (§ 467) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.01 Change from an improper method of inclusion of rental income or expense to inclusion in accordance

with the rent allocation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

SECTION 21. INVENTORIES (§ 471). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.01 Cash discounts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.02 Estimating inventory “shrinkage”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408.03 Small taxpayer exception from requirement to account for inventories under § 471.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408.04 Qualifying volume-related trade discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408.05 Impermissible methods of identification and valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.06 Core Alternative Valuation Method.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.07 Replacement cost for automobile dealers’ parts inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.08 Replacement cost for heavy equipment dealers’ parts inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.09 Rotable spare parts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410.10 Advance Trade Discount Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410.11 Permissible methods of identification and valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410.12 Change in the official used vehicle guide utilized in valuing used vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410.13 Invoiced advertising association costs for new vehicle retail dealerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411.14 Rolling-average method of accounting for inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411.01 Change from the LIFO inventory method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411.02 Determining current-year cost under the LIFO inventory method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412.03 Alternative LIFO inventory method for retail automobile dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413.04 Used vehicle alternative LIFO method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413.05 Determining the cost of used vehicles purchased or taken as a trade-in.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.06 Change to the inventory price index computation (IPIC) method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414.07 Changes within the inventory price index computation (IPIC) method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415.08 Changes to the Vehicle-Pool Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415.09 Changes within the used vehicle alternative LIFO method.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416.10 Changes to dollar-value pools of manufacturers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416

SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD FOR DEALERS IN SECURITIES (§ 475) . . . . . . . . . . . . . . . . . . . . . 416.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market

method of accounting under § 475(e) or (f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417

SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.01 Changing from the § 585 reserve method to the § 166 specific charge-off method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

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SECTION 25. INSURANCE COMPANIES (§§ 832, 833) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418.01 Safe harbor method of accounting for premium acquisition expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418.02 Certain changes in method of accounting for organizations to which § 833 applies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418

SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418.01 Composite method for discounting unpaid losses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A–860G) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.01 REMIC inducement fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

SECTION 28. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

SECTION 29. FUNCTIONAL CURRENCY (§ 985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.01 Change in functional currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

SECTION 30. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.01 De minimis original issue discount (OID). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

SECTION 32. MARKET DISCOUNT BONDS (§ 1278) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420.01 Revocation of § 1278(b) election.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420.02 Reserved.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420.01 Interest income on short obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420.02 Stated interest on short-term loans of cash method banks.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

APPENDIX CONTACT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421

SECTION 1. PURPOSE

This revenue procedure provides theprocedures by which a taxpayer may ob-tain automatic consent for a change inmethod of accounting described in theAPPENDIX of this revenue procedure.This revenue procedure amplifies, clari-fies, modifies, and supersedes Rev. Proc.2008–52, 2008–2 C.B. 587, as amplified,clarified, and modified by Rev. Proc.2009–39, 2009–38 I.R.B. 371, and pro-vides additional changes in methods ofaccounting for which a taxpayer may ob-tain automatic consent.

A taxpayer complying with all the ap-plicable provisions of this revenue proce-dure obtains the consent of the Commis-sioner of Internal Revenue to change itsmethod of accounting under § 446(e) of theInternal Revenue Code and the Income TaxRegulations thereunder.

This revenue procedure also modifiesRev. Proc. 97–27, 1997–1 C.B. 680,as amplified and modified by Rev. Proc.2002–19, 2002–1 C.B. 696, as amplified

and clarified by Rev. Proc. 2002–54,2002–2 C.B. 432, as modified by Rev.Proc. 2007–67, 2007–2 C.B. 1072, andas clarified and modified by Rev. Proc.2009–39, which provides the general pro-cedures for obtaining the advance (non-au-tomatic) consent of the Commissioner tochange a method of accounting.

Section 16 of this revenue procedurelists the significant changes to Rev. Proc.2008–52 and Rev. Proc. 97–27.

SECTION 2. BACKGROUND

.01 Change in method of accountingdefined.

(1) Section 1.446–1(e)(2)(ii)(a) pro-vides that a change in method of account-ing includes a change in the overall planof accounting for gross income or deduc-tions, or a change in the treatment of anymaterial item. A material item is any itemthat involves the proper time for the inclu-sion of the item in income or the takingof the item as a deduction. In determiningwhether a taxpayer’s accounting practice

for an item involves timing, generally therelevant question is whether the practicepermanently changes the amount of thetaxpayer’s lifetime taxable income. Ifthe practice does not permanently affectthe taxpayer’s lifetime taxable income,but does or could change the taxable yearin which income is reported, it involvestiming and is therefore a method of ac-counting. See Rev. Proc. 91–31, 1991–1C.B. 566.

(2) Although a method of accountingmay exist under this definition without apattern of consistent treatment of an item,a method of accounting is not adopted inmost instances without consistent treat-ment. The treatment of a material itemin the same way in determining the grossincome or deductions in two or more con-secutively filed federal income tax returns(without regard to any change in status ofthe method as permissible or impermissi-ble) represents consistent treatment of thatitem for purposes of § 1.446–1(e)(2)(ii)(a).If a taxpayer treats an item properly in thefirst return that reflects the item, however,

January 24, 2011 337 2011–4 I.R.B.

it is not necessary for the taxpayer to treatthe item consistently in two or more con-secutive returns to have adopted a methodof accounting. If a taxpayer has adopteda method of accounting under these rules,the taxpayer may not change the methodby amending its prior income tax return(s).See Rev. Rul. 90–38, 1990–1 C.B. 57.

(3) A change in method of accountingdoes not include correction of mathe-matical or posting errors, or errors inthe computation of tax liability (suchas errors in computation of the foreigntax credit, net operating loss, percent-age depletion, or investment credit). See§ 1.446–1(e)(2)(ii)(b).

.02 Securing permission to make amethod change. Section 446(e) and§ 1.446–1(e)(2)(i) state that, except asotherwise provided, a taxpayer must se-cure the consent of the Commissionerbefore changing a method of accountingfor federal income tax purposes. Section1.446–1(e)(3)(i) requires that, in general,in order to obtain the Commissioner’s con-sent to a method change, a taxpayer mustfile a Form 3115, Application for Changein Accounting Method, during the taxableyear for which the taxpayer wants to makethe proposed change.

.03 Terms and conditions of a methodchange. Section 1.446–1(e)(3)(ii) pro-vides that the Commissioner may pre-scribe administrative procedures settingforth the limitations, terms, and conditionsdeemed necessary to permit a taxpayer toobtain consent to change a method of ac-counting in accordance with § 446(e). Theterms and conditions the Commissionermay prescribe include the year of change,whether the change is to be made with a§ 481(a) adjustment or on a cut-off basis,and the § 481(a) adjustment period.

.04 No retroactive method change. Un-less specifically authorized by the Com-missioner, a taxpayer may not request,or otherwise make, a retroactive changein method of accounting, regardless ofwhether the change is from a permissibleor an impermissible method. See gener-ally Rev. Rul. 90–38. But see section6.02(3)(d)(i) of this revenue procedure.

.05 Method change with a § 481(a) ad-justment.

(1) Need for adjustment. Section 481(a)requires those adjustments necessary toprevent amounts from being duplicated or

omitted to be taken into account when thetaxpayer’s taxable income is computedunder a method of accounting differentfrom the method used to compute taxableincome for the preceding taxable year.When there is a change in method of ac-counting to which § 481(a) is applied,income for the taxable year preceding theyear of change must be determined underthe method of accounting that was thenemployed, and income for the year ofchange and the following taxable yearsmust be determined under the new methodof accounting as if the new method hadalways been used. The § 481(a) adjust-ment is computed notwithstanding that theperiod of limitations on assessment andcollection of tax may have closed on theyears (closed years) in which the eventsgiving rise to the need for an adjustmentoccurred. See Superior Coach of Fla., Inc.v. Commissioner, 80 T.C. 895, 912 (1983).In computing the net § 481(a) adjustment,a taxpayer must take into account all rele-vant accounts. For example, the § 481(a)adjustment for a change in the proper timefor deducting salary bonuses under § 461reflects any necessary adjustments foramounts of salary bonuses capitalized toinventory under § 263A.

Example. A taxpayer that is not required touse inventories uses the overall cash receipts anddisbursements method and changes to an overallaccrual method. The taxpayer has $120,000 ofincome earned but not yet received (accountsreceivable) and $100,000 of expenses incurredbut not yet paid (accounts payable) as of the endof the taxable year preceding the year of change.A positive § 481(a) adjustment of $20,000($120,000 accounts receivable less $100,000accounts payable) is required as a result of thechange.

(2) Adjustment period. Section 481(c)and §§ 1.446–1(e)(3)(ii) and 1.481–4provide that the adjustment required by§ 481(a) may be taken into account indetermining taxable income in the mannerand subject to the conditions agreed toby the Commissioner and the taxpayer.Generally, in the absence of such an agree-ment, the § 481(a) adjustment is takeninto account completely in the year ofchange, subject to § 481(b), which lim-its the amount of tax where the § 481(a)adjustment is substantial. However,under the Commissioner’s authority in§ 1.446–1(e)(3)(ii) to prescribe terms andconditions for changes in methods of ac-counting, this revenue procedure provides

specific adjustment periods that are in-tended to achieve an appropriate balancebetween the goals of mitigating distortionsof income that result from accountingmethod changes and providing appropriateincentives for voluntary compliance.

.06 Method change using a cut-off ba-sis. The Commissioner may determinethat certain changes in methods of ac-counting will be made without a § 481(a)adjustment, using a cut-off basis. When achange in method of accounting is madeon a cut-off basis, in general, only theitems arising on or after the beginning ofthe year of change (or other operative date)are accounted for under the new method ofaccounting. Any items arising before theyear of change (or other operative date)continue to be accounted for under thetaxpayer’s former method of accounting.See, for example, sections 2.01, 10.04 and22.02 of the APPENDIX of this revenueprocedure. Because no amounts are dupli-cated or omitted when a change in methodof accounting is made on a cut-off basis,no § 481(a) adjustment is necessary.

.07 Consistency and clear reflection ofincome. Methods of accounting shouldclearly reflect income on a continuing ba-sis, and the Commissioner exercises dis-cretion under §§ 446(e) and 481(c) in amanner that generally minimizes distor-tions of income across taxable years andon an annual basis.

.08 Separate trades or businesses.(1) Sections 1.446–1(d)(1) and (2) pro-

vide that when a taxpayer has two or moreseparate and distinct trades or businesses,the taxpayer may use a different method ofaccounting for each trade or business pro-vided the method of accounting used foreach trade or business clearly reflects theoverall income of the taxpayer as well asthat of each particular trade or business.No trade or business is separate and dis-tinct unless the taxpayer keeps a completeand separable set of books and records forthat trade or business.

(2) Section 1.446–1(d)(3) provides thatif, by reason of maintaining different meth-ods of accounting, there is a creation orshifting of profits or losses between thetaxpayer’s trades or businesses (for exam-ple, through inventory adjustments, sales,purchases, or expenses) so that the tax-payer’s income is not clearly reflected, the

2011–4 I.R.B. 338 January 24, 2011

taxpayer’s trades or businesses are not sep-arate and distinct.

.09 Penalties. Any otherwise applica-ble penalty, addition to the tax, or addi-tional amount for the failure of a taxpayerto change its method of accounting (for ex-ample, the accuracy-related penalty under§ 6662 or the fraud penalty under § 6663)may be imposed if the taxpayer does nottimely file a request to change a method ofaccounting. See § 446(f). Additionally, thetaxpayer’s return preparer may also be sub-ject to the preparer penalty under § 6694.However, penalties, additions to the tax,or additional amounts will not be imposedwhen a taxpayer changes from an imper-missible method of accounting to a permis-sible one by complying with all applicableprovisions of this revenue procedure.

.10 Change made as part of anexamination. Section 446(b) and§ 1.446–1(b)(1) provide that if a taxpayerdoes not regularly employ a method ofaccounting that clearly reflects its income,the computation of taxable income mustbe made in a manner that, in the opinionof the Commissioner, does clearly reflectincome. If a taxpayer under examinationis not eligible to change a method of ac-counting under this revenue procedure, thedirector may make the change. A changeresulting in a positive § 481(a) adjustmentordinarily will be made in the earliesttaxable year under examination with aone-year § 481(a) adjustment period. SeeRev. Proc. 2002–18, 2002–1 C.B. 678.

SECTION 3. DEFINITIONS

.01 Application. The term “applica-tion” means a Form 3115 or any statementthat is authorized in the APPENDIX of thisrevenue procedure to be filed in lieu of aForm 3115, and any attachments.

.02 Applicable provisions. The term“applicable provisions” means all provi-sions and requirements of this revenue pro-cedure pertinent to the taxpayer or its re-quested change, including but not limitedto:

(1) the scope requirements and limita-tions in section 4 of this revenue proce-dure;

(2) the terms and conditions of changein section 5 of this revenue procedure;

(3) the requirements regarding the formand content of an application in section 6of this revenue procedure;

(4) the filing requirements in section 6of this revenue procedure, including (butnot limited to) the timely duplicate filingrequirements of section 6.02(3); and

(5) the APPENDIX of this revenue pro-cedure, including:

(a) the available changes in method ofaccounting;

(b) any restrictions on the availability ofa requested change that is applicable to thetaxpayer (including provisions that renderthe change inapplicable to the taxpayer);and

(c) any special terms, conditions, andrequirements applicable to a change, suchas the use of a cut-off basis or a § 481(a)adjustment, the spread period for any§ 481(a) adjustment, the year of change,and any special filing requirement.

.03 Taxpayer.

(1) In general. The term “taxpayer”has the same meaning as the term “person”defined in § 7701(a)(1) (rather than themeaning of the term “taxpayer” defined in§ 7701(a)(14)).

(2) Consolidated group. For purposesof the following sections of this revenueprocedure, the term “taxpayer” includes aconsolidated group: (a) sections 3.08(1),3.09(1), and 4.02(1) (taxpayer under ex-amination), (b) section 3.09(2) (taxpayerbefore an appeals office), and (c) section3.09(3) (taxpayer before a federal court).

.04 Timely mailing as timely filing.Under the provisions of § 7502, any ap-plication, statement, or other documentrequired to be filed under this revenueprocedure is considered timely filed if itis timely postmarked and mailed, postageprepaid, to the proper address (or anaddress similar enough to complete de-livery). If these requirements are met,the date of filing is the date of the U.S.postmark or the applicable date recordedor marked by a designated private deliv-ery service. See Notice 2004–83, 2004–2C.B. 1030. If the requirements of § 7502are not met, the application, statement, orother document is considered filed on thedate it is delivered to the Service.

.05 Timely performance of acts. Therules of § 7503 apply when the last dayfor the taxpayer’s timely performance ofany act (for example, filing an application

or submitting additional information) fallson a Saturday, Sunday, or legal holiday.The performance of any act is timely if theact is performed on the next succeedingday that is not a Saturday, Sunday, or legalholiday.

.06 Year of change. The year of changeis the taxable year for which a change inmethod of accounting is effective, that is,the first taxable year the new method is tobe used, even if no affected items are takeninto account for that year.

.07 Section 481(a) adjustment period.The § 481(a) adjustment period is the ap-plicable number of taxable years for takinginto account the § 481(a) adjustment re-quired as a result of the change in methodof accounting. The year of change is thefirst taxable year in the adjustment periodand the § 481(a) adjustment is taken intoaccount ratably over the number of taxableyears in the adjustment period. The ap-plicable adjustment periods are set forth insection 5.04 of this revenue procedure.

.08 Under examination.(1) In general.(a) Except as provided in sections

3.08(2), 3.08(3) and 3.08(5) of this rev-enue procedure, an examination of ataxpayer with respect to a federal incometax return begins on the date the taxpayeris contacted in any manner by a repre-sentative of the Internal Revenue Service(Service) for the purpose of schedulingany type of examination of the return.Except as provided in sections 3.08(1)(b),3.08(1)(c), 3.08(2), 3.08(3) and 3.08(4)of this revenue procedure, an examinationends:

(i) in a case in which the Service ac-cepts the return as filed, on the date the “nochange” letter is sent to the taxpayer;

(ii) in a fully agreed case, on the earliestof the date the taxpayer executes a waiverof restrictions on assessment or acceptanceof overassessment (for example, Form870, Waiver of Restrictions on Assess-ment and Collection of Deficiency in Taxand Acceptance of Overassessment, Form4549, Income Tax Examination Changes,or Form 4605, Examination Changes —Partnerships, Fiduciaries, S Corporations,and Interest Charge Domestic Interna-tional Sales Corporations), the date thetaxpayer makes a payment of tax thatequals or exceeds the proposed deficiency,or the date of the “closing” letter (for ex-

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ample, Letter 987 — Agreed Income TaxChange) sent to the taxpayer; or

(iii) in an unagreed or a partially agreedcase, on the earliest of the date the taxpayer(or its representative) is notified by Ap-peals that the case has been referred by theexamining agent(s) to Appeals, the date thetaxpayer files a petition in the Tax Court,the date on which the period for filing apetition with the Tax Court expires, or thedate of the notice of claim disallowance.

(b) An examination does not end as aresult of the early referral of an issue toAppeals under the provisions of Rev. Proc.99–28, 1999–2 C.B. 109.

(c) An examination resumes on thedate the taxpayer (or its representative)is notified by Appeals (or otherwise) thatthe case has been referred to the examin-ing agent(s) for reconsideration. Further,notwithstanding sections 3.08(1)(a)(iii)and 6.03(3), if the taxpayer is within the120-day window period provided in sec-tion 6.03(3) of this revenue procedure, that120-day window period ends as of the datethe taxpayer is notified, ordinarily by Ap-peals, that the case has been referred to theexamining agent(s) for reconsideration.The 120-day window period in section6.03(3) will be available to the taxpayer inits entirety when the resumed examinationends.

(2) Partnerships subject to TEFRA. Ex-cept as provided in sections 3.08(4) and(5) of this revenue procedure, for an en-tity (including a limited liability company)treated as a partnership for federal incometax purposes that is subject to the TEFRAunified audit and litigation provisions forpartnerships, an examination begins on thedate of the notice of the beginning of anadministrative proceeding sent to the TaxMatters Partner (TMP), and ends:

(a) in a case in which the Service ac-cepts the partnership return as filed, on thedate of the “no adjustments” letter or the“no change” notice of final administrativeadjustment sent to the TMP;

(b) in a fully agreed case, when allthe partners or members execute a Form870–P, Agreement to Assessment and Col-lection of Deficiency in Tax for PartnershipAdjustments, 870–L, Agreement to Assess-ment and Collection of Deficiencies in Taxfor Partnership Adjustments, Additions toTax, and Affected Items; or

(c) in an unagreed or a partially agreedcase, on the earliest of the date the TMP (orits representative) is notified by Appealsthat the case has been referred by the ex-amining agent(s) to Appeals, the date theTMP (or a partner or member) requests ju-dicial review, or the date on which the pe-riod for requesting judicial review expires.But see section 4.02(3) of this revenue pro-cedure for certain rules that preclude an en-tity from requesting a change in account-ing method.

(3) Certain foreign corporations. A for-eign corporation that is not required to filea federal income tax return is under ex-amination if any of its controlling domes-tic shareholders, as defined in § 6.02(3)(b)of this revenue procedure, is under ex-amination for a taxable year(s) in whichit was a United States shareholder of theforeign corporation. For purposes of thisrevenue procedure, a foreign corporationis no longer under examination when thecontrolling domestic shareholders are nolonger under examination, as defined insection 3.08 of this revenue procedure.

(4) Taxpayer before Joint Committee onTaxation. If a taxpayer is under exami-nation (including an examination that be-gins on the date a taxpayer is contactedin any manner for additional informationas a result of a Joint Committee on Tax-ation inquiry pursuant to § 6405) then,notwithstanding the performance of an actdescribed in section 3.08(1), (2), or (3),for purposes of this revenue procedure, thetaxpayer continues to be under examina-tion while the taxpayer has a refund orcredit under review by the Joint Commit-tee on Taxation. The examination ends onthe later of (i) the performance of the ap-plicable act described in section 3.08(1),(2), or (3); or (ii) the date of the Ser-vice’s written notification to the taxpayerthat the Joint Committee on Taxation hascompleted its consideration (for example,Letter 1574 (P)), or that the case has beenwithdrawn from consideration by the JointCommittee on Taxation. See Rev. Proc.2005–32, 2005–1 C.B. 1206.

(5) Taxpayer in Compliance AssuranceProcess. For purposes of this revenueprocedure, a taxpayer participating in theCompliance Assurance Process (CAP) isconsidered to be under examination as ofthe date the taxpayer executes the Memo-randum of Understanding for the CAP.

.09 Issue under consideration.

(1) Under examination. A taxpayer’smethod of accounting for an item is anissue under consideration for the taxableyears under examination if the taxpayer re-ceives written notification (for example,by examination plan, information docu-ment request (IDR), or notification of pro-posed adjustments or income tax examina-tion changes) from the examining agent(s)specifically citing the treatment of the itemas an issue under consideration. For exam-ple, a taxpayer’s method of pooling underthe dollar-value, last-in, first-out (LIFO)inventory method is an issue under consid-eration as a result of an examination planthat identifies LIFO pooling as a matter tobe examined, but it is not an issue underconsideration as a result of an examina-tion plan that merely identifies LIFO in-ventories as a matter to be examined. Sim-ilarly, a taxpayer’s method of determin-ing inventoriable costs under § 263A isan issue under consideration as a result ofan IDR that requests documentation sup-porting the costs included in inventoriablecosts, but it is not an issue under considera-tion as a result of an IDR that requests doc-umentation supporting the amount of costsof goods sold reported on the return. Thequestion of whether a method of account-ing is an issue under consideration may bereferred to the national office as a requestfor technical advice under the provisionsof Rev. Proc. 2011–2, 2011–1 I.R.B. 90(or successor).

(2) Before an appeals office. A tax-payer’s method of accounting for an itemis an issue under consideration for the tax-able years before an appeals office if thetreatment of the item is included as an itemof adjustment in the examination report re-ferred to Appeals or is specifically identi-fied in writing to the taxpayer by Appeals.If an appeals office submits to the JointCommittee on Taxation pursuant to § 6405a report of a refund or credit that includes amethod of accounting for an item that is anissue under consideration, that method ofaccounting continues to be an issue underconsideration by the appeals office whilethe refund or credit is under review by theJoint Committee on Taxation.

(3) Before a federal court. A taxpayer’smethod of accounting for an item is anissue under consideration for the taxableyears before a federal court if the treat-

2011–4 I.R.B. 340 January 24, 2011

ment of the item is included in the statutorynotice of deficiency, the notice of claimdisallowance, the notice of final adminis-trative adjustment, the pleadings (for ex-ample, the petition, complaint, or answer)or amendments thereto, or is specificallyidentified in writing to the taxpayer by thecounsel for the government. If a settle-ment stipulation that includes a methodof accounting for an item that is an is-sue under consideration is submitted to theJoint Committee on Taxation pursuant to§ 6405, that method of accounting contin-ues to be an issue under consideration bythe federal court while the settlement stip-ulation is under review by the Joint Com-mittee on Taxation.

(4) Certain foreign corporations. Inthe case of a controlled foreign corpora-tion (CFC) as defined in § 953(c)(1)(B)or § 957 or a noncontrolled section 902corporation as defined in § 904(d)(2)(E)(10/50 corporation), a foreign corpora-tion’s method of accounting for an itemis an issue under consideration if any ofthe corporation’s controlling domesticshareholders receives notification de-scribed in section 3.09(1), (2) or (3) thatthe treatment of a distribution or deemeddistribution from the foreign corporation,or the amount of its earnings and profitsor foreign taxes deemed paid, is an issueunder consideration.

.10 Change within the LIFO inventorymethod. A change within the LIFO inven-tory method is a change from one LIFO in-ventory method or sub-method to anotherLIFO inventory method or sub-method. Achange within the LIFO inventory methoddoes not include a change in method ofaccounting that could be made by a tax-payer that does not use the LIFO inventorymethod (for example, a method governedby § 471 or § 263A).

.11 Director. The term “director” hasthe same meaning as this term has in Rev.Proc. 2011–1, 2011–1 I.R.B. 1 (or succes-sor).

SECTION 4. SCOPE

.01 Applicability. This revenue proce-dure applies to a taxpayer requesting theCommissioner’s consent to change to amethod of accounting described in the AP-PENDIX of this revenue procedure. Thisrevenue procedure is the exclusive proce-

dure for a taxpayer within its scope to ob-tain the Commissioner’s consent.

.02 Inapplicability. Except as other-wise provided in the APPENDIX of thisrevenue procedure (see, for example, sec-tion 2.01 of the APPENDIX of this rev-enue procedure), this revenue proceduredoes not apply in the following situations:

(1) Under examination. If, on the datethe taxpayer (or if section 6.02(3)(b) of thisrevenue procedure applies, the designatedshareholder) would otherwise file a copyof the application with the national office,or, if applicable, with the Ogden office,pursuant to section 6.02(3) of this revenueprocedure, the taxpayer is under examina-tion (as provided in section 3.08 of thisrevenue procedure), except as provided insections 6.03(2) (90-day window), 6.03(3)(120-day window), 6.03(4) (consent of di-rector), 6.03(5) (changes lacking audit pro-tection), 6.03(6) (issue pending), 6.04 (is-sue under consideration by an appeals of-fice), and 6.05 (issue under considerationby a federal court) of this revenue proce-dure;

(2) Consolidated group member. A cor-poration that is (or was formerly) a mem-ber of a consolidated group is under exam-ination, for purposes of section 4.02(1) ofthis revenue procedure, if the consolidatedgroup is under examination for a taxableyear(s) that the corporation was a memberof the group;

(3) Partnerships and S corporations.For an entity (including a limited liabil-ity company) treated as a partnership or anS corporation for federal income tax pur-poses, if, on the date the entity would oth-erwise file a copy of the application withthe national office or, if applicable, theOgden office, pursuant to section 6.02(3)of this revenue procedure, the entity’s ac-counting method to be changed is an issueunder consideration in an examination of apartner, member, or shareholder’s federalincome tax return;

(4) Section 381(a) transaction. Ex-cept as otherwise provided in this section4.02(4) or in final regulations issued under§ 381, if the taxpayer engages in a trans-action to which § 381(a) applies withinthe proposed taxable year of change (de-termined without regard to any potentialclosing of the year under § 381(b)(1)):

(a) No differences in methods. Anacquiring corporation may change itsmethod of accounting pursuant to thisrevenue procedure if the acquiring corpo-ration would be permitted to continue touse its prior method of accounting underthe rules of §§ 1.381(c)(4)–1(b)(1) and(3)(i) (taking into account the third sen-tence of § 1.381(c)(4)–1(b)(4) relating tono prior method established by a party tothe transaction) or §§ 1.381(c)(5)–1(b)(1)and (3)(i) (taking into account the sec-ond sentence of § 1.381(c)(5)–1(b)(4)(i)relating to no prior inventory method es-tablished by a party to the transaction)because all of the parties to the transactionused the same method of accounting onthe date of distribution or transfer. Thechange pursuant to this revenue procedureis ignored for purposes of determiningwhether on the date of distribution ortransfer the parties to the transaction usedthe same methods of accounting under§ 1.381(c)(4)–1(b) or § 1.381(c)(5)–1(b),and thus §§ 1.381(c)(4)–1(b)(3)(ii) and (c)and §§ 1.381(c)(5)–1(b)(3)(ii) and (c) willnot apply.

(b) Separate trades or businesses. Anacquiring corporation may change pur-suant to this revenue procedure a methodof accounting used by a trade or businessoperated by such corporation if the tradeor business would be permitted to con-tinue to use its prior method of accountingunder the rules of § 1.381(c)(4)–1(b)(2)or § 1.381(c)(5)–1(b)(2). The changepursuant to this revenue procedure isignored for purposes of determiningwhether on the date of distribution ortransfer the parties to the transaction usedthe same methods of accounting under§ 1.381(c)(4)–1(b) or § 1.381(c)(5)–1(b),and thus §§ 1.381(c)(4)–1(b)(3) and (c)and §§ 1.381(c)(5)–1(b)(3) and (c) willnot apply.

(5) Final year of trade or business. If, inthe year of change, a taxpayer requesting achange in method of accounting ceases toengage in the trade or business to which thechange in accounting method relates or ter-minates its existence, as described in sec-tion 5.04(3)(c) of this revenue procedure.For purposes of this section 4.02(5), a tax-payer is treated as ceasing to engage in thetrade or business or terminating its exis-tence without regard to whether the tax-payer’s change in method of accounting re-

January 24, 2011 341 2011–4 I.R.B.

quest would result in either a positive ornegative § 481(a) adjustment or be madeon a cut-off basis.

(6) Prior five-year overall methodchange. Except as provided in section13.02(1) and the APPENDIX of thisrevenue procedure, if during any of thefive taxable years ending with the yearof change a taxpayer changed its over-all method of accounting, or applied forconsent to change its overall method ofaccounting, regardless of whether it im-plemented that change, the taxpayer maynot obtain automatic consent to changeits overall method of accounting underthis revenue procedure. However, a tax-payer that changed its overall method ofaccounting during the five taxable yearsending with the year of change may obtainautomatic consent to change a method ofaccounting for an item when that changemay otherwise be implemented under theprovisions of this revenue procedure. Forpurposes of this section 4.02(6), a changein overall method of accounting doesnot include the use of an overall methodof accounting when computing taxableincome for the taxable year that the tax-payer first files a federal income tax return(“adopts an overall method of account-ing”) or a change in method of accountingimposed by the Service pursuant to Rev.Proc. 2002–18 (or any successor). Thefive-year change prohibition in this sec-tion 4.02(6) applies regardless of whetherthe taxpayer’s current or prior method is apermissible method or clearly reflects thetaxpayer’s income and regardless of theadministrative guidance used to requestconsent or to change the prior method ofaccounting.

Example. A, an attorney, began business in2003 and adopted the overall cash method of ac-counting. For 2008, A changed to an overall ac-crual method of accounting using the then appro-priate administrative guidance. A may not usethe provisions of this revenue procedure for 2010to change to the overall cash method becauseof the five-year change prohibition contained inthis section 4.02(6). However, A may still beable to use the provisions of this revenue proce-dure to change the method of accounting the tax-payer will use to treat advances made on behalf ofclients for 2010. See section 3.01 of the APPEN-DIX of this revenue procedure.

(7) Prior five-year item change.

(a) In general. Except as provided insections 4.02(7)(b), 13.02(1), and the AP-

PENDIX of this revenue procedure, if dur-ing any of the five taxable years endingwith the year of change a taxpayer changedits method of accounting for a specificitem, or applied for consent to change amethod of accounting for a specific itemregardless of whether it implemented thatchange, the taxpayer may not obtain au-tomatic consent to change its method ofaccounting for that same item. For pur-poses of this section 4.02(7)(a), a changein method of accounting for an item doesnot include the use of a method of ac-counting for the first taxable year that thetaxpayer accounts for the item (for exam-ple, include in income, deduct, or capital-ize) to which the method of accounting re-lates, or a change in method of accountingimposed by the Service pursuant to Rev.Proc. 2002–18 (or any successor). Thefive-year change prohibition in this section4.02(7) applies regardless of whether thetaxpayer’s current or prior method is a per-missible method or clearly reflects the tax-payer’s income and regardless of the ad-ministrative guidance used to request con-sent or to change the prior method of ac-counting.

(b) Exceptions. Notwithstanding sec-tion 4.02(7)(a) of this revenue procedure,a taxpayer may obtain automatic consentto change its method of accounting for anitem when that change is required as partof another change in method of account-ing that the taxpayer may otherwise im-plement under the provisions of this rev-enue procedure. In addition, a taxpayeris not prohibited from changing a last-in,first-out (LIFO) inventory sub-method (forexample, the method of determining cur-rent-year cost or the method of comput-ing a dollar-value pool index) within fiveyears of adopting or changing to the LIFOinventory method or another LIFO inven-tory sub-method. However, a taxpayerthat changes a LIFO inventory sub-methodwithin five years of adopting or changingto the LIFO inventory method does not re-ceive audit protection under section 7 ofthis revenue procedure.

(c) Examples.Example 1. A uses the LIFO inventory

method. For 2007, A changed a LIFO inven-tory sub-method. Specifically, A changed fromthe average-cost method of determining thecurrent-year cost of inventories to the earliest-ac-quisitions cost method. For 2010, A seeks to

change to the IPIC method of computing the in-dex and value of its dollar-value pools, a methodthat A has never used. As part of this change, Aseeks to change its method of determining thecurrent-year cost of inventories from the earli-est-acquisitions cost method to the most-recentacquisitions cost method. A is eligible to changeits method of computing the index and value of itsdollar-value pools to the IPIC method under thisrevenue procedure. However, A is not eligibleto change its method of determining the cur-rent-year costs of inventories under this revenueprocedure because A changed this LIFO inven-tory sub-method within the proscribed five-yearperiod.

Example 2. B uses the dollar-value LIFO in-ventory method and maintains separate dollar-value pools for its inventory of (1) new cars; (2)new trucks; (3) used cars; and (4) used trucks. For2006, B terminated its use of the LIFO inventorymethod for its used cars and used trucks underRev. Proc. 2002–9. For 2010, B seeks to termi-nate its use of the LIFO inventory method for itsnew cars and new trucks. B is eligible to changeits method of accounting for new cars and newtrucks under this revenue procedure because it hasnot changed the inventory-identification methodfor those pools within the proscribed five-year pe-riod.

Example 3. C, a driving instruction school,uses an overall accrual method of accounting. Cobtains payment in full from its students at thebeginning of each session of classes. For 2009, Cproperly elected the deferral method for advancepayments as described in Rev. Proc. 2004–34.For 2010, C seeks to change its overall methodof accounting to the cash method as described inRev. Proc. 2001–10 which it qualifies to use. Cis eligible to change its method of accounting foradvance payments even though it made a priorchange in its method of accounting for advancepayments within the previous 5 taxable years end-ing with 2010 because C is required to changeits treatment of advance payments as part of itschange to the overall cash method of accounting.

.03 Nonautomatic changes. If a tax-payer is precluded other than by sections4.02(1) through 4.02(3) of this revenueprocedure from using this revenue pro-cedure to make a change in method ofaccounting, the taxpayer requesting sucha change must file a Form 3115 with theCommissioner in accordance with therequirements of § 1.446–1(e)(3)(i) andRev. Proc. 97–27, 1997–1 C.B. 680, asamplified and modified by Rev. Proc.2002–19, as amplified and clarified byRev. Proc. 2002–54, as modified by Rev.Proc. 2007–67, as clarified and modifiedby Rev. Proc. 2009–39, and as clarifiedand modified by Rev. Proc. 2011–14 (orany other applicable Code, regulation, orguidance published in the Internal Rev-enue Bulletin (IRB)).

2011–4 I.R.B. 342 January 24, 2011

SECTION 5. TERMS ANDCONDITIONS OF CHANGE

.01 In general. An accounting methodchange filed under this revenue proceduremust be made pursuant to the terms andconditions provided in this revenue proce-dure.

.02 Year of change. The year of changeis the taxable year designated on the ap-plication and for which the application istimely filed under section 6.02(3) of thisrevenue procedure.

.03 Section 481(a) adjustment. Unlessotherwise provided in this revenue pro-cedure, a taxpayer making a change inmethod of accounting under this revenueprocedure must apply § 481(a) and takeinto account a § 481(a) adjustment in themanner provided in section 5.04 of thisrevenue procedure.

.04 Section 481(a) adjustment period.

(1) In general. Except as otherwise pro-vided in section 5.04(3) or the APPENDIXof this revenue procedure, or in other guid-ance published in the IRB, the § 481(a)adjustment period for a change in methodof accounting is one taxable year (year ofchange) for a net negative § 481(a) ad-justment and four taxable years (year ofchange and next three taxable years) fora net positive § 481(a) adjustment. A netpositive § 481(a) adjustment is taken intoaccount ratably over the § 481(a) adjust-ment period.

(2) Short period as a separate taxableyear. If the year of change or any othertaxable year during the § 481(a) adjust-ment period is a short taxable year, the§ 481(a) adjustment must be included inincome as if that short taxable year were afull 12-month taxable year. See Rev. Rul.78–165, 1978–1 C.B. 276.

Example 1. A calendar year taxpayer changedits method of accounting under this revenue pro-cedure beginning with the 2010 calendar year.The net § 481(a) adjustment for this methodchange is a positive adjustment of $30,000 andthe adjustment period is four taxable years. Thetaxpayer subsequently receives permission tochange its annual accounting period to September30, effective for the taxable year ending Septem-ber 30, 2011. The taxpayer must include $7,500of the § 481(a) adjustment in gross income forthe short period from January 1, 2011, throughSeptember 30, 2011.

Example 2. Corporation X, a calendar yeartaxpayer, changed its method of accounting underthis revenue procedure beginning with the 2010

calendar year. The net § 481(a) adjustment forthis method change is a positive adjustment of$30,000 and the adjustment period is four taxableyears. On July 1, 2012, Corporation Z acquiresCorporation X in a transaction to which § 381(a)applies. Corporation Z is a calendar year taxpayerthat uses the same method of accounting to whichCorporation X changed in 2010. Corporation Xmust include $7,500 of the § 481(a) adjustmentin gross income for its short period income taxreturn for January 1, 2012, through June 30, 2012.In addition, Corporation Z must include $7,500of the § 481(a) adjustment in gross income in itsincome tax return for calendar year 2012.

(3) Shortened or accelerated § 481(a)adjustment periods. The § 481(a) adjust-ment period provided in section 5.04(1) orthe APPENDIX of this revenue procedurewill be shortened or accelerated in the fol-lowing situations.

(a) De minimis rule. A taxpayer mayelect to use a one-year § 481(a) adjust-ment period (the year of change) in lieuof the § 481(a) adjustment period other-wise provided by this revenue procedurefor a positive § 481(a) adjustment if thenet § 481(a) adjustment for the change isless than $25,000. To make this election,the taxpayer must complete the appropri-ate line on Form 3115 and take the en-tire § 481(a) adjustment into account in theyear of change.

(b) Cooperatives. A cooperative withinthe meaning of § 1381(a) generally musttake the entire amount of a § 481(a) adjust-ment into account in computing taxable in-come for the year of change. See Rev. Rul.79–45, 1979–1 C.B. 284.

(c) Ceasing to engage in the trade orbusiness or terminating existence.

(i) In general. A taxpayer that ceasesto engage in a trade or business or termi-nates its existence must take the remainingbalance of any § 481(a) adjustment relat-ing to the trade or business into account incomputing taxable income in the taxableyear of the cessation or termination. Ex-cept as provided in sections 5.04(3)(c)(iv)and (v) of this revenue procedure, a tax-payer is treated as ceasing to engage ina trade or business if the operations ofthe trade or business cease or substantiallyall the assets of the trade or business aretransferred to another taxpayer. For thispurpose, “substantially all” has the samemeaning as in section 3.01 of Rev. Proc.77–37, 1977–2 C.B. 568.

(ii) Examples of transactions that aretreated as the cessation of a trade or busi-ness. The following is a nonexclusive listof transactions that are treated as the ces-sation of a trade or business for purposesof accelerating the § 481(a) adjustment un-der section 5.04(3)(c) of this revenue pro-cedure:

(A) the trade or business to which the§ 481(a) adjustment relates is incorpo-rated;

(B) the trade or business to which the§ 481(a) adjustment relates is purchased byanother taxpayer in a transaction to which§ 1060 applies;

(C) the trade or business to which the§ 481(a) adjustment relates is terminatedor transferred pursuant to a taxable liqui-dation;

(D) a division of a corporation ceases tooperate the trade or business to which the§ 481(a) adjustment relates; or

(E) the assets of a trade or business towhich the § 481(a) adjustment relates arecontributed to a partnership.

(iii) Conversion to or from S corpo-ration status. Except as provided insection 22.01 of the APPENDIX of thisrevenue procedure, no acceleration of a§ 481(a) adjustment is required under sec-tion 5.04(3)(c) of this revenue procedurewhen a C corporation elects to be treatedas an S corporation or an S corporationterminates its S election and is then treatedas a C corporation.

(iv) Certain transfers to which § 381(a)applies. No acceleration of the § 481(a)adjustment is required under section5.04(3)(c) of this revenue procedure whena taxpayer transfers substantially all theassets of the trade or business that gaverise to the § 481(a) adjustment to anothertaxpayer in a transfer to which § 381(a)applies and the accounting method (thechange to which gave rise to the § 481(a)adjustment) is a tax attribute that is carriedover and used by the acquiring corporationimmediately after the transfer pursuantto § 381(c). The acquiring corporationis subject to any terms and conditionsimposed on the transferor (or any prede-cessor of the transferor) as a result of itschange in method of accounting.

(v) Certain transfers pursuant to § 351within a consolidated group.

(A) In general. No acceleration ofthe § 481(a) adjustment is required under

January 24, 2011 343 2011–4 I.R.B.

section 5.04(3)(c) of this revenue proce-dure when one member of an affiliatedgroup filing a consolidated return trans-fers substantially all the assets of the tradeor business that gave rise to the § 481(a)adjustment to another member of thesame consolidated group in an exchangequalifying under § 351 and the transfereemember adopts and uses the same methodof accounting (the change to which gaverise to the § 481(a) adjustment) used bythe transferor member. The transferormember must continue to take the § 481(a)adjustment into account pursuant to theterms and conditions set forth in this rev-enue procedure. The transferor membermust take into account activities of thetransferee member (or any successor) indetermining whether acceleration of the§ 481(a) adjustment is required. For ex-ample, except as provided in the followingsentence, the transferor member must takeany remaining § 481(a) adjustment intoaccount in computing taxable income inthe taxable year in which the transfereemember ceases to engage in the trade orbusiness to which the § 481(a) adjustmentrelates. The § 481(a) adjustment is notaccelerated when the transferee mem-ber engages in a transaction describedin section 5.04(3)(c)(iv) or this section5.04(3)(c)(v)(A).

(B) Exception. The provisions of sec-tion 5.04(3)(c)(v)(A) of this revenue pro-cedure cease to apply and the transferormember must take any remaining balanceof the § 481(a) adjustment into accountin the taxable year immediately preced-ing any of the following: (1) the taxableyear the transferor member ceases to bea member of the group; (2) the taxableyear any transferee member owning sub-stantially all the assets of the trade or busi-ness that gave rise to the § 481(a) ad-justment ceases to be a member of thegroup; or (3) a separate return year of thecommon parent of the group. In apply-ing the preceding sentence, the rules of§§ 1.1502–13(j)(2), (j)(5) and (j)(6) apply,but only if the method of accounting towhich the transferor member changed andto which the § 481(a) adjustment relatesis adopted, carried over, or used by anytransferee member acquiring the assets ofthe trade or business that gave rise to the§ 481(a) adjustment immediately after ac-quisition of such assets. For example, the

transferor member is not required to accel-erate the § 481(a) adjustment if a transfereemember ceases to be a member of a consol-idated group by reason of an acquisition towhich § 381(a) applies and the acquiringcorporation (1) is a member of the samegroup as the transferor member, and (2)continues, under §381(c)(4) and the regu-lations thereunder, to use the same methodof accounting as that used by the transferormember with respect to the assets of thetrade or business to which the § 481(a) ad-justment relates.

.05 NOL carryback limitation for tax-payer subject to criminal investigation. Noportion of any net operating loss that isattributable to a negative § 481(a) adjust-ment may be carried back to a taxable yearprior to the year of change that is the sub-ject of any pending or future criminal in-vestigation or proceeding concerning (1)directly or indirectly, any issue relating tothe taxpayer’s federal tax liability, or (2)the possibility of false or fraudulent state-ments made by the taxpayer with respect toany issue relating to its federal tax liability.

.06 Certain foreign corporations. Ifthe change in method of accounting is onbehalf of a controlled foreign corporation(CFC) as defined in § 953(c)(1)(B) or§ 957 or a noncontrolled section 902 cor-poration as defined in § 904(d)(2)(E), thefollowing additional terms and conditionsapply:

(1) If the functional currency of the for-eign corporation is not the U.S. dollar, the§ 481(a) adjustment must be stated in thefunctional currency of the foreign corpora-tion and not in U.S. dollars;

(2) A positive § 481(a) adjustment nec-essary to prevent the duplication of anexpense item must take the same source,separate limitation classification, charac-ter, and treatment for purposes of subpartF as the foreign corporation’s gross in-come that was offset by the expense in theprior year or years. A positive § 481(a)adjustment necessary to prevent the omis-sion of amounts of an income item musttake the same source, separate limitationclassification, character, and treatment forpurposes of subpart F as the foreign cor-poration’s income would have had in theprior year or years. A negative § 481(a)adjustment necessary to prevent the omis-sion of amounts of an expense item isallocated to the class of gross income that

has the same source, separate limitationclassification, character, and treatment forpurposes of subpart F as the foreign cor-poration’s income that would have beenoffset by the expense in the prior year oryears. A negative § 481(a) adjustmentnecessary to prevent the duplication ofamounts of an income item offsets grossincome that has the same source, separatelimitation classification, character, andtreatment for purposes of subpart F as theforeign corporation’s income had in theprior year or years;

(3) For each taxable year of the ad-justment period beginning with the yearof change, the appropriate amount of the§ 481(a) adjustment must be taken into ac-count in computing the foreign corpora-tion’s subpart F income under § 952 andits earnings and profits under §§ 964 and986(b);

(4) The written statement required by§ 1.964–1(c)(3)(i) and (ii) must be filed byeach controlling domestic shareholder (orits common parent) with its tax return forits taxable year with or within which endsthe foreign corporation’s year of change;

(5) The shareholder(s) of the foreigncorporation must maintain records and ac-counts with respect to the foreign corpo-ration, for the year of change and for sub-sequent taxable years, in conformity withthe requirements of §§ 905(b) and 964(c).This condition is considered satisfied if theshareholder(s) of the foreign corporationreconcile(s) the results obtained under themethod used in keeping the foreign corpo-ration’s books and records and the methodused for federal income tax purposes andmaintain(s) sufficient records to supportsuch reconciliation;

(6) If a foreign corporation loses its sta-tus as a CFC or noncontrolled section 902corporation at any time prior to the expira-tion of the adjustment period, the foreigncorporation must take into account in com-puting its subpart F income under § 952(if applicable) and earnings and profits un-der §§ 964 and 986(b), on the final day onwhich it is a CFC or noncontrolled sec-tion 902 corporation, the balance of the§ 481(a) adjustment not previously takeninto account;

(7) Each U.S. shareholder of a CFC (orits common parent) must comply with itsobligations to report changes in the own-ership of the CFC on Form 5471, Informa-tion Return of U.S. Persons With Respect

2011–4 I.R.B. 344 January 24, 2011

To Certain Foreign Corporations, duringthe adjustment period; and

(8) In the case of any disposition ofstock of the foreign corporation that isowned directly or indirectly by a UnitedStates person if the disposition (i) repre-sents ten percent or more of the total valueof the stock of the foreign corporation, or(ii) results in the person no longer meet-ing the stock ownership requirements of§ 6046(a)(2) with respect to the foreigncorporation, then the foreign corporationmust take into account, prior to the disposi-tion, the remaining balance of the § 481(a)adjustment in computing its subpart F in-come under § 952 and earnings and profitsunder §§ 964 and 986(b). This conditionalso applies if the foreign corporation is-sues stock so that either of the situationsapplies to the United States person. Thiscondition does not apply to any change inownership of the foreign corporation if thestock disposed of continues to be owned,directly or indirectly, by a member of theU.S. consolidated group of which the for-mer shareholder is a member.

.07 Foreign division of a domestic cor-poration taxpayer. If the change in methodof accounting is on behalf of a foreign divi-sion of a domestic corporation, the follow-ing additional terms and conditions apply:

(1) If the functional currency of the di-vision is not the U.S. dollar, the § 481(a)adjustment must be stated in the functionalcurrency of the division and not in U.S.dollars;

(2) A positive § 481(a) adjustment nec-essary to prevent the duplication of an ex-pense item must take the same source, sep-arate limitation classification, and charac-ter as the foreign division’s gross incomethat was offset by the expense in the prioryear or years. A positive § 481(a) adjust-ment necessary to prevent the omission ofamounts of an income item must take thesame source, separate limitation classifica-tion, and character as the foreign division’sincome would have had in the prior year oryears. A negative § 481(a) adjustment nec-essary to prevent the omission of amountsof an expense item is allocated to the classof gross income that has the same source,separate limitation classification, and char-acter as the division’s income that wouldhave been offset by the expense in the prioryear or years. A negative § 481(a) adjust-ment necessary to prevent the duplication

of amounts of an income item offsets grossincome that has the same source, separatelimitation classification, and character asthe foreign division’s income had in theprior year or years;

(3) For each taxable year of the ad-justment period beginning with the yearof change, the appropriate amount of the§ 481(a) adjustment must be taken into ac-count in computing the taxable income ofthe taxpayer;

(4) The taxpayer must maintain recordsand accounts of the foreign division, forthe year of change and for subsequent tax-able years, in conformity with the methodof accounting granted to the taxpayer.This condition is considered satisfied iftaxpayer reconciles the results obtainedunder the method used in keeping for-eign division’s books and records and themethod used for federal income tax pur-poses and maintains sufficient records tosupport such reconciliation; and

(5) Taxpayer complies with its obliga-tion to file Form 926, Return by a U.S.Transferor of Property to a Foreign Corpo-ration, with respect to a transfer of assetsof the foreign division to a foreign corpo-ration during the adjustment period;

.08 Foreign partnerships. If the changein method of accounting is made by a for-eign partnership, the following additionalterms and conditions apply:

(1) If the functional currency of the for-eign partnership is not the U.S. dollar, the§ 481(a) adjustment must be stated in thefunctional currency of the foreign partner-ship and not in U.S. dollars;

(2) A positive § 481(a) adjustment nec-essary to prevent the duplication of an ex-pense item must take the same source, sep-arate limitation classification, and charac-ter as the foreign partnership’s gross in-come that was offset by the expense in theprior year or years. A positive § 481(a) ad-justment necessary to prevent the omissionof amounts of an income item must takethe same source, separate limitation classi-fication, and character as the foreign part-nership’s income would have had in theprior year or years. A negative § 481(a) ad-justment necessary to prevent the omissionof amounts of an expense item is allocatedto the class of gross income that has thesame source, separate limitation classifica-tion, and character as the foreign partner-ship’s income that would have been offset

by the expense in the prior year or years.A negative § 481(a) adjustment necessaryto prevent the duplication of amounts of anincome item offsets gross income that hasthe same source, separate limitation classi-fication, and character as the foreign part-nership’s income had in the prior year oryears;

(3) For each taxable year of the ad-justment period beginning with the yearof change, the appropriate amount of the§ 481(a) adjustment must be taken into ac-count in computing the taxable income ofthe foreign partnership;

(4) The foreign partnership must main-tain records and accounts for the year ofchange and for subsequent taxable years,in conformity with the method of account-ing granted to the foreign partnership. Thiscondition is considered satisfied if the for-eign partnership reconciles the results ob-tained under the method used in keeping itsbooks and records and the method used forfederal income tax purposes and maintainssufficient records to support such reconcil-iation;

(5) Each partner (and any subsequenttransferee) of the foreign partnership com-plies with its obligation to file Form 926,Return by a U.S. Transferor of Property toa Foreign Corporation, with respect to atransfer of assets of the foreign partnershipto a foreign corporation during the adjust-ment period; and

(6) Each partner (and any subsequenttransferee) of the foreign partnership com-plies with its obligation to file Form 8865,Return of U.S. persons with respect to Cer-tain Foreign Partnerships, during the ad-justment period.

.09 Change treated as initiated by thetaxpayer. For purposes of § 481, a changein method of accounting made under thisrevenue procedure is a change in methodof accounting initiated by the taxpayer.

SECTION 6. GENERAL APPLICATIONPROCEDURES

.01 Consent. Pursuant to§ 1.446–1(e)(2)(i), the consent of theCommissioner is hereby granted to anytaxpayer within the scope of this revenueprocedure to change its method(s) ofaccounting as described in the APPEN-DIX to this revenue procedure for therequested year of change. Such consent isgranted only for the change(s) in method

January 24, 2011 345 2011–4 I.R.B.

of accounting and the affected item(s)that are clearly and expressly identifiedin the taxpayer’s application. See section6.02(1)(c) of this revenue procedure. Fur-ther, such consent is granted only to theextent that the taxpayer complies with allthe applicable provisions of this revenueprocedure and implements the changein method of accounting on its federalincome tax return for the requested year ofchange to which the original application isattached pursuant to section 6.02(3) of thisrevenue procedure. In the case of a CFCor 10/50 corporation that does not filea federal income tax return, the CFC or10/50 corporation implements the changein method of accounting for the requestedyear of change and the controlling do-mestic shareholder(s) reflect the changein method of accounting on their federalincome tax return(s), as applicable, for theyear with or within which ends the CFC’sor 10/50 corporation’s year of change.

.02 Filing requirements.

(1) Applications.

(a) Form. Ordinarily, a taxpayer appliesfor consent to change a method of account-ing pursuant to this revenue procedure orother guidance published in the IRB bycompleting and filing a current Form 3115.In some cases, however, the provisions ofthis revenue procedure applicable to a par-ticular change require or allow a taxpayerto file a statement in lieu of a Form 3115as an application for consent to make suchchange. See, for example, section 14.10 ofthe APPENDIX of this revenue procedure.

(b) Separate applications.

(i) In general. Ordinarily, a taxpayermust submit a separate application for eachchange in method of accounting.

(ii) Single application for two or morechanges. In some cases, the provisionsof this revenue procedure or other guid-ance published in the IRB applicable toparticular changes in method of account-ing require or allow a taxpayer to file a sin-gle application for two or more concurrentchanges. See, for example, section 14.03of the APPENDIX of this revenue proce-dure.

When the taxpayer is required or al-lowed to file a single Form 3115 for twoor more concurrent changes, the taxpayermust attach to the single Form 3115 the in-formation required by Part II, line 12, and

Part IV, line 25 (including the amount ofany § 481(a) adjustment), of Form 3115 foreach change in method of accounting in-cluded on that single Form 3115. Also at-tach an explanation for any other line(s) onthe single Form 3115 where the taxpayer’sanswer is different for any of the con-current changes to which the single Form3115 relates.

(c) Contents. The taxpayer must submitan application that is accurate and com-plete as to all information required by thisrevenue procedure. Further, unless thisrevenue procedure provides that a Form3115 is not required for the requestedchange in method of accounting, the tax-payer must submit a current Form 3115that contains all information required bythe applicable portions of the Form 3115and its instructions.

For example, an application must iden-tify the taxpayer making the change; theyear of change (both the beginning andending dates); the designated automaticaccounting method change number(s)for the requested change(s) in method ofaccounting; and the amount of the adjust-ment under § 481(a), unless the change isrequired to be made using a cut-off basis.Also, the application must fully describethe item(s) being changed; the presentmethod(s) of accounting from which thetaxpayer is changing and the proposedmethod(s) of accounting to which the tax-payer is changing. Further, unless a Form3115 is not required for the requestedchange in method of accounting, the tax-payer must provide all other informationrequired by Parts I, II, and IV, and anyapplicable schedule(s) on the Form 3115.

(2) Waiver of taxable year filingrequirement. The requirement under§ 1.446–1(e)(3)(i) to file a Form 3115within the taxable year for which thechange is requested is waived for anyapplication for a change in method ofaccounting filed pursuant to this revenueprocedure. See § 1.446–1(e)(3)(ii).

(3) Timely duplicate filing require-ments.

(a) In general. A taxpayer changing amethod of accounting pursuant to this rev-enue procedure must complete and file anapplication in duplicate, except as other-wise provided in this revenue procedure.

(i) Original application. The originalapplication must be attached to the tax-payer’s timely filed (including any exten-sion) original federal income tax return im-plementing the change in method of ac-counting for the year of change; and

(ii) Copy of application.

(A) National office copy of appli-cation. Except as provided in section6.02(3)(a)(ii)(B), a copy of the application(with the original signature or a photocopyof the original signature) must be filedwith the national office (national officecopy) no earlier than the first day of theyear of change and no later than the datethe taxpayer files the original with thefederal income tax return for the year ofchange. For the national office copy ofForm 3115, the taxpayer need only includethe pages containing Parts I through IV,any applicable schedule(s), and requiredattachments. See section 6.02(7)(a) of thisrevenue procedure for the address for thenational office copy.

(B) Ogden copy of application in lieuof the national office copy. Some sectionsof the APPENDIX of this revenue proce-dure require a copy of the application (withthe original signature or a photocopy ofthe original signature) to be filed with theIRS in Ogden, UT (Ogden copy), insteadof with the national office. In these cases,the signed copy must be filed with the Og-den office no earlier than the first day ofthe year of change and no later than thedate the taxpayer files the original with thefederal income tax return for the year ofchange. See, e.g., sections 6.01, 6.02, 6.04,and 9.01 of the APPENDIX of this rev-enue procedure. For the Ogden copy ofForm 3115, the taxpayer need only includethe pages containing Parts I through IV,any applicable schedule(s), and requiredattachments. See section 6.02(7)(b) of thisrevenue procedure for the address for theOdgen copy.

(b) Certain foreign corporations. Inthe case of a controlled foreign corpora-tion as defined in section 953(c)(1)(B) or957(a) (“CFC”) or a noncontrolled sec-tion 902 corporation as defined in section904(d)(2)(E) that is not required to filea federal income tax return, the control-ling domestic shareholders (as definedin § 1.964–1(c)(5)) that want to changethe foreign corporation’s method of ac-counting pursuant to the provisions of

2011–4 I.R.B. 346 January 24, 2011

this revenue procedure must satisfy therequirements set forth in § 1.964–1(c)(3).The designated shareholder who retainsthe jointly executed consent described in§ 1.964–1(c)(3)(ii) must complete and filean application in duplicate on behalf ofthe foreign corporation. An original appli-cation must be attached to the designatedshareholder’s (or its common parent’s)timely filed (including any extension)original federal income tax return for itstaxable year with or within which ends theyear of change of the foreign corporation,and a copy (with the original signature or aphotocopy of the original signature) of theapplication must be filed with the nationaloffice (or, if applicable, with the IRS inOgden, UT) (see section 6.02(7) of thisrevenue procedure for the national officecopy or Ogden copy address) no earlierthan the first day of the year of changeand no later than the date the designatedshareholder (or its common parent) filesthe original with the designated share-holder’s (or its common parent’s) federalincome tax return for its taxable year withor within which ends the year of changeof the foreign corporation. Each othercontrolling domestic shareholder (or itscommon parent) must also attach a copyof the application to its federal incometax return filed for its taxable year with orwithin which ends such year of change.

(c) Additional copies required for a tax-payer under examination, before an ap-peals office, or before a federal court. Ifthe taxpayer is under examination (as de-fined in section 3.08 of this revenue proce-dure), or before an appeals office or a fed-eral court (including a taxpayer to whichsection 3.09(2) and (3) of this revenue pro-cedure applies), with respect to any incometax issue, in all cases the taxpayer (or ifsection 6.02(3)(b) of this revenue proce-dure applies, the designated shareholder)must provide an additional copy of the ap-plication to the examining agent(s), ap-peals officer(s) and counsel to the govern-ment, as applicable, no later than the datethe taxpayer files the national office copyor, if applicable, the Ogden copy, of the ap-plication.

(d) Limited relief for late application.

(i) Automatic extension. An automaticextension of 6 months from the due date ofthe return for the year of change (exclud-ing any extension) is granted to file an ap-

plication, provided the taxpayer (or if sec-tion 6.02(3)(b) of this revenue procedureapplies, the designated shareholder):

(A) timely filed (including any exten-sion) its federal income tax return for theyear of change;

(B) files an amended return within the6-month extension period in a manner thatis consistent with the new method of ac-counting;

(C) attaches the original application tothe amended return;

(D) files a copy of the application withthe national office, or, if applicable, withthe IRS in Ogden, UT, no later than whenthe original is filed with the amended re-turn; and

(E) attaches a statement to the applica-tion that the application is being filed pur-suant to § 301.9100–2(b) of the Procedureand Administration Regulations.

(ii) Other extensions. A taxpayer (or ifsection 6.02(3)(b) of this revenue proce-dure applies, the designated shareholder)that fails to file the application for theyear of change as provided in section6.02(3)(a), (b), or (d)(i) of this revenueprocedure will not be granted an extensionof time to file under § 301.9100, exceptin unusual and compelling circumstances.See § 301.9100–3(c)(2) and Rev. Proc.2011–1 (or successor).

(4) Designated automatic accountingmethod change number. The taxpayer(or if section 6.02(3)(b) of this revenueprocedure applies, the designated share-holder) must type or clearly print thedesignated automatic accounting methodchange number for the requested change inmethod of accounting on the application.When the requested change in method ofaccounting is made using Form 3115, thetaxpayer must enter the designated auto-matic accounting method change numberfor the requested change on the appropri-ate line on the Form 3115. For example, ataxpayer requesting the change in methodof accounting identified in section 1.01 ofthe APPENDIX of this revenue procedurefor the year ending December 31, 2010,must enter the number “91” on Line 1(a)of Form 3115. When the requested changein method of accounting is made using astatement in lieu of Form 3115 the tax-payer must enter the designated automaticaccounting method change number for therequested change in method of accounting

at the top of the first page of the statement,directly above the taxpayer’s name andemployer identification number (or socialsecurity number in the case of an individ-ual). For example, enter the number “125”for the change in method of accountingidentified in section 14.10 of the APPEN-DIX of this revenue procedure at the topof the first page of the statement, directlyabove the taxpayer’s name and employeridentification number (or social securitynumber in the case of an individual).

In general, a taxpayer may enter onlyone designated automatic accountingmethod change number on an application.However, where this revenue procedureor other guidance published in the IRBspecifically permits two or more particularchanges in method of accounting to bemade on a single application, a taxpayermust enter the designated automatic ac-counting method change number for eachsuch particular change being requested onthe application.

The designated automatic accountingmethod change numbers are provided inthe APPENDIX of this revenue procedureand in other guidance published in the IRB.See also Instructions for Form 3115.

(5) Signature requirements. The na-tional office copy, or if applicable, the Og-den copy, of the application must be signedby, or on behalf of, the taxpayer request-ing the change in method of accountingby an individual who has personal knowl-edge of the facts and authority to bind thetaxpayer (or if section 6.02(3)(b) of thisrevenue procedure applies, the designatedshareholder) in such matters. For exam-ple, an officer must sign on behalf of a cor-poration, a general partner on behalf of astate law partnership, a member-manageron behalf of a limited liability company,a trustee on behalf of a trust, or an indi-vidual taxpayer on behalf of a sole pro-prietorship. If the taxpayer (or the desig-nated shareholder) is a member of a con-solidated group, an application submittedon behalf of the taxpayer must be signedby a duly authorized officer of the commonparent. See the signature requirements setforth in section 6.02(3)(a)(ii) of this rev-enue procedure and in the current Instruc-tions for Form 3115 regarding those whoare to sign.

(6) Authorized representative. If anagent is authorized to represent the tax-

January 24, 2011 347 2011–4 I.R.B.

payer before the Service, receive a copyof the correspondence concerning the ap-plication, or perform any other act(s) re-garding the application filed on behalf ofthe taxpayer, a power of attorney reflect-ing such authorization(s) must be attachedto the national office copy, or if applica-ble, the Ogden copy, of the applicationand to any additional required copy. It ispreferred that Form 2848, Power of Attor-ney and Declaration of Representative, beused to provide the representative’s author-ity and qualification. A taxpayer’s repre-sentative without a power of attorney torepresent the taxpayer as required in thissection 6.02(6) of this revenue procedurewill not be given any information regard-ing the application.

(7) Where to file copy.(a) National office copy of application.(i) For a taxpayer other than an exempt

organization, the national office copy ofthe application must be addressed to theInternal Revenue Service, Attn: CC:ITA— Automatic Rulings Branch, P.O. Box7604, Benjamin Franklin Station, Wash-ington, D.C. 20044 (or, in the case of adesignated private delivery service: Inter-nal Revenue Service, Attn: CC:ITA —Automatic Rulings Branch, 1111 Constitu-tion Avenue, NW, Room 5336, Washing-ton, D.C. 20224).

(ii) For an exempt organization, the na-tional office copy of the application mustbe addressed to the Internal Revenue Ser-vice, Tax Exempt & Government Enti-ties, P.O. Box 2508, Cincinnati, OH 45201(or, in the case of a designated private de-livery service: Internal Revenue Service,Tax Exempt & Government Entities, 550Main Street, Room 4024, Cincinnati, OH45202).

(iii) For a taxpayer other than an exemptorganization, the national office copy ofthe application may also be hand deliveredbetween the hours of 8:00 a.m. and 4:00p.m. to the courier’s desk at the loadingdock (located behind the 12th Street secu-rity station) of 1111 Constitution Avenue,NW, Washington, D.C. A receipt will begiven at the courier’s desk. The copy ofthe application must be addressed to theCourier’s Desk, Internal Revenue Service,Attn: CC:PA:LPD:DRU, Room 5336,1111 Constitution Avenue, NW, Washing-ton, D.C. 20224.

(b) Ogden copy of application in lieuof the national office copy. The Ogdencopy of the application, when applicable,must be addressed to: Internal RevenueService, 1973 North Rulon White Blvd.,Mail Stop 4917, Ogden, UT 84404. ThisOgden copy is in lieu of the national officecopy. See section 6.02(3)(a)(ii)(B) of thisrevenue procedure.

(8) No acknowledgement of receipt. Ex-cept as provided in section 6.02(7)(a)(iii)of this revenue procedure, the Service doesnot send an acknowledgement of the re-ceipt of an application (original or copy)filed under this revenue procedure.

(9) No user fee. A user fee is not re-quired for an application filed under thisrevenue procedure.

(10) Single application for certain tax-payers. Certain taxpayers (or if section6.02(3)(b) of this revenue procedure ap-plies, certain designated shareholders)may file a single application for an iden-tical change in method of accounting onbehalf of two or more of its separate anddistinct trades or businesses, two or moremembers of a consolidated group, twoor more controlled foreign corporations(CFCs), or two or more noncontrolledsection 902 corporations (10/50 corpora-tions). See sections 9.02 and 15.07(4) ofRev. Proc. 2011–1 (or successor).

.03 Taxpayer under examination.

(1) In general. Except as otherwiseprovided in the APPENDIX of this rev-enue procedure (see, for example, section2.01 of the APPENDIX of this revenueprocedure), a taxpayer that is under ex-amination (as provided in section 3.08 ofthis revenue procedure) may file an ap-plication to change a method of account-ing under this revenue procedure only ifthe taxpayer is within the provisions ofsection 6.03(2) (90-day window), 6.03(3)(120-day window), 6.03(4) (consent of di-rector), 6.03(5) (changes lacking audit pro-tection), 6.03(6) (issue pending), 6.04 (is-sue under consideration by an appeals of-fice), or 6.05 (issue under considerationby a federal court) of this revenue proce-dure. A taxpayer (or if section 6.02(3)(b)of this revenue procedure applies, the des-ignated shareholder) that files an applica-tion beyond the time periods provided inthe 90-day and 120-day windows is not el-igible for the automatic extension of time

and will not be granted an extension oftime to file under § 301.9100, except in un-usual and compelling circumstances.

(2) 90-day window period. A taxpayer(or if section 6.02(3)(b) of this revenueprocedure applies, the designated share-holder) may file a copy of the applica-tion with the national office or, if appli-cable with the Ogden office, to change amethod of accounting under this revenueprocedure during the first 90-days of anytaxable year (the 90-day window) if thetaxpayer has (or in the case of a taxpayerthat is a CFC or 10/50 corporation, all ofits controlling domestic shareholders thatare under examination have) been underexamination for at least 12 consecutivemonths as of the first day of the taxableyear. This 90-day window is not availableif the method of accounting the taxpayer ischanging is an issue under consideration atthe time the taxpayer (or designated share-holder) would otherwise file the copy ofthe application or an issue the examiningagent(s) has placed in suspense at the timethe taxpayer (or designated shareholder)would otherwise file the copy of the appli-cation. See section 6.02(3)(c) of this rev-enue procedure for more information re-garding the requirement to file a copy ofthe application with the examining agent.

(3) 120-day window period. Except asprovided in section 3.08(1)(c) of this rev-enue procedure, a taxpayer (or if section6.02(3)(b) of this revenue procedure ap-plies, the designated shareholder) may filea copy of the application with the nationaloffice or, if applicable with the Ogden of-fice, to change a method of accountingunder this revenue procedure during the120-day period following the date an ex-amination of the taxpayer (or in the caseof a taxpayer that is a CFC or 10/50 cor-poration, of each of its controlling domes-tic shareholders that were under examina-tion) ends (the 120-day window), regard-less of whether a subsequent examinationhas commenced. This 120-day window isnot available if the method of accountingthe taxpayer is changing is an issue underconsideration at the time the taxpayer (ordesignated shareholder) would otherwisefile a copy of the application or an issue theexamining agent(s) has placed in suspenseat the time the taxpayer (or designatedshareholder) would otherwise file a copyof the application. See section 6.02(3)(c)

2011–4 I.R.B. 348 January 24, 2011

of this revenue procedure for more infor-mation regarding the requirement to file acopy of the application with the examiningagent.

(4) Consent of director.(a) A taxpayer under examination may

change its method of accounting under thisrevenue procedure if the director consentsto the filing of the application. The direc-tor will consent to the filing of the applica-tion unless, in the opinion of the director,the method of accounting to be changedwould ordinarily be included as an itemof adjustment in the year(s) for which thetaxpayer is under examination. For ex-ample, the director will consent to the fil-ing of an application to change from aclearly permissible method of accounting,or from an impermissible method of ac-counting where the impermissible methodwas adopted subsequent to the years un-der examination. The director’s consent islimited to the director’s consent to file theapplication and does not constitute the di-rector’s agreement to, or approval of, therequested change in method of account-ing. The question of whether the methodof accounting from which the taxpayer ischanging is permissible or was adoptedsubsequent to the years under examinationmay be referred to the national office as arequest for technical advice under the pro-visions of Rev. Proc. 2011–2 (or succes-sor).

(b) A taxpayer changing a method ofaccounting under this revenue procedurewith the consent of the director (or if sec-tion 6.02(3)(b) of this revenue procedureapplies, the designated shareholder) mustattach to the copy of the application filedwith the national office or, if applicablewith the Ogden office, a statement fromthe director consenting to the filing of theapplication. In addition, the taxpayer (ordesignated shareholder) must attach to itsoriginal application attached to its federalincome tax return a statement certifyingthat it has obtained the written consent ofthe director to the filing of the applicationand that the taxpayer (or designated share-holder) will maintain a copy of such con-sent available for inspection. See section6.02(3)(c) of this revenue procedure formore information regarding the require-ment to file a copy of the application withthe examining agent.

(5) Changes lacking audit protection. Ataxpayer under examination may changeits method of accounting under this rev-enue procedure if the description of thechange in the APPENDIX of this revenueprocedure provides that the change is notsubject to the audit protection provisionsof section 7 of this revenue procedure. Seesection 6.02(3)(c) of this revenue proce-dure for more information regarding therequirement to file a copy of the applica-tion with the examining agent.

(6) Issue Pending. A taxpayer that isunder examination with respect to any in-come tax issue may request to change amethod of accounting if the method of ac-counting to be changed is an issue pend-ing for any taxable year under examina-tion. However, the audit protection pro-visions of section 7 of this revenue proce-dure do not apply to a taxpayer changingits method of accounting under this sec-tion 6.03(6). For purposes of this section6.03(6), an issue is pending for a taxableyear under examination if the Service hasgiven the taxpayer (or if section 6.02(3)(b)of this revenue procedure applies, any con-trolling domestic shareholder of a CFC or10/50 corporation) written notification in-dicating an adjustment is being made orwill be proposed with respect to the tax-payer’s method of accounting. This noti-fication by the Service may result from aninquiry by the Joint Committee on Taxa-tion. This notification normally will oc-cur after the Service or the Joint Commit-tee on Taxation has gathered informationsufficient to determine that an adjustmentis appropriate and justified, although theexact amount of the adjustment may notyet be determined. See section 6.02(3)(c)of this revenue procedure for more infor-mation regarding the requirement to file acopy of the application with the examiningagent.

.04 Taxpayer before an appeals office.A taxpayer otherwise within the scopeof this revenue procedure that is beforean appeals office with respect to any in-come tax issue (or if section 6.02(3)(b)of this revenue procedure applies, a CFCor 10/50 corporation with a controllingdomestic shareholder that is before anappeals office with respect to any incometax issue) may request a change in methodof accounting. Further, a taxpayer nototherwise within the scope of this revenue

procedure by reason of section 4.02(1),(2), or (3) that is before an appeals officewith respect to any income tax issue (or ifsection 6.02(3)(b) of this revenue proce-dure applies, a CFC or 10/50 corporationwith a controlling domestic shareholderthat is before an appeals office with re-spect to any income tax issue) may requesta change in method of accounting if themethod to be changed is an issue underconsideration by the appeals office. How-ever, the audit protection provisions ofsection 7 of this revenue procedure do notapply if the method of accounting to bechanged is an issue under consideration bythe appeals office. See section 6.02(3)(c)of this revenue procedure for more infor-mation regarding the requirement to filea copy of the application with the appealsofficer.

.05 Taxpayer before a federal court. Ataxpayer otherwise within the scope of thisrevenue procedure that is before a federalcourt with respect to any income tax is-sue (or if section 6.02(3)(b) of this revenueprocedure applies, a CFC or 10/50 corpo-ration with a controlling domestic share-holder that is before a federal court withrespect to any income tax issue) may re-quest a change in method of accounting.Further, a taxpayer not otherwise withinthe scope of this revenue procedure by rea-son of section 4.02(1), (2), or (3) that isbefore a federal court with respect to anyincome tax issue (or if section 6.02(3)(b)of this revenue procedure applies, a CFCor 10/50 corporation with a controlling do-mestic shareholder that is before a federalcourt with respect to any income tax is-sue) may request a change in method ofaccounting if the method to be changed isan issue under consideration by the federalcourt. However, the audit protection pro-visions of section 7 of this revenue proce-dure do not apply if the method of account-ing to be changed is an issue under consid-eration by the federal court. See section6.02(3)(c) of this revenue procedure formore information regarding the require-ment to file a copy of the application withthe counsel(s) for the government.

.06 Compliance with provisions. If ataxpayer to which this revenue procedureapplies changes to a method of account-ing without complying with all the appli-cable provisions of this revenue procedure(for example, the taxpayer changes to a

January 24, 2011 349 2011–4 I.R.B.

method of accounting that varies from theapplicable accounting method described inthis revenue procedure or the taxpayer isoutside the scope of this revenue proce-dure), the taxpayer has initiated a changein method of accounting without obtain-ing the consent of the Commissioner as re-quired by § 446(e). See sections 9.02 and10.03 of this revenue procedure.

SECTION 7. AUDIT PROTECTIONFOR TAXABLE YEARS PRIOR TOYEAR OF CHANGE

.01 In general. Except as provided insections 4.02(7)(b), 6.03(5), 6.03(6), 6.04,6.05, 7.02 or the APPENDIX of this rev-enue procedure or in any other guidancepublished in the IRB, when a taxpayertimely files a copy of the application withthe national office or, if applicable the Og-den office, under section 6.02(3) of thisrevenue procedure in compliance with allthe applicable provisions of this revenueprocedure, the Service will not require thetaxpayer to change its method of account-ing for the same item for a taxable yearprior to the year of change.

.02 Exceptions.

(1) Change not made or made improp-erly. The Service may change a taxpayer’smethod of accounting for prior taxableyears if (a) the taxpayer fails to implementthe change, (b) the taxpayer implementsthe change but does not comply with allthe applicable provisions of this revenueprocedure, or (c) the method of accountingis changed or modified because there hasbeen a misstatement or omission of mate-rial facts (see section 8.02 of this revenueprocedure).

(2) Change in sub-method. The Ser-vice may change a taxpayer’s method ofaccounting for prior taxable years if thetaxpayer is changing a sub-method of ac-counting within the method. For exam-ple, an examining agent may propose toterminate the taxpayer’s use of the LIFOinventory method during a prior taxableyear even though the taxpayer changes itsmethod of valuing increments in the cur-rent year.

(3) Prior year Service-initiated change.The Service may make adjustments to thetaxpayer’s returns for the same item fortaxable years prior to the requested year ofchange to reflect a prior year Service-ini-

tiated change reported as an issue pendingor in a Revenue Agent’s Report.

(4) Criminal investigation. The Ser-vice may change a taxpayer’s method ofaccounting for the same item for taxableyears prior to the year of change if thereis any pending or future criminal inves-tigation or proceeding concerning (a) di-rectly or indirectly, any issue relating to thetaxpayer’s federal tax liability for any tax-able year prior to the year of change, or (b)the possibility of false or fraudulent state-ments made by the taxpayer with respectto any issue relating to its federal tax lia-bility for any taxable year prior to the yearof change.

SECTION 8. EFFECT OF CONSENT

.01 In general. A taxpayer that changesto a method of accounting pursuant tothis revenue procedure may be required tochange or modify that method of account-ing for the following reasons:

(1) the enactment of legislation;(2) a decision of the United States

Supreme Court;(3) the issuance of temporary or final

regulations;(4) the issuance of a revenue ruling, rev-

enue procedure, notice, or other statementpublished in the IRB;

(5) the issuance of written notice to thetaxpayer that the change in method of ac-counting is not in accord with the currentviews of the Service; or

(6) a change in the material facts onwhich the consent was based.

.02 Retroactive change or modification.Except in rare or unusual circumstances, ifa taxpayer that changes its method of ac-counting under this revenue procedure issubsequently required under section 8.01of this revenue procedure to change ormodify that method of accounting, the re-quired change or modification will not beapplied retroactively, provided that:

(1) the taxpayer complied with all theapplicable provisions of this revenue pro-cedure;

(2) there has been no misstatement oromission of material facts;

(3) there has been no change in thematerial facts on which the consent wasbased;

(4) there has been no change in the ap-plicable law; and

(5) the taxpayer to whom consent wasgranted acted in good faith in relying onthe consent, and applying the change ormodification retroactively would be to thetaxpayer’s detriment.

SECTION 9. REVIEW BY DIRECTOR

.01 In general. The director must applya change in method of accounting madein compliance with all the applicable pro-visions of this revenue procedure in de-termining the taxpayer’s liability, unlessthe director recommends that the changein method of accounting should be modi-fied or revoked. (See section 9.02 of thisrevenue procedure if a change in methodof accounting is made without complyingwith all the applicable provisions of thisrevenue procedure.) The director will as-certain if the change in method of account-ing was made in compliance with all theapplicable provisions of this revenue pro-cedure, including whether:

(1) the representations on which thechange was based reflect an accurate state-ment of the material facts;

(2) the amount of the § 481(a) adjust-ment was properly determined; and

(3) the change in method of accountingwas implemented in compliance with allthe applicable provisions of this revenueprocedure.

The director will also ascertainwhether:

(4) there has been any change in the ma-terial facts on which the change was basedduring the period the method of account-ing was used; and

(5) there has been any change in the ap-plicable law during the period the methodof accounting was used.

.02 Changes not made in compliancewith all applicable provisions. If the di-rector determines that the taxpayer has notcomplied with all of the applicable provi-sions of this revenue procedure, the direc-tor may:

(1) deny the change in method of ac-counting and require the taxpayer to con-tinue to use the prior method of account-ing;

(2) deny the change in method of ac-counting and place the taxpayer on aproper method of accounting (see section2.10 of this revenue procedure); or

(3) make any adjustments (includingthe amount of any § 481(a) adjustment)

2011–4 I.R.B. 350 January 24, 2011

that are necessary to bring the change inmethod of accounting into compliancewith all applicable provisions of this rev-enue procedure.

The director may impose any otherwiseapplicable penalty, addition to tax, or ad-ditional amount on the understatement oftax attributable to the change in method ofaccounting.

.03 National office consideration. Ifthe director recommends that a changein method of accounting (other than the§ 481(a) adjustment) made in compliancewith all the applicable provisions of thisrevenue procedure should be modified orrevoked, the director will forward the mat-ter to the national office for considerationbefore any further action is taken. Sucha referral to the national office will betreated as a request for technical advice,and the provisions of Rev. Proc. 2011–2(or successor) will be followed.

SECTION 10. REVIEW BY NATIONALOFFICE

.01 In general. The national office mayreview any application filed under this rev-enue procedure. If the national office re-views an application, the procedures insections 10.02 and 10.03 of this revenueprocedure apply.

.02 Incomplete application.

(1) 30-day rule. If the national officereviews an application and determines thatthe application is not properly completed(see section 6.02(1)(c) of this revenue pro-cedure), or if supplemental information isneeded, the national office will notify thetaxpayer. The notification will specify theinformation that the taxpayer needs to pro-vide and permit the taxpayer 30 days fromthe date of the notification to furnish theinformation. The national office reserves

the right to impose shorter reply periodsif subsequent requests for additional infor-mation are made. The national office maygrant a taxpayer an extension of the 30-dayperiod to furnish information, not to ex-ceed 30 days. A taxpayer must request anyextension of the 30-day period in writingand submit it within the initial 30-day pe-riod. If the national office denies an exten-sion request, there is no right of appeal.

(2) Failure to provide additional infor-mation. Ordinarily, if the taxpayer failsto provide the additional information on atimely basis, the application does not qual-ify for the automatic consent proceduresof this revenue procedure. If the nationaloffice determines that the application doesnot qualify for the automatic consent pro-cedures of this revenue procedure becausethe taxpayer has failed to provide the ad-ditional information on a timely basis, thenational office will notify the taxpayer thatconsent to make the change in method ofaccounting is not granted.

.03 National office determination.

(1) Conference in the national office.If the national office tentatively deter-mines that the taxpayer has changed itsmethod of accounting without complyingwith all the applicable provisions of thisrevenue procedure (for example, the tax-payer changed to a method of accountingthat varies from the applicable accountingmethod described in this revenue proce-dure or the taxpayer is outside the scopeof this revenue procedure), the nationaloffice will notify the taxpayer of its tenta-tive adverse determination and will offerthe taxpayer a conference, if the taxpayerrequested one. For conference proceduresfor taxpayers other than exempt organiza-tions, see section 10 of Rev. Proc. 2011–1(or successor). For conference proceduresfor exempt organizations, see section 12

of Rev. Proc. 2011–4, 2011–1 I.R.B. 123(or successor).

(2) Consent not granted. Except as pro-vided in section 10.03(3) of this revenueprocedure, if the national office determinesthat a taxpayer has changed its method ofaccounting without complying with all theapplicable provisions of this revenue pro-cedure, the national office will notify thetaxpayer that consent to make the changein method of accounting is not granted. Inno event will an application filed under thisrevenue procedure be treated as an applica-tion under Rev. Proc. 97–27 (or any suc-cessor).

(3) Application changed. If the na-tional office determines that a taxpayerhas changed its method of accountingwithout complying with all the applica-ble provisions of this revenue procedure,the national office, in its discretion, mayallow the taxpayer to (a) make appropri-ate adjustments to conform its change inmethod of accounting to the applicableprovisions of this revenue procedure, and(b) make conforming amendments to anyfederal income tax returns filed for theyear of change and subsequent taxableyears. Any application changed under thissection 10.03(3) is subject to review bythe director as provided in section 9 of thisrevenue procedure.

SECTION 11. APPLICABILITY OFREV. PROCS. 2011–1 AND 2011–4

Rev. Procs. 2011–1 and 2011–4 (orsuccessors) apply to applications filed un-der this revenue procedure, unless specif-ically excluded or overridden by otherguidance published in the IRB (includingany specific procedures in this document).

January 24, 2011 351 2011–4 I.R.B.

SECTION 12. CHANGES TO REV.PROC. 97–27

.01 Changes to section 3.07, Under ex-amination.

(1) Change to section 3.07(1)(a). Sec-tion 3.07(1)(a) of Rev. Proc. 97–27 ismodified, in part, to read as follows:

(a) Except as provided in sections3.07(2) and 3.07(4) of this revenue proce-dure, an examination of a taxpayer withrespect to a federal income tax return be-gins on the date the taxpayer is contactedin any manner by a representative of theService for the purpose of scheduling anytype of examination of the return. Ex-cept as provided in sections 3.07(1)(b),3.07(1)(c), 3.07(2) and 3.07(3) of this rev-enue procedure, an examination ends:

* * *

(2) Change to section 3.07(1)(c). Sec-tion 3.07(1)(c) of Rev. Proc. 97–27 ismodified to read as follows:

(c) An examination resumes on thedate the taxpayer (or its representative) isnotified by Appeals (or otherwise) that thecase has been referred to Examination forreconsideration. Further, notwithstand-ing sections 3.07(1)(a)(iii) and 6.01(3) ofthis revenue procedure, if the taxpayer iswithin the 120-day window period pro-vided in section 6.01(3) of this revenueprocedure, that 120-day window periodends as of the date the taxpayer is notifiedby Appeals (or otherwise) that the case hasbeen referred to the examining agent(s)for reconsideration. The 120-day windowperiod in section 6.01(3) will be availableto the taxpayer in its entirety when theresumed examination ends.

(3) Change to section 3.07(2), Part-nerships and S corporations subject toTEFRA. Section 3.07(2) of Rev. Proc.97–27 is modified, in part, to read as fol-lows:

(2) Partnerships and S corporationssubject to TEFRA. Except as provided insections 3.07(3) and 3.07(4) of this rev-enue procedure, for an entity (includinga limited liability company), treated as apartnership or an S corporation for federalincome tax purposes, that is subject to theTEFRA unified audit and litigation provi-sions for partnerships and S corporations,an examination begins on the date of thenotice of the beginning of an administra-tive proceeding sent to the Tax Matters

Partner/Tax Matters Person (TMP) andends:

* * *

(4) Change to section 3.07(3), Taxpayerbefore Joint Committee on Taxation. Sec-tion 3.07(3) of Rev. Proc. 97–27 is modi-fied to read as follows:

(3) Taxpayer before Joint Committee onTaxation. If a taxpayer is under examina-tion (including an examination that beginson the date a taxpayer is contacted in anymanner for additional information as a re-sult of a Joint Committee on Taxation in-quiry pursuant to § 6405) then, notwith-standing the performance of an act de-scribed in section 3.07(1) or 3.07(2), forpurposes of this revenue procedure, thetaxpayer continues to be under examina-tion while the taxpayer has a refund orcredit under review by the Joint Commit-tee on Taxation. The examination ends onthe later of (i) the performance of the ap-plicable act described in section 3.07(1) or3.07(2), or (ii) the date of the Service’swritten notification to the taxpayer thatthe Joint Committee on Taxation has com-pleted its consideration (for example, Let-ter 1574 (P)), or that the case has beenwithdrawn from consideration by the JointCommittee on Taxation. See Rev. Proc.2005–32, 2005–1 C.B. 1206.

Further, for purposes of section 6.01(5)(issue pending) of this revenue procedure,an issue is pending for a taxable year un-der examination if the Service has giventhe taxpayer written notification indicat-ing an adjustment is being made or willbe proposed with respect to the taxpayer’smethod of accounting. The notification bythe Service may result from an inquiry bythe Joint Committee on Taxation. This no-tification normally will occur after the Ser-vice or the Joint Committee on Taxationhas gathered information sufficient to de-termine that an adjustment is appropriateand justified, although the exact amount ofthe adjustment may not yet be determined.

.02 Changes to section 3.08, Issue un-der consideration.

(1) Change to section 3.08(2), Beforean appeals office. Section 3.08(2) of Rev.Proc. 97–27, is modified to read as fol-lows:

(2) Before an appeals office. A tax-payer’s method of accounting for an itemis an issue under consideration for the tax-able years before an appeals office if the

treatment of the item is included as an itemof adjustment in the examination report re-ferred to Appeals or is specifically identi-fied in writing to the taxpayer by Appeals.If an appeals office submits to the JointCommittee on Taxation pursuant to § 6405a report of a refund or credit that includes amethod of accounting for an item that is anissue under consideration, that method ofaccounting continues to be an issue underconsideration by the appeals office whilethe refund or credit is under review by theJoint Committee on Taxation.

(2) Change to section 3.08(3), Beforea federal court. Section 3.08(3) of Rev.Proc. 97–27, is modified to read as fol-lows:

(3) Before a federal court. A taxpayer’smethod of accounting for an item is anissue under consideration for the taxableyears before a federal court if the treatmentof the item is included as an item of adjust-ment in the statutory notice of deficiency,the notice of claim disallowance, the no-tice of final administrative adjustment, thepleadings (for example, the petition, com-plaint, or answer) or amendments theretoor is specifically identified in writing tothe taxpayer by the counsel for the govern-ment. If a settlement stipulation that in-cludes a method of accounting for an itemthat is an issue under consideration is sub-mitted to the Joint Committee on Taxa-tion pursuant to § 6405, that method ofaccounting continues to be an issue underconsideration by the federal court whilethe settlement stipulation is under reviewby the Joint Committee on Taxation.

.03 Change to section 4.02, Scope, “In-applicability”. Section 4.02(2) of Rev.Proc. 97–27, is modified to read as fol-lows:

(2) Under examination. If the taxpayeris under examination, except as providedin sections 6.01(2) (90-day window),6.01(3) (120-day window), 6.01(4) (direc-tor consent), 6.01(5) (issue pending), 6.02(issue under consideration by an appealsoffice) and 6.03 (issue under considerationby a federal court) of this revenue proce-dure;

.04 Changes to section 6, PROCE-DURES FOR TAXPAYERS UNDER EX-AMINATION, BEFORE AN APPEALSOFFICE, OR BEFORE A FEDERALCOURT.

2011–4 I.R.B. 352 January 24, 2011

(1) Change to section 6.02, Taxpayerbefore an appeals office. Section 6.02 ofRev. Proc. 97–27, is modified to read asfollows:

.02 Taxpayer before an appeals office.A taxpayer otherwise within the scope ofthis revenue procedure that is before an ap-peals office with respect to any income taxissue may request a change in method ofaccounting. Further, a taxpayer not other-wise within the scope of this revenue pro-cedure by reason of section 4.02(2) (underexamination), 4.02(5) (consolidated groupmember) or 4.02(6) (partnerships and Scorporations) that is before an appeals of-fice with respect to any income tax issuemay request a change in method of ac-counting if the method to be changed isan issue under consideration by the appealsoffice. However, the audit protection pro-visions of section 9 of this revenue proce-dure do not apply if the method of account-ing to be changed is an issue under consid-eration by the appeals office. A taxpayerthat requests to change a method of ac-counting under this section 6.02 must pro-vide a copy of the Form 3115 to the ap-peals officer no later than the date it filesthe original Form 3115 with the nationaloffice.

(2) Change to section 6.03, Taxpayerbefore a federal court. Section 6.03 ofRev. Proc. 97–27, is modified to read asfollows:

.03 Taxpayer before a federal court. Ataxpayer otherwise within the scope of thisrevenue procedure that is before a federalcourt with respect to any income tax is-sue may request a change in method of ac-counting. Further, a taxpayer not other-wise within the scope of this revenue pro-cedure by reason of section 4.02(2) (underexamination), 4.02(5) (consolidated groupmember) or 4.02(6) (partnerships and Scorporations) that is before a federal courtwith respect to any income tax issue mayrequest a change in method of accountingif the method to be changed is an issueunder consideration by the federal court.However, the audit protection provisionsof section 9 of this revenue procedure donot apply if the method of accounting tobe changed is an issue under considerationby the federal court. A taxpayer that re-quests to change a method of accountingunder this section 6.03 must provide a copyof the Form 3115 to the counsel(s) for the

government no later than the date it filesthe original Form 3115 with the nationaloffice.

SECTION 13. EFFECTIVE DATE

.01 In general.

(1) Rev. Proc. 2011–14. Except asprovided in section 13.02 of this revenueprocedure, this revenue procedure is effec-tive for applications filed on or after Jan-uary 10, 2011, for a year of change end-ing on or after April 30, 2010. The Servicewill return any application that is filed withthe national office on or after January 10,2011, for a year of change ending on or af-ter April 30, 2010, if the application is filedpursuant to the Code, regulations, or otherguidance published in the IRB other thanthis revenue procedure and the change inmethod of accounting appears to be withinthe scope of this revenue procedure.

(2) Rev. Proc. 97–27. This revenueprocedure is effective for Forms 3115 filedunder Rev. Proc. 97–27, as amplifiedand modified by Rev. Proc. 2002–19,as amplified and clarified by Rev. Proc.2002–54, as modified by Rev. Proc.2007–67, as clarified and modified byRev. Proc. 2009–39, and as clarified andmodified by this revenue procedure, filedon or after January 10, 2011, for a yearof change ending on or after January 10,2011.

.02 Transition rules. The followingtransition rules apply:

(1) Forms 3115 filed under Rev. Proc.97–27. If before January 10, 2011, ataxpayer within the scope of Rev. Proc.97–27 timely filed a Form 3115 underRev. Proc. 97–27 requesting consent for achange in method of accounting describedin the APPENDIX of this revenue proce-dure for a year of change ending on or afterApril 30, 2010, and the Form 3115 is pend-ing with the national office on January 10,2011, the taxpayer may choose to makethe change under this revenue procedureif the taxpayer is otherwise eligible underthis revenue procedure. If the taxpayerchooses to convert the Form 3115 underthis revenue procedure, the taxpayer mustnotify the national office before the later of(a) February 11, 2011, or (b) the issuanceof either a letter ruling granting or denyingconsent for the change or a letter closingthe case. If the taxpayer timely notifies

the national office that it will convert theForm 3115 under this revenue procedure,the national office ordinarily will returnthe Form 3115 to the taxpayer to make thenecessary modifications to comply withthe applicable provisions of this revenueprocedure and will refund the user feesubmitted with the Form 3115.

A taxpayer may convert a Form 3115that is returned to the taxpayer under thissection 13.02(1) to an application underRev. Proc. 2011–14, if the taxpayer re-submits the Form 3115 with the necessarymodifications, along with a copy of the na-tional office letter sent with the returnedForm 3115, to the national office or, if ap-plicable, to the Ogden office, by the earlierof (a) the 30th calendar day after the dateof the Service’s letter returning the Form3115 to the taxpayer, or (b) the date thetaxpayer is required to file the copy of theapplication under section 6.02(3) of thisrevenue procedure. For purposes of thetimely duplicate filing requirement in sec-tion 6.02(3) of Rev. Proc. 2011–14, the na-tional office copy or, if applicable, the Og-den copy, of the timely resubmitted Form3115 will be considered filed as of the datethe taxpayer originally filed the Form 3115under Rev. Proc. 97–27.

A Form 3115 filed under Rev. Proc.97–27 before January 10, 2011, that ispending with the national office on January10, 2011, will be disregarded for purposesof the prior 5 year change rules in sections4.02(6) and (7) of Rev. Proc. 2011–14, inthe following circumstances:

(a) the taxpayer converts the Form 3115under this section 13.02(1); or

(b) the taxpayer withdraws the Form3115 and files an application under Rev.Proc. 2011–14, for the same change inmethod of accounting for a year of changeending on or before April 30, 2011.

(2) Application filed under Rev. Proc.2008–52.

(a) General rule. If a taxpayer properlyfiled an application with the national of-fice under Rev. Proc. 2008–52, as ampli-fied, clarified, and modified by Rev. Proc.2009–39, to make a change in method ofaccounting described in the APPENDIX ofRev. Proc. 2008–52, as amplified, clari-fied, and modified by Rev. Proc. 2009–39,and the application was either post-markedor received by the national office beforeJanuary 10, 2011, the taxpayer makes the

January 24, 2011 353 2011–4 I.R.B.

change under Rev. Proc. 2008–52, asamplified, clarified, and modified by Rev.Proc. 2009–39.

(b) Option to file an amended applica-tion.

(i) In general. If before January 10,2011, a taxpayer properly filed an applica-tion under Rev. Proc. 2008–52, as ampli-fied, clarified, and modified by Rev. Proc.2009–39, for a year of change that is thetaxpayer’s first taxable year ending on orafter April 30, 2010, the taxpayer maychoose to file an amended application forthat year of change under this revenue pro-cedure if:

(A) On or before the earlier of (1)May 2, 2011, or (2) the date the taxpayerfiles its federal income tax return forthe year of change as required in section13.02(2)(b)(i)(B) of this revenue proce-dure, the taxpayer sends the national officecopy or, if applicable, the Ogden copy,of the amended application, with “FILEDUNDER SECTION 13.02(2) of REV.PROC. 2011–14” written on the top ofpage 1, to the applicable address in section13.02(2)(b)(ii) of this revenue procedure;and

(B) Within 6 months from the due dateof the federal income tax return for the yearof change (excluding extension), the tax-payer files an original or amended returnimplementing the new method of account-ing pursuant to this revenue procedure, andattaches the original amended applicationfiled under this revenue procedure to itsoriginal or amended return for the year ofchange.

For purposes of the timely duplicate fil-ing requirement in section 6.02(3) of Rev.Proc. 2011–14, the national office copy or,if applicable, the Ogden copy, of the timelyresubmitted amended application will beconsidered filed as of the date the taxpayeroriginally filed the copy of the applicationunder Rev. Proc. 2008–52 with the na-tional office.

(ii) Address to send the amended ap-plication to the national office or Ogden,as applicable. Send the national officecopy or Ogden copy, as applicable, of theamended application, pursuant to section13.02(2)(b)(i)(A) of this revenue proce-dure to the applicable address below:

National office copy: Internal Rev-enue Service, P. O. Box 14095, Benjamin

Franklin Station, Washington, DC 20044,Attention: CC:ITA:8.

Ogden copy: Internal Revenue Service,1973 North Rulon White Blvd., Mail Stop4917, Ogden, UT 84404.

(3) No application filed beforeJanuary 10, 2011. If, before January10, 2011, a taxpayer has not filed anapplication requesting consent to changea particular method of accounting for itsfirst taxable year ending on or beforeDecember 31, 2010, the taxpayer maychoose to apply the provisions of theAPPENDIX of Rev. Proc. 2008–52, asamplified, clarified, and modified by Rev.Proc. 2009–39, (in lieu of the APPENDIXof this revenue procedure) with Rev. Proc.2011–14, with respect to such method ofaccounting for such taxable year.

For a taxpayer filing an application un-der Rev. Proc. 2011–14 using the APPEN-DIX of Rev. Proc. 2008–52, as ampli-fied, clarified, and modified by Rev. Proc.2009–39, the timely duplicate filing re-quirement of section 6.02(3) of Rev. Proc.2011–14 is modified to require the copy ofthe application to be submitted to the Na-tional Office or, if applicable, the Ogdenoffice, on or before February 15, 2011. Ataxpayer filing such a transition applica-tion under this section 13.02(3) must oth-erwise be eligible to make the change un-der the non-APPENDIX sections of Rev.Proc. 2011–14, and should write on the topof page 1 of the national office copy or, ifapplicable, the Ogden copy, of the applica-tion “FILED UNDER SECTION 13.02(3)OF REV. PROC. 2011–14.”

SECTION 14. EFFECT ON OTHERDOCUMENTS

.01 Rev. Proc. 2008–52, is amplified,clarified, modified, and, in part, is super-seded. The last paragraph of section 13of Rev. Proc. 2008–52 (relating to Rev.Proc. 2008–43, 2008–30 I.R.B. 186) re-mains in effect. All other sections of Rev.Proc. 2008–52 are superseded.

.02 Rev. Proc. 2009–39, is amplified,clarified, modified, and, in part, is super-seded. Sections 3 and 4.03 of Rev. Proc.2009–39 remain in effect. All other sec-tions of Rev. Proc. 2009–39 are super-seded.

.03 Rev. Proc. 97–27, is clarified andmodified.

.04 Rev. Proc. 2004–34, 2004–1 C.B.991, is modified as follows. Section 8.03of Rev. Proc. 2004–34 is modified byadding new section 8.03(3) to read as fol-lows:

(3) A taxpayer that makes a change inmethod of accounting pursuant to the pro-visions of Rev. Proc. 97–27 that other-wise would be described in section 15.11of the APPENDIX of Rev. Proc. 2011–14but for the scope limitations in section 4.02of Rev. Proc. 2011–14, must make thechange on a cut-off basis as described insection 2.06 of Rev. Proc. 2011–14, ap-plied only to advance payments receivedon or after the beginning of the year ofchange. Any advance payments receivedprior to the year of change are accountedfor under the taxpayer’s former method ofaccounting (i.e., according to its formermethod of recognizing advance paymentsin revenues in its AFS). Accordingly, a§ 481(a) adjustment is neither permittednor required.

.05 Rev. Proc. 2001–10, 2001–1C.B. 272, as modified by Announcement2004–16, 2004–1 C.B. 668, is furthermodified to remove section 6.02(1)(a).Thus, the scope limitations of section 4.02,as well as the provisions of sections 6.03(regarding taxpayers under examination),6.04 (regarding taxpayers before an ap-peals office), 6.05 (regarding taxpayersbefore a federal court) and 6.02(3)(c) (re-garding additional copies of applicationfor a taxpayer under examination, be-fore an appeals office or before a federalcourt) of this revenue procedure apply to achange in method of accounting describedin sections 14.03 and 21.03 of the APPEN-DIX of this revenue procedure.

.06 Rev. Proc. 2002–28, 2002–1C.B. 815, as modified by Announcement2004–16, 2004–1 C.B. 668, is furthermodified to remove section 7.02(1)(a).Thus, the scope limitations of section 4.02,as well as the provisions of sections 6.03(regarding taxpayers under examination),6.04 (regarding taxpayers before an ap-peals office), 6.05 (regarding taxpayersbefore a federal court) and 6.02(3)(c) (re-garding additional copies of applicationfor a taxpayer under examination, be-fore an appeals office or before a federalcourt) of this revenue procedure apply to achange in method of accounting describedin sections 14.03 and 21.03 of the APPEN-DIX of this revenue procedure.

2011–4 I.R.B. 354 January 24, 2011

.07 Rev. Proc. 2006–56, 2006–2 C.B.1169, is modified to remove section 4.01.See, however, section 14.04 of the AP-PENDIX of this revenue procedure.

.08 Notice 2011–4, 2011–2 I.R.B. 282,is modified, in part, to correct section 5.01.The first sentence of the paragraph entitled“Designated automatic accounting methodchange number” is modified to read as fol-lows: The designated automatic account-ing method change number for a changeunder section 25.02 of the APPENDIX is“155.”

SECTION 15. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number1545–1551. An agency may not conductor sponsor, and a person is not required torespond to, a collection of information un-less the collection of information displaysa valid OMB control number.

The collections of information in thisrevenue procedure are in sections 6, 10,and 13 and sections 3, 5, 6, 7, 8, 9, 10,11, 14, 15, 16, 17, 19, 20, 21, 22, 23,24, 29, 31, and 32 of the APPENDIX.This information is necessary and will beused to determine whether the taxpayerproperly changed to a permitted method ofaccounting. The collections of informa-tion are required for the taxpayer to ob-tain consent to change its method of ac-counting. The likely respondents are thefollowing: individuals, farms, business orother for-profit institutions, nonprofit in-stitutions, and small businesses or organi-zations.

The estimated total annual reportingand/or recordkeeping burden is 15,359.34hours.

The estimated annual burden per re-spondent/recordkeeper varies from 1/6hour to 8 1/2 hours, depending on indi-vidual circumstances, with an estimatedaverage of 1 1/4 hours. The estimatednumber of respondents is 14,130. Theestimated annual frequency of responsesis on occasion.

SECTION 16. SIGNIFICANTCHANGES

.01 Significant changes to Rev. Proc.2008–52, include:

(1) Section 3.08(1)(c) of this revenueprocedure modifies the 120-day windowperiod to provide if a taxpayer is withinthe 120-day window period, that 120-daywindow period ends when Appeals refersa case to the examining agent(s) for recon-sideration;

(2) Section 3.08(4) of this revenue pro-cedure is clarified to explain that a tax-payer under examination, for purposes ofthis revenue procedure, continues to be un-der examination while the taxpayer has arefund or credit under review by the JointCommittee on Taxation. This section fur-ther explains when such an examinationends for purposes of this revenue proce-dure;

(3) Section 3.09(2) of this revenue pro-cedure modifies the rules for a taxpayerwith a method of accounting for an itemthat is an issue under consideration beforean appeals office when the appeals officesubmits a refund or credit to the Joint Com-mittee on Taxation;

(4) Section 3.09(3) of this revenue pro-cedure modifies the rules for a taxpayerwith a method of accounting for an itemthat is an issue under consideration beforea federal court when a settlement stipula-tion is submitted to the Joint Committee onTaxation;

(5) Sections 5.07 and 5.08 of this rev-enue procedure provide additional termsand conditions applicable to a foreign di-vision of a domestic corporation taxpayerand foreign partnership, respectively;

(6) Section 6.01 of this revenue proce-dure is clarified to provide that a taxpayerreceives the consent of the Commissionerto make a change in method of accountingunder the APPENDIX of this revenue pro-cedure if the taxpayer complies with theprovisions of this revenue procedure andimplements the change on its federal in-come tax return for the requested year ofchange to which the original application isattached pursuant to section 6.02(3);

(7) Changes to section 6.02(3) of thisrevenue procedure:

(a) Section 6.02(3) of this revenue pro-cedure clarifies the filing requirements ofthis revenue procedure by consolidating

the filing requirements into a single sec-tion; and

(b) Section 6.02(3) of this revenue pro-cedure is modified to require, in certaincases, a copy of the application be pro-vided to the IRS in Ogden, UT (Ogdencopy), in lieu of providing the copy of theapplication to the national office (nationaloffice copy). An Ogden copy, in lieu ofthe national office copy, is required in AP-PENDIX sections 6.01, 6.02, 6.04, 6.05,6.06, 6.07, 6.08, 6.09, 6.10, 6.11, 6.12,6.17, 6.18, 6.19, 6.20, 6.21, 6.22, 6.23,6.24, 6.25, and 9.01;

(8) Sections 6.04 and 6.05 of this rev-enue procedure are modified to providethat a taxpayer not otherwise within thescope of this revenue procedure by reasonof section 4.02(1) (under examination),4.02(2) (consolidated group member) or4.02(3) (Partnerships and S corporations)that is before an appeals office or federalcourt with respect to any income tax is-sue may request a change in method ofaccounting without audit protection if themethod to be changed is an issue underconsideration by the appeals office or fed-eral court;

(9) Section 3.06(3) of the APPEN-DIX of this revenue procedure, relating tochanges for repair and maintenance costs,modifies the date that the additional Og-den, UT, copy of the application must befiled;

(10) Section 6.01 of the APPENDIX ofthis revenue procedure, relating to changesfrom impermissible to permissible meth-ods of accounting for depreciation andamortization, clarifies that the amount ofdepreciation allowable takes into accountall additional first year depreciation de-duction provisions;

(11) Section 6.03(2)(b) of the APPEN-DIX of this revenue procedure, relatingto sale, lease or financing transactions, ismodified to explain when the Service willconsider requests for a change in methodof accounting for existing transactions un-der Rev. Proc. 97–27;

(12) The following changes are madeto sections 6.24 (relating to changes fordispositions of structural components of abuilding (section 168)), and 6.25 (relatingto changes for dispositions of tangible de-preciable assets (other than a building orits structural components) (section 168))of the APPENDIX of this revenue proce-dure:

January 24, 2011 355 2011–4 I.R.B.

(a) Sections 6.24(2)(e) and 6.25(2)(e)are modified to require an additional state-ment to be provided when making thechange in method of accounting; and

(b) Sections 6.24(5) and 6.25(5) aremodified to require a copy of the Form3115 be filed with the IRS in Ogden, UT,in lieu of providing a copy to both thenational office and the Ogden office;

(13) Consistent with the Service’s ad-ministrative practice, the following sec-tions of the APPENDIX of this revenueprocedure are modified to permit concur-rent changes on a single Form 3115 when ataxpayer makes a change under the sectionfor more than one asset for the same yearof change, and to provide rules for aggre-gation of the net § 481(a) adjustments:

(a) Section 6.01, relating to changesfrom impermissible to permissible meth-ods of accounting for depreciation oramortization;

(b) Section 6.04, relating to changes formodern golf course greens;

(c) Section 6.05, relating to changes fororiginal and replacement tire costs;

(d) Section 6.06, relating to changes indepreciation of gas pump canopies;

(e) Section 6.07, relating to a change indepreciation of utility assets;

(f) Section 6.08, relating to a change indepreciation of cable TV fiber optics;

(g) Section 6.10, relating to a change inmethod of accounting for depreciation dueto a change in the use of MACRS property;

(h) Section 6.11, relating to a change indepreciation of qualified non-personal usevans and light trucks;

(i) Section 6.12, relating to a changein depreciation of qualified revitalizationbuilding in the expanded area of a renewalcommunity;

(j) Section 6.18, relating to a change indepreciation of MACRS property acquiredin a like-kind exchange or as a result of aninvoluntary conversion; and

(k) Section 6.22, relating to changes inKansas additional first-year depreciation;

(14) Consistent with the Service’sadministrative practice, the followingsections of the APPENDIX of this rev-enue procedure are modified to permit ataxpayer to make concurrent changes inmethod of accounting on a single Form3115 for these changes:

(a) Section 6.01, relating to changesfrom impermissible to permissible meth-

ods of accounting for depreciation oramortization;

(b) Section 6.04, relating to changes formodern golf course greens;

(c) Section 6.05, relating to changes fororiginal and replacement tire costs;

(d) Section 6.06, relating to changes indepreciation of gas pump canopies; and

(e) Section 6.07, relating to a change indepreciation of utility assets;

(15) Consistent with the Service’s ad-ministrative practice, the following sec-tions of the APPENDIX of this revenueprocedure are modified to permit a tax-payer to make a change, with the samedesignated automatic accounting methodchange number, for more than one asset forthe same year of change on a single appli-cation:

(a) Section 6.02, relating to changesfrom a permissible to another permissiblemethod of accounting for depreciation;

(b) Section 6.09, relating to changes ingeneral asset account treatment due to achange in the use of MACRS property;

(c) Section 6.17, relating to changesfrom an impermissible to permissiblemethod of accounting for depreciation oramortization for disposed depreciable oramortizable property;

(d) Section 6.20, relating to changesfor accounting for, or identifying disposed,depreciable repairable and reusable spareparts;

(e) Section 6.21, relating to changesfrom depreciating land (or nondeprecia-ble land improvement) to not depreciat-ing land (or nondepreciable land improve-ment); and

(f) Section 6.23, relating to changes fortenant construction allowances;

(16) Section 14.01(1)(b)(viii) of theAPPENDIX of this revenue procedure, re-lating to a change in overall method fromthe cash method to an accrual method,is modified to provide that this inappli-cability subsection does not apply to ataxpayer accounting for inventories under§ 1.446–1(c)(2)(i) and accounting for allother items of income and expense on thecash method of accounting, and otherwisepermitted to make a change to an overallaccrual method of accounting under sec-tion 14.01 of the APPENDIX;

(17) Section 19.01(2) of the APPEN-DIX of this revenue procedure, relating tochanges involving timing of incurring lia-bilities for bonuses, is amplified and mod-

ified to include method changes involvingbonuses that are received by the employeemore than 2 1/2 months after the taxableyear in which the related services are pro-vided, and that are not deferred compensa-tion;

(18) The following sections of the AP-PENDIX of this revenue procedure have asubsection that is removed because it is ob-solete:

(a) Section 10.06(2), relating to “Scopelimitations inapplicable” for changes forrotable spare parts;

(b) Section 14.04(2), relating to “Scopelimitations inapplicable” for changes forthe nonaccrual-experience method;

(c) Section 14.08(3), relating to “Scopelimitations inapplicable” for changes by abank for uncollected interest;

(d) Section 15.07(2), relating to “Man-ner of making change” for changes for ad-vance payments;

(e) Section 19.04(3), relating to “Scopelimitations inapplicable” for changes forthe timing of incurring certain liabilitiesfor payroll taxes;

(f) Section 21.08(2), relating to “Scopelimitations inapplicable” for changes forthe replacement cost for heavy equipmentdealers’ parts inventory; and

(g) Section 21.10(3), relating to “Scopelimitations inapplicable” for changes to theadvance trade discount method;

(19) The following sections are the AP-PENDIX of this revenue procedure are ob-solete and are removed from this APPEN-DIX in their entirety:

(a) Section 6.14, relating to changes inincome forecast method of depreciation;

(b) Section 6.15, relating to changes forGO Zone additional first year depreciationdeduction;

(c) Section 6.16, relating to changes foradditional first year depreciation deduc-tion;

(d) Section 8.01, relating to changes forthe treatment of qualified film and televi-sion productions;

(e) Section 8.02, relating to changes forexpensing of certain reforestation expendi-tures;

(f) Section 8.03, relating to changes forthe deduction for capital costs incurred incomplying with Environmental ProtectionAgency sulfur regulations;

(g) Section 9.02, relating to changes forYear 2000 costs; and

2011–4 I.R.B. 356 January 24, 2011

(h) Section 15.09, relating to changesfor sales or dispositions to implement Fed-eral Energy Regulatory Commission orstate electric restructuring policy;

(20) The following sections are addedto the APPENDIX of this revenue pro-cedure to provide additional changes inmethod of accounting:

(a) Section 8.04, relating to changes todeduct, under § 179D, amounts paid or in-curred for the installation of energy effi-cient commercial building property;

(b) Section 15.11, relating to changesfor advance payments — subsequentchange in applicable financial statement(these types of changes were removedfrom section 15.07 of the APPENDIX);and

(c) Section 19.09, relating to changesfor California franchise taxes;

(21) Section 21.03(2) of the APPEN-DIX of this revenue procedure, relating tochanges for small taxpayers excepted fromthe requirement to account for inventoriesunder § 471, is modified to provide thatthe scope limitations of section 4.02 of thisrevenue procedure apply to a change inmethod of accounting made under section21.03 of the APPENDIX;

(22) Section 22.01(7) of the APPEN-DIX of this revenue procedure, relating tochanges from the LIFO inventory method,clarifies that a taxpayer must compute a§ 481(a) adjustment when changing froma LIFO method to a non-LIFO method.In addition, this section provides a specialrule for calculating that § 481(a) adjust-ment when the taxpayer is changing to aninventory method that a taxpayer not using

a LIFO method implements on a cut-offbasis; and

(23) Section 29.01 of the APPENDIXof this revenue procedure, relating tochanges in functional currency, is modi-fied to require taxpayers making a changeunder this section to attach a statement tothe Form 3115.

.02 Significant changes to Rev. Proc.97–27 include:

(1) Section 3.07(1)(c) of Rev. Proc.97–27 is modified to provide that, if ataxpayer is within the 120-day windowperiod, that 120-day window period endswhen a case before Appeals is referredto the examining agent(s) for reconsider-ation;

(2) Section 3.07(3) of Rev. Proc. 97–27is clarified to explain that a taxpayer underexamination, for purposes of Rev. Proc.97–27, continues to be under examinationwhile the taxpayer has a refund or creditunder review by the Joint Committee onTaxation. This section further explainswhen such an examination ends for pur-poses of Rev. Proc. 97–27;

(3) Section 3.08(2) of Rev. Proc. 97–27is modified to provide the rules for a tax-payer with an issue under considerationbefore an appeals office when the appealsoffice submits a refund or credit to the JointCommittee on Taxation;

(4) Section 3.08(3) of Rev. Proc. 97–27is modified to provide the rules for a tax-payer with an issue under considerationbefore a federal court when a settlementstipulation is submitted to the Joint Com-mittee on Taxation; and

(5) Sections 6.02 and 6.03 of Rev. Proc.97–27 are modified to provide that a tax-payer not otherwise within the scope ofRev. Proc. 97–27 by reason of section4.02(2) (under examination), 4.02(5) (con-solidated group member) or 4.02(6) (Part-nerships and S corporations) that is beforean appeals office or federal court with re-spect to any income tax issue may requesta change in method of accounting with-out audit protection if the method to bechanged is an issue under consideration bythe appeals office or federal court.

DRAFTING INFORMATION

The principal author of this revenueprocedure is Karla M. Meola of the Officeof Associate Chief Counsel (Income Taxand Accounting). For further informationregarding this revenue procedure, contactMs. Meola, at (202) 622–4930 (not atoll-free call).

For further information regarding aspecific change in method of account-ing in the APPENDIX of this revenueprocedure, contact the appropriate indi-vidual listed in the “Contact Person(s)”section located at the end of each sec-tion of the APPENDIX (calls are nottoll-free) or see the APPENDIX CON-TACT LIST immediately following theAPPENDIX. The contact person is withone of the following Offices of AssociateChief Counsel: Corporate (CORP), Fi-nancial Institutions and Products (FI&P),Income Tax & Accounting (IT&A), Inter-national (INTL), Passthroughs and SpecialIndustries (P&SI), or Tax Exempt andGovernment Entities (TEGE).

APPENDIX

CHANGES IN METHODS OF ACCOUNTING TO WHICH THIS REVENUE PROCEDURE APPLIES

SECTION 1. GROSS INCOME (§ 61)

.01 Up-front Payments for NetworkUpgrades received by Utilities.

(1) Description of change. This changeapplies to a Utility that wants to changeits method of accounting for Up-frontPayments to the “safe harbor method”described in Rev. Proc. 2005–35, 2005–2C.B. 76. In general, this change appliesto a Utility that receives an Up-front Pay-ment from a Generator to finance NetworkUpgrades to the Utility’s Transmission

System. For federal income tax purposes,if an Up-front Payment is made pursuantto an Interconnection Agreement that sat-isfies all of the conditions of section 5.02of Rev. Proc. 2005–35, a Utility maytreat that Up-front Payment as not beingtaxable income under § 61 when received(the “safe harbor method”). In addition,a Utility that uses the safe harbor methodis not entitled to any deduction for its re-imbursements of the Up-front Payment.To the extent that Federal Energy Reg-ulatory Commission (FERC) interest is

deductible, it must be properly allocated tothe periods in which it accrues. A Utilityusing the safe harbor method must complywith all other applicable provisions of Rev.Proc. 2005–35. See Rev. Proc. 2005–35for the definitions of certain terms for pur-poses of this change.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 1.01of this APPENDIX is “91.” See section6.02(4) of this revenue procedure.

January 24, 2011 357 2011–4 I.R.B.

(3) Contact information. For furtherinformation regarding a change underthis section, contact David B. Silber at202–622–3930 (not a toll-free call).

.02 Reserved.

SECTION 2. COMMODITY CREDITLOANS (§ 77)

.01 Treating amounts received as loans.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for loans receivedfrom the Commodity Credit Corporationfrom including the loan amount in grossincome for the taxable year in which theloan is received to treating the loan amountas a loan.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to loans received from the Com-modity Credit Corporation on or after thebeginning of the year of change. See sec-tion 2.06 of this revenue procedure formore information regarding a cut-off ba-sis. Accordingly, a § 481(a) adjustment isneither permitted nor required.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 2.01of this APPENDIX is “1.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact William Ruane at202–622–4920 (not a toll-free call).

.02 Reserved.

SECTION 3. TRADE OR BUSINESSEXPENSES (§ 162)

.01 Advances made by a lawyer onbehalf of clients.

(1) Description of change. This changeapplies to a lawyer handling cases on acontingent fee basis that advances moneyto pay for costs of litigation or for otherexpenses on behalf of clients and thatwants to change the method of accountingfor such advances from treating them asdeductible business expenses to treatingthem as loans. See Boccardo v. UnitedStates, 12 Cl. Ct. 184 (1987); Canelo v.

Commissioner, 53 T.C. 217 (1969), aff’dper curiam, 447 F.2d 484 (9th Cir. 1971).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 3.01of this APPENDIX is “2.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Martin Osborne at202–622–7900 (not a toll-free call).

.02 ISO 9000 costs.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for costs incurredto obtain, maintain and renew ISO 9000certification to conform with Rev. Rul.2000–4, 2000–1 C.B. 331.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 3.02of this APPENDIX is “3.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Martin Osborne at202–622–7900 (not a toll-free call).

.03 Restaurant or tavern smallwarespackages.

(1) Description of change. This changeapplies to a taxpayer engaged in the tradeor business of operating a restaurant or tav-ern (within the meaning of section 4.01of Rev. Proc. 2002–12, 2002–1 C.B.374) that wants to change its method ofaccounting for the costs of smallwares tothe smallwares method described in Rev.Proc. 2002–12.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Section 481(a) adjustment period.A taxpayer changing its method of ac-counting for restaurant smallwares underthis section 3.03 of the APPENDIX musttake the entire § 481(a) adjustment into ac-count in computing taxable income in theyear of change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method change

number for a change under section 3.03of this APPENDIX is “4.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Martin Osborne at202–622–7900 (not a toll-free call).

.04 Timber grower fertilization costs.(1) Description of change. This change

applies to a timber grower that wants tochange its method of accounting to treatpost-establishment fertilization costs of anestablished timber stand as ordinary andnecessary business expenses deductibleunder § 162. See Rev. Rul. 2004–62,2004–1 C.B. 1072.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 3.04of this APPENDIX is “86.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Martin Osborne at202–622–7900 (not a toll-free call).

.05 Materials and supplies.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting for materials andsupplies on hand to the method of treatingthe cost of materials and supplies as a de-ferred expense to be taken into account inthe taxable year in which they are actuallyconsumed and used in operation, consis-tent with § 1.162–3.

(b) Inapplicability. This change doesnot apply to a taxpayer that is required un-der § 263A and the regulations thereunderto capitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under section 3.05 of this AP-PENDIX if the taxpayer is not capitaliz-ing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(2) Amounts taken into account. Appli-cable provisions of the Code, regulations,and other guidance published in the IRBprescribe the manner in which a liabilitythat has been incurred is taken into ac-

2011–4 I.R.B. 358 January 24, 2011

count. For example, for a taxpayer withinventories, certain indirect material costsmust be included in inventory costs andmay be recovered through the cost ofgoods sold. See § 1.263A–1(e)(3)(ii)(E).A taxpayer may not rely on the provisionsof section 3.05 of this APPENDIX to takea current deduction.

(3) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(4) Proposed regulations. The De-partment of the Treasury has publishedproposed regulations that address the def-inition and treatment of materials andsupplies under § 162. See Guidance Re-garding Deduction and Capitalization ofExpenditures Related to Tangible Prop-erty, REG–168745–03, 73 FR 12838–01(March 10, 2008), 2008–18 I.R.B. 871.The proposed regulations are not effectiveuntil publication of a Treasury decisionadopting them as final regulations in theFederal Register. Thus, taxpayers may notchange a method of accounting in relianceupon the rules contained in the proposedregulations until the rules are publishedas final regulations in the Federal Regis-ter. If final regulations are adopted withpositions that are inconsistent with themethod of accounting implemented bythe taxpayer under section 3.05 of thisAPPENDIX, that method will no longerbe regarded as proper. In such event, thetaxpayer will be required to follow any in-structions in the final regulations or otherguidance published in the IRB concerningmethods of accounting for materials andsupplies for future taxable years.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of account-ing under section 3.05 of this APPENDIXis “143.” See section 6.02(4) of this rev-enue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Justin G. Meeks at202–622–5020 (not a toll-free call).

.06 Repair and maintenance costs.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting from capitalizingunder § 263(a) costs paid or incurred torepair and maintain tangible property (in-cluding network assets) to treating therepair and maintenance costs as ordinaryand necessary business expenses under§ 162 and § 1.162–4. This change alsoapplies to a taxpayer that wants to changethe unit of property it uses to determine thedeductibility of repair and maintenancecosts to a unit of property that is permissi-ble under applicable legal authority.

(b) Inapplicability. This change doesnot apply to:

(i) A taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under section 3.06 of this AP-PENDIX if the taxpayer is not capitaliz-ing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);

(ii) A taxpayer that wants to change itsmethod of accounting for dispositions ofdepreciable property, including a change inthe unit of property used for such disposi-tions (but see sections 6.24 and 6.25 of thisAPPENDIX); or

(iii) Any property subject to the re-pair allowance under § 1.167(a)–11(d)(2)(including expenditures incurred afterDecember 31, 1980, for the repair, main-tenance, rehabilitation, or improvementof property placed in service beforeJanuary 1, 1981).

(2) Manner of making change. A tax-payer making this change must attach to itsForm 3115 a statement with the following:

(a) A detailed description of the typesof tangible property to which this changeapplies;

(b) A detailed description of the typesof repair and maintenance costs to whichthis change applies;

(c) If the taxpayer is changing any unitof property determination, a detailed de-scription of the unit(s) of property underits present method of accounting for de-termining the deductibility of repair andmaintenance costs and a detailed descrip-tion of the unit(s) of property it will use

under its proposed method of determiningthe deductibility of repair and maintenancecosts, together with a description of thelegal authority supporting the taxpayer’sproposed unit(s) of property for determin-ing the deductibility of repair and mainte-nance costs;

(d) The following statements regardingthe costs to which this change applies:

(i) “The taxpayer represents that the re-pair and maintenance costs are incurred tokeep the taxpayer’s property in ordinarilyefficient operating condition.”

(ii) “The taxpayer represents that the re-pair and maintenance costs do not materi-ally increase the value or substantially pro-long the useful life of any unit of propertycompared to the value or useful life of theproperty before the general wear or tear orparticular event that led to the repairs ormaintenance.”

(iii) “The taxpayer represents that therepair and maintenance costs do not adaptany unit of property to a new or differentuse.”

(iv) “The taxpayer represents that therepair and maintenance costs do not in-clude costs to replace any unit of prop-erty or any major components or substan-tial structural parts of any unit of property.”

(v) “The taxpayer represents that therepair and maintenance costs are not in-curred as part of a plan of rehabilitation,modernization, or improvement to any unitof property.”

(vi) “The taxpayer represents that therepair and maintenance costs do not resultfrom any prior owner’s use of any unit ofproperty.”

(3) Additional copy of Form 3115 re-quired. A taxpayer changing its method ofaccounting under section 3.06 of this AP-PENDIX must, in addition to the timelyduplicate filing requirements in section6.02(3) of this revenue procedure, send acopy of its completed Form 3115 (includ-ing attachments) to the following addressno earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the year ofchange, in accordance with section 6.02(3)of this revenue procedure: Internal Rev-enue Service, 1973 North Rulon WhiteBlvd., Mail Stop 4917, Ogden, UT 84404.

(4) Amounts taken into account. Ap-plicable provisions of the Code, regula-tions, and other guidance published in the

January 24, 2011 359 2011–4 I.R.B.

IRB prescribe the manner in which a liabil-ity that has been incurred is taken into ac-count. For example, for a taxpayer with in-ventories, certain repair and maintenancecosts must be included in inventory costsand may be recovered through the cost ofgoods sold. See § 1.263A–1(e)(3)(ii)(E).A taxpayer may not rely on the provisionsof section 3.06 of this APPENDIX to takea current deduction.

(5) No ruling on unit of property. Theconsent granted under this revenue proce-dure for this change is not a determina-tion by the Commissioner that the taxpayeris using the appropriate unit of propertyin determining the deductibility of repairand maintenance costs and does not createany presumption that the proposed unit ofproperty is permissible. The director willascertain whether the taxpayer’s determi-nation of its unit of property is correct.

(6) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(7) Proposed regulations. The Depart-ment of the Treasury has published pro-posed regulations that address the appli-cation of §§ 162 and 263 to expenditurespaid or incurred to repair, maintain, orimprove tangible property. See GuidanceRegarding Deduction and Capitalizationof Expenditures Related to Tangible Prop-erty, 73 FR 12838–01 (March 10, 2008),2008–18 I.R.B. 871. The proposed regu-lations are not effective until publicationof a Treasury decision adopting them asfinal regulations in the Federal Register.Thus, taxpayers may not change a methodof accounting in reliance upon the rulescontained in the proposed regulations un-til the rules are published as final regula-tions in the Federal Register. If final regu-lations are adopted with positions that areinconsistent with the method of accountingimplemented by the taxpayer under sec-tion 3.06 of this APPENDIX, that methodwill no longer be regarded as proper. Insuch event, the taxpayer will be requiredto follow any instructions in the final reg-ulations or other guidance published in

the IRB concerning methods of accountingfor the repair, maintenance, or improve-ment of tangible property for future tax-able years.

(8) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of account-ing under section 3.06 of this APPENDIXis “144.” See section 6.02(4) of this rev-enue procedure.

(9) Contact information. For furtherinformation regarding a change underthis section, contact Alan Williams at202–622–4950 (not a toll-free call).

SECTION 4. BAD DEBTS (§ 166)

.01 Change from reserve method tospecific charge-off method.

(1) Description of change. This changeapplies to a taxpayer (other than a bankas defined in § 585(a)(2)) that wants tochange its method of accounting for baddebts from a reserve method (or other im-proper method) to a specific charge-offmethod that complies with § 166. For pro-cedures applicable to banks, see § 585(c)and the regulations thereunder and section24 of this APPENDIX.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 4.01of this APPENDIX is “5.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Justin G. Meeks at202–622–5020 (not a toll-free call).

.02 Reserved.

SECTION 5. AMORTIZABLE BONDPREMIUM (§ 171)

.01 Revocation of § 171(c) election.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for amortizablebond premium by revoking its § 171(c)election. Under § 171(c), a taxpayer thatholds certain taxable bonds may electto amortize any bond premium on thebonds in accordance with regulations pre-scribed by the Secretary. Sections 1.171–1through 1.171–5 provide rules relating tothe amortization of bond premium by ataxpayer. Section 1.171–4 provides the

procedures to make a § 171(c) election toamortize bond premium.

(2) Revocation of election. The revo-cation of a § 171(c) election applies to alltaxable bonds that are held by the taxpayeron the first day of the first taxable year forwhich the revocation is effective (year ofchange), and to all taxable bonds that aresubsequently acquired by the taxpayer.

(3) Manner of making change. Thischange is made using a cut-off basis andapplies only to taxable bonds held on orafter the beginning of the year of change.See section 2.06 of this revenue procedurefor more information regarding a cut-offbasis. Accordingly, a § 481(a) adjustmentis neither permitted nor required.

Under the cut-off basis, for taxablebonds held at the beginning of the year ofchange, the taxpayer may not amortize anyremaining bond premium on the bonds.Because the cut-off basis is prescribed forthis change, the basis of any bond, ad-justed for amounts previously amortizedduring the period of the election, is notaffected by the revocation.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 5.01of this APPENDIX is “16.” See section6.02(4) of this revenue procedure.

(5) Additional requirements. On a state-ment attached to the Form 3115, the tax-payer must provide:

(a) the reason(s) for revoking the elec-tion; and

(b) a description of the method bywhich, and the date on which, the taxpayermade the § 171(c) election that is proposedto be revoked.

(6) Audit protection. A taxpayer re-ceives audit protection under section 7 ofthis revenue procedure in connection withthis change. However, the audit protec-tion applicable to this change does not pre-clude the Commissioner from examiningthe method used by the taxpayer to deter-mine the amount of amortizable bond pre-mium under § 171(b) for a taxable yearprior to the year of change.

(7) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.02 Reserved.

2011–4 I.R.B. 360 January 24, 2011

SECTION 6. DEPRECIATIONOR AMORTIZATION (§ 56(a)(1),56(g)(4)(A), 167, 168, 197, 280F(a),1400I, 1400L, or 1400N(d), OR FORMER§ 168)

.01 Impermissible to permissiblemethod of accounting for depreciation oramortization.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change froman impermissible to a permissible methodof accounting for depreciation or amortiza-tion (depreciation) for any item of depre-ciable or amortizable property:

(i) for which the taxpayer used the im-permissible method of accounting in atleast two taxable years immediately pre-ceding the year of change (but see section6.01(1)(b) of this APPENDIX for propertyplaced in service in the taxable year imme-diately preceding the year of change);

(ii) for which the taxpayer is makinga change in method of accounting under§ 1.446–1(e)(2)(ii)(d);

(iii) for which depreciation is deter-mined under § 56(a)(1), § 56(g)(4)(A),§ 167, §168, §197, §1400I, or §1400L(c),under § 168 prior to its amendment in 1986(former § 168), or under any additionalfirst year depreciation deduction provi-sion of the Code (for example, § 168(k),§ 168(l), § 1400L(b), or § 1400N(d)); and

(iv) that is owned by the taxpayer at thebeginning of the year of change (but seesection 6.17 of this APPENDIX for prop-erty disposed of before the year of change).

(b) Taxpayer has not adopted a methodof accounting for the item of property.If a taxpayer does not satisfy section6.01(1)(a)(i) of this APPENDIX for anitem of depreciable or amortizable prop-erty because this item of property is placedin service by the taxpayer in the taxableyear immediately preceding the year ofchange (“1-year depreciable property”),the taxpayer may change from the im-permissible method of determining de-preciation to the permissible method ofdetermining depreciation for the 1-yeardepreciable property by filing a Form 3115for this change, provided the § 481(a)adjustment reported on the Form 3115 in-cludes the amount of any adjustment thatis attributable to all property (includingthe 1-year depreciable property) subjectto the Form 3115. Alternatively, the tax-

payer may change from the impermissiblemethod of determining depreciation to thepermissible method of determining depre-ciation for a 1-year depreciable propertyby filing an amended federal tax return forthe property’s placed-in-service year priorto the date the taxpayer files its federal taxreturn for the taxable year succeeding theplaced-in-service year.

(c) Inapplicability. This change doesnot apply to:

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

(ii) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 6.01 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);

(iii) any property for which a taxpayeris 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 theincome forecast method;

(v) any § 1250 property that a taxpayeris 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 doesnot explicitly include § 1250 property (forexample, asset class 57.0, DistributiveTrades and Services);

(vi) any property for which a tax-payer is revoking a timely valid election,or making a late election, under § 167,§ 168, § 179, §1400I, § 1400L(c), for-mer § 168, § 13261(g)(2) or (3) of theRevenue Reconciliation Act of 1993(1993 Act), 1993–3 C.B. 1, 128 (relat-ing to amortizable § 197 intangibles),or any additional first year depreciationdeduction provision of the Code (for ex-ample, § 168(k), § 168(l), § 1400L(b),or § 1400N(d)). A taxpayer may requestconsent to revoke or make the electionby submitting a request for a letter rulingunder Rev. Proc. 2011–1, 2011–1 I.R.B.1 (or successor). However, if a taxpayeris revoking or making an election under

§ 179, see § 179(c) and § 1.179–5. See§ 1.446–1(e)(2)(ii)(d)(3)(iii);

(vii) any property for which deprecia-tion is determined under § 56(g)(4)(A) or§ 167 (other than under § 168, § 1400I,§ 1400L(c), former § 168, or any ad-ditional first year depreciation deduc-tion provision of the Code (for exam-ple, § 168(k), § 168(l), § 1400L(b), or§ 1400N(d))) and a taxpayer is chang-ing the useful life of the property. Achange in the useful life of propertyis corrected by adjustments in the ap-plicable taxable year provided under§ 1.446–1(e)(2)(ii)(d)(5)(iv). How-ever, this section 6.01(1)(c)(vii) of theAPPENDIX does not apply if the tax-payer is changing to or from a usefullife, recovery period, or amortizationperiod that is specifically assigned bythe Code (for example, § 167(f)(1),§ 168(c)), the regulations thereunder,or other guidance published in the IRBand, therefore, this change is a changein method of accounting (unless section6.01(1)(c)(xv) of this APPENDIX ap-plies). See § 1.446–1(e)(2)(ii)(d)(3)(i);

(viii) any depreciable propertyfor which the use changes in thehands of the same taxpayer. See§ 1.446–1(e)(2)(ii)(d)(3)(ii);

(ix) any property for which depre-ciation is determined in accordancewith § 1.167(a)–11 (regarding the ClassLife Asset Depreciation Range System(ADR));

(x) any change in method of account-ing involving a change from deducting thecost or other basis of any property as an ex-pense to capitalizing and depreciating thecost or other basis, or vice versa;

(xi) any change in method of account-ing involving a change from one permissi-ble method of accounting for the propertyto another permissible method of account-ing for the property. For example:

(A) a change from the straight-linemethod of depreciation to the incomeforecast method of depreciating for video-cassettes. See Rev. Rul. 89–62, 1989–1C.B. 78; or

(B) a change from charging the depre-ciation reserve with costs of removal andcrediting the depreciation reserve with sal-vage proceeds to deducting costs of re-moval as an expense (provided the costsof removal are not required to be capital-ized under any provision of the Code, such

January 24, 2011 361 2011–4 I.R.B.

as § 263(a)) and including salvage pro-ceeds in taxable income (see section 6.02of this APPENDIX for making this changefor property for which depreciation is de-termined under § 167);

(xii) any change in method of account-ing involving both a change from treat-ing the cost or other basis of the prop-erty as nondepreciable or nonamortizableproperty to treating the cost or other basisof the property as depreciable or amortiz-able property and the adoption of a methodof accounting for depreciation requiringan election under § 167, § 168, §1400I,§ 1400L(c), former § 168, § 13261(g)(2) or(3) of the 1993 Act, or any additional firstyear depreciation deduction provision ofthe Code (for example, § 168(k), § 168(l),§ 1400L(b), or § 1400N(d)) (for example,a change in the treatment of the space con-sumed in landfills placed in service in 2006from nondepreciable to depreciable prop-erty (assuming section 6.01(1)(c)(xiii) ofthe APPENDIX does not apply) and themaking of an election under §168(f)(1) todepreciate this property under the unit ofproduction method of depreciation under§ 167);

(xiii) any change in method of account-ing for any item of income or deductionother than depreciation, even if the changeresults in a change in computing deprecia-tion under § 1.446–1(e)(2)(ii)(d)(2)(i), (ii),(iii), (iv), (v), (vi), (vii), or (viii). For ex-ample, a change in method of accountinginvolving:

(A) a change in inventory costs (for ex-ample, when property is reclassified frominventory property to depreciable prop-erty, or vice versa) (but see section 10.02of this APPENDIX for making a changein method of accounting from inventoryproperty to depreciable property for unre-coverable line pack gas or unrecoverablecushion gas, and section 10.06 of this AP-PENDIX for making a change in methodof accounting from inventory propertyto depreciable property for rotable spareparts); or

(B) a change in the character of a trans-action from sale to lease, or vice versa (butsee section 6.03 of this APPENDIX formaking this change);

(xiv) a change from determining de-preciation under § 168 to determiningdepreciation under former § 168 for anyproperty subject to the transition rules in

§ 203(b) or § 204(a) of the Tax Reform Actof 1986, 1986–3 (Vol. 1) C.B. 1, 60–80;

(xv) any change in the placed-in-servicedate of a depreciable or amortizable prop-erty. This change is corrected by adjust-ments in the applicable taxable year pro-vided under § 1.446–1(e)(2)(ii)(d)(5)(v);or

(xvi) any property for which the reha-bilitation credit under § 47 was claimedand that a taxpayer is reclassifying to3-year property, 5-year property, 7-yearproperty, 10-year property, 15-year prop-erty, 20-year property, or water utilityproperty (other than real property with aclass life of more than 12.5 years).

(2) Certain scope limitations inappli-cable. The scope limitations in sections4.02(4) and 4.02(5) of this revenue proce-dure are not applicable to this change.

(3) Additional requirements. A tax-payer also must comply with the follow-ing:

(a) Permissible method of accountingfor depreciation. A taxpayer must changeto a permissible method of accounting fordepreciation for the item of depreciableor amortizable property. The permissiblemethod of accounting is the same methodthat determines the depreciation allowablefor the item of property (as provided in sec-tion 6.01(6) of this APPENDIX).

(b) Statements required. A taxpayermust provide the following statements, ifapplicable, and attach them to the com-pleted application:

(i) a detailed description of the formerand new methods of accounting. A generaldescription of these methods of account-ing is unacceptable (for example, MACRSto MACRS, erroneous method to propermethod, claiming less than the deprecia-tion allowable to claiming the depreciationallowable);

(ii) to the extent not provided elsewhereon the application, a statement describingthe taxpayer’s business or income-produc-ing activities. Also, if the taxpayer hasmore than one business or income-produc-ing activity, a statement describing the tax-payer’s business or income-producing ac-tivity in which the item of property at issueis primarily used by the taxpayer;

(iii) to the extent not provided else-where on the application, a statement of thefacts and law supporting the new methodof accounting, new classification of theitem of property, and new asset class in,

as appropriate, Rev. Proc. 87–56 or Rev.Proc. 83–35. If the taxpayer is the ownerand lessor of the item of property at issue,the statement of the facts and law support-ing the new asset class also must describethe business or income-producing activityin which that item of property is primarilyused by the lessee;

(iv) to the extent not provided else-where on the application, a statementidentifying the year in which the item ofproperty was placed in service by the tax-payer;

(v) if any item of property is publicutility property within the meaning of§ 168(i)(10) or former § 167(I)(3)(A), asapplicable, a statement providing that thetaxpayer agrees to the following additionalterms 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 forthe public utility property subject to theapplication;

(B) as of the beginning of the year ofchange, the taxpayer will adjust its de-ferred tax reserve account or similar re-serve account in the taxpayer’s regulatorybooks of account by the amount of the de-ferral of federal income tax liability asso-ciated with the § 481(a) adjustment appli-cable to the public utility property subjectto the application; and

(C) within 30 calendar days of filing thefederal income tax return for the year ofchange, the taxpayer will provide a copyof the completed application to any reg-ulatory body having jurisdiction over thepublic utility property subject to the appli-cation;

(vi) if the taxpayer is changing theclassification of an item of § 1250 prop-erty placed in service after August 19,1996, to a retail motor fuels outlet under§ 168(e)(3)(E)(iii), a statement containingthe following representation: “For pur-poses of § 168(e)(3)(E)(iii) of the InternalRevenue Code, the taxpayer representsthat (A) 50 percent or more of the grossrevenue generated from the item of § 1250property is from the sale of petroleumproducts (not including gross revenuefrom related services, such as the laborcost of oil changes and gross revenue fromthe sale of nonpetroleum products such astires and oil filters), (B) 50 percent or moreof the floor space in the item of property

2011–4 I.R.B. 362 January 24, 2011

is devoted to the sale of petroleum prod-ucts (not including floor space devotedto related services, such as oil changesand floor space devoted to nonpetroleumproducts such as tires and oil filters), or(C) the item of § 1250 property is 1,400square feet or less.”; and

(vii) if the taxpayer is changing theclassification of an item of property from§ 1250 property to § 1245 property under§ 168 or former § 168, a statement of thefacts and law supporting the new § 1245property classification, and a statementcontaining the following representation:“Each item of depreciable property that isthe subject of the application filed undersection 6.01 of the APPENDIX of Rev.Proc. 2011–14 for the year of changebeginning [Insert the date], and that isreclassified from [Insert, as appropriate:nonresidential real property, residentialrental property, qualified leasehold im-provement property, qualified restaurantproperty, qualified retail improvementproperty, 19-year real property, 18-yearreal property, or 15-year real property]to an asset class of [Insert, as appropri-ate, either: Rev. Proc. 87–56, 1987–2C.B. 674, or Rev, Proc, 83–35, 1983–1C.B. 745] that does not explicitly include§ 1250 property, is § 1245 property fordepreciation purposes.”

(4) Section 481(a) adjustment. Be-cause the adjusted basis of the property ischanged as a result of a method changemade under section 6.01 of the APPEN-DIX (see section 6.01(5) of this APPEN-DIX), items are duplicated or omitted.Accordingly, this change is made with a§ 481(a) adjustment. This adjustment mayresult in either a negative § 481(a) adjust-ment (a decrease in taxable income) or apositive § 481(a) adjustment (an increasein taxable income) and may be a differ-ent amount for regular tax, alternativeminimum tax, and adjusted current earn-ings purposes. This § 481(a) adjustmentequals the difference between the totalamount of depreciation taken into accountin computing taxable income for the prop-erty under the taxpayer’s former methodof accounting (including the amount at-tributable to any property described insection 6.01(1)(b) of this APPENDIXthat is included in the taxpayer’s Form3115), and the total amount of deprecia-tion allowable for the property under thetaxpayer’s new method of accounting (as

determined under section 6.01(6) of thisAPPENDIX, and including the amountattributable to any property described insection 6.01(1)(b) of this APPENDIX thatis included in the taxpayer’s Form 3115),for open and closed years prior to theyear of change. However, the amount ofthe § 481(a) adjustment must be adjustedto account for the proper amount of thedepreciation allowable that is required tobe capitalized under any provision of theCode (for example, § 263A) at the begin-ning of the year of change.

(5) Basis adjustment. As of the begin-ning of the year of change, the basis of de-preciable property to which section 6.01 ofthis APPENDIX applies must reflect thereductions required by § 1016(a)(2) for thedepreciation allowable for the property (asdetermined under section 6.01(6) of thisAPPENDIX).

(6) Meaning of depreciation allowable.(a) In general. Section 6.01(6) of this

APPENDIX provides the amount of thedepreciation allowable determined under§ 56(a)(1), § 56(g)(4)(A), § 167, § 168,§ 197, §1400I, or § 1400L(c), or former§ 168. This amount, however, may belimited by other provisions of the Code(for example, § 280F).

(b) Section 56(a)(1) property. The de-preciation allowable for any taxable yearfor property for which depreciation is de-termined under § 56(a)(1) is determined byusing the depreciation method, recoveryperiod, and convention provided for under§ 56(a)(1) that applies for the property’splaced-in-service date.

(c) Section 56(g)(4)(A) property. Thedepreciation allowable for any taxableyear for property for which depreciation isdetermined under § 56(g)(4)(A) is deter-mined by using the depreciation method,recovery period or useful life, as appli-cable, and convention provided for under§ 56(g)(4)(A) that applies for the prop-erty’s placed-in-service date.

(d) Section 167 property. Generally, forany taxable year, the depreciation allow-able for property for which depreciation isdetermined under § 167, is determined ei-ther:

(i) under the depreciation methodadopted by the taxpayer for the property;or

(ii) if that depreciation method does notresult in a reasonable allowance for depre-ciation or the taxpayer has not adopted a

depreciation method for the property, un-der the straight-line depreciation method.

For determining the estimated usefullife 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 de-preciation method and useful life pre-scribed in § 167(f). If computer soft-ware is depreciated under § 167(f)(1)and is qualified property (as defined in§ 168(k)(2) and § 1.168(k)–1), 50-per-cent bonus depreciation property (as de-fined in § 168(k)(4) and § 1.168(k)–1),qualified disaster assistance property (asdefined in § 168(n)(2)), qualified NewYork 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 definedin § 1400N(d)(2) and sections 2.02 and2.03 of Notice 2006–77, 2006–2 C.B. 590,as clarified, modified, and amplified byNotice 2007–36, 2007–1 C.B. 1000), spec-ified Gulf Opportunity Zone extensionproperty (GO Zone extension property)(as defined in § 1400N(d)(6) and section 4of Notice 2007–36), or qualified RecoveryAssistance (RA) property (as defined insections 2.02 and 2.03 of Notice 2008–67,2008–32 I.R.B. 307), the depreciation al-lowable for that computer software under§ 167(f)(1) is also determined by takinginto account the additional first year de-preciation deduction provided by § 168(k),§ 168(n), § 1400L(b), or § 1400N(d), or by§ 15345(a)(1) and (d)(1) of the Food, Con-servation, and Energy Act of 2008, Pub.L. No. 110–246, 122 Stat. 1651 (June 18,2008), as applicable, unless the taxpayermade a timely valid election not to deductany additional first year depreciation forthe computer software.

(e) Section 168 property. The depre-ciation allowable for any taxable year forproperty 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 tobe depreciated under the alternative depre-ciation system pursuant to § 168(g)(1) orother provisions of the Code (for exam-

January 24, 2011 363 2011–4 I.R.B.

ple, property described in § 263A(e)(2)(A)or § 280F(b)(1)). Property required to bedepreciated under the alternative depreci-ation system pursuant to § 168(g)(1) in-cludes property in a class (as set out in§ 168(e)) for which the taxpayer made atimely 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, GOZone extension property, or RA property,by also taking into account the additionalfirst year depreciation deduction providedby § 168(k), § 168(n), § 1400L(b), or§ 1400N(d), or by § 15345(a)(1) and (d)(1)of the Food, Conservation, and Energy Actof 2008, as applicable, unless the taxpayermade a timely valid election not to deductthe additional first year depreciation (ormade a deemed election not to deduct theadditional first year depreciation; for fur-ther guidance, see Rev. Proc. 2002–33,2002–1 C.B. 963, Rev. Proc. 2003–50,2003–2 C.B. 119, or Notice 2006–77)for the class of property (as defined in§ 1.168(k)–1(e)(2), § 1.1400L(b)–1(e)(2),or section 4.02 of Notice 2006–77, asapplicable) in which that property is in-cluded;

(iii) if the property is qualified cellu-losic biofuel plant property (as defined in§ 168(l)(2)), by also taking into accountthe additional first year depreciation de-duction provided by § 168(l)(1), unless thetaxpayer made a timely valid election notto deduct the additional first year depreci-ation for the property; and

(iv) if the property is qualified reuseand recycling property (as defined in§ 168(m)(2)), by also taking into accountthe additional first year depreciation de-duction provided by § 168(m)(1), unlessthe taxpayer made a timely valid electionnot to deduct the additional first year de-preciation for the property.

(f) Section 197 property. The depre-ciation allowable for any taxable year foran amortizable § 197 intangible (includingany property for which a timely electionunder § 13261(g)(2) of the 1993 Act wasmade) is determined in accordance with§ 1.197–2(f).

(g) Former § 168 property. The depre-ciation allowable for any taxable year forproperty 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 recoverymethod under former § 168(b)(1)); or

(ii) the straight-line method appli-cable to the property if the property isrequired to be depreciated under thestraight-line method (for example, prop-erty described in former § 168(f)(2) orformer § 280F(b)(2)) or if the taxpayerelected to determine the depreciation al-lowance under the optional straight-linepercentage (for example, the straight-linemethod in former § 168(b)(3)).

(h) Qualified revitalization building.The depreciation allowable for any tax-able year for any qualified revitalizationbuilding (as defined in § 1400I(b)(1)) forwhich the taxpayer has made a timely validelection under § 1400I(a) is determined asfollows:

(i) if the taxpayer elected to deduct one-half of any qualified revitalization expen-ditures (as defined in § 1400I(b)(2) and aslimited by § 1400I(c)) chargeable to a cap-ital account with respect to the qualifiedrevitalization building for the taxable yearin which the building is placed in serviceby the taxpayer, the depreciation allowablefor the qualified revitalization building’splaced-in-service year is equal to one-halfof the qualified revitalization expendituresfor the building and the depreciation al-lowable for the remaining depreciable ba-sis of the qualified revitalization buildingfor its placed-in-service year and subse-quent taxable years is determined using thegeneral depreciation system of § 168(a)or the alternative depreciation system of§ 168(g), as applicable; or

(ii) if the taxpayer elected to amortizeall of the qualified revitalization expen-ditures chargeable to a capital accountwith respect to the qualified revitalizationbuilding ratably over the 120-month pe-riod beginning with the month in whichthe building is placed in service, the de-preciation allowable for the qualifiedrevitalization expenditures is determinedin accordance with this election and thedepreciation allowable for the remainingdepreciable basis of the qualified revital-ization building is determined using thegeneral depreciation system of § 168(a)or the alternative depreciation system of§ 168(g), as applicable.

(i) Qualified New York Liberty Zoneleasehold improvement property. The

depreciation allowable for any taxableyear for qualified New York Liberty Zoneleasehold improvement property (as de-fined in § 1400L(c)(2)) is determined byusing the depreciation method and recov-ery period prescribed in § 1400L(c) unlessthe taxpayer made a timely valid electionunder § 1400L(c)(5) not to use that recov-ery period.

(7) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets and providea single net § 481(a) adjustment for all thechanges included in that Form 3115. Ifone or more of the changes in that singleForm 3115 generate a negative § 481(a)adjustment and other changes in that sameForm 3115 generate a positive § 481(a) ad-justment, the taxpayer may provide a sin-gle negative § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment and a sin-gle positive § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment. For ex-ample, a taxpayer files a single Form 3115to change the depreciation methods, re-covery periods, and/or conventions under§ 168(a) resulting from the reclassifica-tion of two computers from nonresidentialreal property to 5-year property, one officedesk from nonresidential real property to7-year property, and two office desks from5-year property to 7-year property. On thatForm 3115, the taxpayer must provide ei-ther (i) a single net § 481(a) adjustmentthat covers all the changes resulting fromall of these reclassifications, or (ii) a sin-gle negative § 481(a) adjustment that cov-ers the changes resulting from the reclassi-fications of the two computers and one of-fice desk from nonresidential real propertyto 5-year property and 7-year property, re-spectively, and a single positive § 481(a)adjustment that covers the changes result-ing from the reclassifications of the two of-fice desks from 5-year property to 7-yearproperty.

(b) A taxpayer that wants to make boththis change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbers

2011–4 I.R.B. 364 January 24, 2011

for both changes on the appropriate line onthat Form 3115.

(c) A taxpayer that wants to make thischange and a change in depreciation undersection 6.04 (modern golf course greens),6.05 (original and replacement tire costs),6.06 (gas pump canopies), and/or 6.07(utility assets) for the same year of changeshould file a single Form 3115 for thesechanges, in which case the taxpayer mustenter the designated automatic accountingmethod change numbers for these changeson the appropriate line on that Form 3115.

(8) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.01 of the APPENDIX mustfile a signed copy of its completed Form3115 with the Internal Revenue Service inOgden, UT, (Ogden copy) in lieu of filingthe national office copy no earlier than thefirst day of the year of change and no laterthan the date the taxpayer files the origi-nal Form 3115 with its federal income taxreturn for the year of change. See sec-tions 6.02(3)(a)(ii)(B) (providing the gen-eral rules) and section 6.02(7)(b) (provid-ing the mailing address) of this revenueprocedure.

(9) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.01of this APPENDIX is “7.” See section6.02(4) of this revenue procedure.

(10) Contact information. For fur-ther information regarding a change un-der this section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.02 Permissible to permissible methodof accounting for depreciation.

(1) Description of change. This changeapplies to a taxpayer that wants to changefrom a permissible method of accountingfor depreciation under § 56(g)(4)(A)(iv)or § 167 to another permissible methodof accounting for depreciation under§ 56(g)(4)(A)(iv) or § 167. Pursuant to§ 1.167(a)–7(a) and (c), a taxpayer mayaccount for depreciable property eitherby treating each individual asset as an ac-count or by combining two or more assetsin a single account and, for each account,depreciation allowances are computedseparately.

(2) Scope.(a) Applicability. This change applies

to any taxpayer wanting to make a change

in method of accounting for depreciationspecified in section 6.02(4) of this AP-PENDIX for the property in an account:

(i) for which the present and proposedmethods of accounting for depreciationspecified in section 6.02(4) of this AP-PENDIX are permissible methods for theproperty under § 56(g)(4)(A)(iv) or § 167;and

(ii) that is owned by the taxpayer at thebeginning of the year of change.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its methodof accounting under this section 6.02 ofthe APPENDIX if the taxpayer is not cap-italizing these costs, unless the taxpayerconcurrently changes its method to cap-italize these costs in conjunction with achange to a UNICAP method under sec-tion 11.01 or 11.02 of this APPENDIX (asapplicable);

(ii) any property to which § 1016(a)(3)(regarding property held by a tax-exemptorganization) 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 theincome forecast method);

(v) any property for which depreci-ation is determined under § 56(a)(1),§ 56(g)(4)(A)(i), (ii), (iii), or (v), § 168,§ 1400I, § 1400L(c), § 168 prior to itsamendment in 1986 (former § 168), orany additional first year depreciationdeduction provision of the Code (for ex-ample, § 168(k), § 168(l), § 1400L(b), or§ 1400N(d));

(vi) any property that the taxpayerelected under § 168(f)(1) or former§ 168(e)(2) to exclude from the applicationof, respectively, § 168 or former § 168;

(vii) any property for which depreci-ation is determined in accordance with§ 1.167(a)–11 (ADR);

(viii) any depreciable property forwhich the taxpayer is changing the depre-ciation method pursuant to § 1.167(e)–1(b)(change from declining-balance methodto straight-line method), § 1.167(e)–1(c)(certain changes for § 1245 property),or § 1.167(e)–1(d) (certain changes for§ 1250 property). These changes must be

made prospectively and are not permittedunder the cited regulations for propertyfor which the depreciation is determinedunder § 168, § 1400I, § 1400L(c), former§ 168, or any additional first year depreci-ation deduction provision of the Code (forexample, § 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) forwhich the taxpayer is changing the use-ful life under the distribution fee periodmethod or the useful life method (both de-scribed in Rev. Proc. 2000–38). A changein this useful life is corrected by adjust-ments in the applicable taxable year pro-vided under § 1.446–1(e)(2)(ii)(d)(5)(iv).

(3) Certain scope limitations inappli-cable. The scope limitations in sections4.02(4) and 4.02(5) of this revenue proce-dure are not applicable to this change.

(4) Changes covered. Section 6.02 ofthis APPENDIX only applies to the fol-lowing changes in methods of accountingfor depreciation:

(a) a change from the straight-linemethod to the sum-of-the-year-digitsmethod, the sinking fund method, theunit-of-production method, or the de-clining-balance method using any properpercentage of the straight-line rate;

(b) a change from the declining-bal-ance method using any percentage of thestraight-line rate to the sum-of-the-years-digits method, the sinking fund method,or the declining-balance method using adifferent 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 anyproper percentage of the straight-line rate,or the straight-line method;

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

(e) a change from the sinking fundmethod to the straight-line method,the unit-of-production method, thesum-of-the-years-digits method, or the de-clining-balance method using any properpercentage of the straight-line rate;

(f) a change in the interest factor usedin connection with a compound interestmethod or sinking fund method;

(g) a change in averaging convention asset forth in § 1.167(a)–10(b). However, as

January 24, 2011 365 2011–4 I.R.B.

specifically provided in § 1.167(a)–10(b),in any taxable year in which an averagingconvention 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 depre-ciation reserve with costs of removal andcrediting the depreciation reserve with sal-vage proceeds to deducting costs of re-moval as an expense and including salvageproceeds in taxable income as set forth in§ 1.167(a)–8(e)(2). See Rev. Rul. 74–455,1974–2 C.B. 63. This change, however,may be made under this revenue procedureonly if:

(i) the change is applied to all items inthe account for which the change is beingmade; and

(ii) the removal costs are not requiredto be capitalized under any provision ofthe Code (for example, § 263(a), 263A, or280B);

(i) a change from crediting the depreci-ation reserve with the salvage proceeds re-alized on normal retirement sales to com-puting and recognizing gains and losses onthe sales (see Rev. Rul. 70–165, 1970–1C.B. 43);

(j) a change from crediting ordinary in-come (including the combination methodof crediting the lesser of estimated sal-vage value or actual salvage proceeds tothe depreciation reserve, with any excessof salvage proceeds over estimated salvagevalue credited to ordinary income) with thesalvage proceeds realized on normal retire-ment sales, to computing and recognizinggains and losses on the sales (see Rev. Rul.70–166, 1970–1 C.B. 44);

(k) a change from item accounting forspecific assets to multiple asset accounting(pooling) for the same assets, or vice versa;

(l) a change from one type of multipleasset accounting (pooling) for specific as-sets to a different type of multiple asset ac-counting (pooling) for the same assets;

(m) a change from one method de-scribed in Rev. Proc. 2000–38 for amor-tizing distributor commissions (as definedby section 2 of Rev. Proc. 2000–38) toanother method described in Rev. Proc.2000–38 for amortizing distributor com-missions; or

(n) a change from pooling to a single as-set, or vice versa, for distributor commis-sions (as defined by section 2 of Rev. Proc.2000–38) for which the taxpayer is using

the distribution fee period method or theuseful 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 basisfor depreciation of property to which thischange applies is the adjusted basis of theproperty as provided in § 1011 at the endof the taxable year immediately preced-ing the year of change (determined undertaxpayer’s present method of accountingfor depreciation). If applicable under thetaxpayer’s proposed method of accountingfor depreciation, this adjusted basis is re-duced by the estimated salvage value ofthe property (for example, a change to thestraight-line method).

(b) Rate of depreciation. The rate ofdepreciation for property changed to:

(i) the straight-line or the sum-of-the-year-digits method of depreciation must bebased on the remaining useful life of theproperty as of the beginning of the year ofchange; or

(ii) the declining-balance method of de-preciation must be based on the useful lifeof the property measured from the placed-in-service date, and not the expected re-maining life from the date the change be-comes effective.

(c) Regulatory requirements. Forchanges in method of depreciation to thesum-of-the-year-digits or declining-bal-ance method, the property must meetthe requirements of § 1.167(b)–0 or1.167(c)–1, as appropriate.

(d) Public utility property. If any itemof property is public utility property withinthe meaning of former § 167(l)(3)(A), thetaxpayer must attach to the applicationa statement providing that the taxpayeragrees to the following additional termsand conditions:

(i) a normalization method of ac-counting within the meaning of former§ 167(l)(3)(G) will be used for the publicutility property subject to the application;and

(ii) within 30 calendar days of filing thefederal income tax return for the year ofchange, the taxpayer will provide a copyof the completed application to any reg-ulatory body having jurisdiction over thepublic utility property subject to the appli-cation.

(6) Section 481(a) adjustment. Becausethe adjusted basis of the property is notchanged as a result of a method changemade under section 6.02 of this APPEN-DIX, no items are being duplicated oromitted. Accordingly, a § 481(a) adjust-ment is neither required nor necessary.

(7) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets.

(b) A taxpayer that wants to make boththis change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(8) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.02 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(9) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.02of this APPENDIX is “8.” See section6.02(4) of this revenue procedure.

(10) Contact information. For fur-ther information regarding a change un-der this section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.03 Sale, lease, or financingtransactions.

(1) Description of change and scope.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting from:

(i) improperly treating property as soldby the taxpayer to properly treating prop-erty as leased or financed by the taxpayer;

(ii) improperly treating property asleased by the taxpayer to properly treating

2011–4 I.R.B. 366 January 24, 2011

property as sold or financed by the tax-payer;

(iii) improperly treating property as fi-nanced by the taxpayer to properly treatingproperty as sold or leased by the taxpayer;

(iv) improperly treating property as pur-chased by the taxpayer to properly treatingproperty as leased by the taxpayer; and

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

(b) Inapplicability. This change doesnot apply to:

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

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

(2) Manner of making change.(a) The change in method of account-

ing under section 6.03 of this APPENDIXis made using a cut-off method and appliesto transactions entered into on or after thebeginning of the year of change. See sec-tion 2.06 of this revenue procedure.

(b) If a taxpayer wants to change itsmethod of accounting for existing sale,lease or financing transactions, the tax-payer must file an application with theCommissioner in accordance with the re-quirements of § 1.446–1(e)(3)(i) and Rev.Proc. 97–27. A change involving exist-ing sale, lease, or financing transactionswill require a § 481(a) adjustment. TheService will generally not consider a tax-payer’s request to change a method of ac-counting for an existing sale, lease, or fi-nancing transaction unless the taxpayer’sproposed method of accounting is consis-tent with the method used by the coun-terparty to the agreement. The follow-ing information should be submitted withForm 3115 to substantiate that the tax-payer’s proposed method is consistent withthe counterparty’s method: (A) the nameof the counterparty to the transaction; and(B) a representation, signed under penal-ties of perjury, from the counterparty thatprovides the method of accounting for theagreement used by the counterparty forfederal income tax purposes. If a taxpayerdoes not submit the counterparty informa-tion, the taxpayer’s request to change amethod of accounting for an existing sale,lease, or financing transaction will be con-

sidered only in unusual and compellingcircumstances. The requirement to ob-tain counterparty information from multi-ple counterparties will not be consideredunusual or compelling.

(3) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.03of this APPENDIX is “10.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Edward Schwartz at202–622–4960 (not a toll-free call).

.04 Modern golf course greens.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for the cost ofmodern golf course greens owned by thetaxpayer at the beginning of the year ofchange to conform with the holding inRev. Rul. 2001–60, 2001–2 C.B. 587.Rev. Rul. 2001–60 holds that the costsof land preparation undertaken by a tax-payer in the original construction or recon-struction of modern greens (as described inRev. Rul. 2001–60) that is so closely as-sociated with depreciable assets, such as anetwork of underground drainage tiles orpipes, that the land preparation will be re-tired, abandoned, or replaced contempora-neously with those depreciable assets areto be capitalized and depreciated over therecovery period of the depreciable assetswith which the land preparation is asso-ciated. However, the general earthmov-ing, grading, and initial shaping of thearea surrounding and underneath the mod-ern green that occur before the construc-tion are inextricably associated with theland and, therefore, the costs attributable tothis land preparation are added to the tax-payer’s cost basis in the land and are notdepreciable.

(2) Additional requirements. A tax-payer that changes its method of account-ing for the cost of modern golf coursegreens under section 6.04 of this APPEN-DIX must change to a permissible methodof accounting for depreciation of moderngreens. For purposes of § 168, the mod-ern green is includible in asset class 00.3,Land Improvements, of Rev. Proc. 87–56,

1987–2 C.B. 674, as clarified and modifiedby Rev. Proc. 88–22, 1988–1 C.B. 785.

(3) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets and providea single net § 481(a) adjustment for all thechanges included in that Form 3115. Ifone or more of the changes in that singleForm 3115 generate a negative § 481(a)adjustment and other changes in that sameForm 3115 generate a positive § 481(a) ad-justment, the taxpayer may provide a sin-gle negative § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment and a sin-gle positive § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment.

(b) A taxpayer that wants to make thischange and a change in depreciation undersection 6.01 (impermissible to permissiblemethod of accounting for depreciation oramortization), 6.05 (original and replace-ment tire costs), 6.06 (gas pump canopies),and/or 6.07 (utility assets) for the sameyear of change should file a single Form3115 for these changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor these changes on the appropriate line ofthat Form 3115.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.04 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.04of this APPENDIX is “11.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

January 24, 2011 367 2011–4 I.R.B.

.05 Original and replacement tirecosts.

(1) Description of change. This changeapplies to a taxpayer that wants to changethe method of accounting for the cost oforiginal and replacement tires for all ofthe taxpayer’s qualifying vehicles in whichthe taxpayer has a depreciable interest atthe beginning of the year of change tothe original tire capitalization method pro-vided by section 5 of Rev. Proc. 2002–27,2002–1 C.B. 802. The terms “qualify-ing vehicle,” “original tires,” and “replace-ment tires” are defined in section 3 of Rev.Proc. 2002–27. For further details, seeRev. Proc. 2002–27.

(2) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets and providea single net § 481(a) adjustment for all thechanges included in that Form 3115. Ifone or more of the changes in that singleForm 3115 generate a negative § 481(a)adjustment and other changes in that sameForm 3115 generate a positive § 481(a) ad-justment, the taxpayer may provide a sin-gle negative § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment and a sin-gle positive § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment.

(b) A taxpayer that wants to make thischange and a change in depreciation un-der section 6.01 (impermissible to permis-sible method of accounting for deprecia-tion or amortization), 6.04 (modern golfcourse greens), 6.06 (gas pump canopies),and/or 6.07 (utility assets) for the sameyear of change should file a single Form3115 for these changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor these changes on the appropriate lineon that Form 3115.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.05 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the year

of change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.05of this APPENDIX is “12.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.06 Depreciation of gas pump canopies.(1) Description of change. This change

applies to a taxpayer that wants to changethe method of accounting for the cost ofstand-alone gasoline pump canopies ortheir supporting concrete footings ownedby the taxpayer at the beginning of theyear of change to conform with the hold-ing in Rev. Rul. 2003–54, 2003–1 C.B.982. Rev. Rul. 2003–54 holds that thestand-alone gasoline pump canopies (asdescribed in Rev. Rul. 2003–54) are notinherently permanent structures and areclassified as tangible personal property fordepreciation purposes, while the support-ing concrete footings (as described in Rev.Rul. 2003–54) are inherently permanentstructures classified as land improvementsfor depreciation purposes.

(2) Additional requirements. A tax-payer that changes its method of account-ing for the cost of stand-alone gasolinepump canopies or their supporting con-crete footings under section 6.06 of thisAPPENDIX must change to a permissiblemethod of accounting for depreciation ofthe cost of the gasoline pump canopies orthe supporting concrete footings. For pur-poses of § 168, the stand-alone gasolinepump canopies are includible in asset class57.0, Distributive Trades and Services, ofRev. Proc. 87–56, 1987–2 C.B. 674,as clarified and modified by Rev. Proc.88–22, 1988–1 C.B. 785, and their sup-porting concrete footings are includible inasset class 57.1, Distributive Trades andServices-Billboard, Service Station Build-ings and Petroleum Marketing Land Im-provements, of Rev. Proc. 87–56.

(3) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets and provide

a single net § 481(a) adjustment for all thechanges included in that Form 3115. Ifone or more of the changes in that singleForm 3115 generate a negative § 481(a)adjustment and other changes in that sameForm 3115 generate a positive § 481(a) ad-justment, the taxpayer may provide a sin-gle negative § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment and a sin-gle positive § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment.

(b) A taxpayer that wants to make thischange and a change in depreciation un-der section 6.01 (impermissible to permis-sible method of accounting for deprecia-tion or amortization), 6.04 (modern golfcourse greens), 6.05 (original and replace-ment tire costs), and/or 6.07 (utility as-sets) for the same year of change shouldfile a single Form 3115 for these changes,in which case the taxpayer must enter thedesignated automatic accounting methodchange numbers for these changes on theappropriate line on that Form 3115.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.06 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.06of this APPENDIX is “13.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.07 Depreciation of utility assets.(1) Description of change. This change

applies to a taxpayer that wants to changethe method of accounting for depreciableassets that are owned by a utility at thebeginning of the year of change and usedin the general business operations of the

2011–4 I.R.B. 368 January 24, 2011

utility to conform with Rev. Rul. 2003–81,2003–2 C.B. 126.

(2) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets and providea single net § 481(a) adjustment for all thechanges included in that Form 3115. Ifone or more of the changes in that singleForm 3115 generate a negative § 481(a)adjustment and other changes in that sameForm 3115 generate a positive § 481(a) ad-justment, the taxpayer may provide a sin-gle negative § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment and a sin-gle positive § 481(a) adjustment for allthe changes that are included in that Form3115 generating such adjustment.

(b) A taxpayer that wants to make thischange and a change in depreciation undersection 6.01 (impermissible to permissi-ble method of accounting for deprecia-tion or amortization), 6.04 (modern golfcourse greens), 6.05 (original and replace-ment tire costs), and/or 6.06 (gas pumpcanopies) for the same year of changeshould file a single Form 3115 for thesechanges, in which case the taxpayer mustenter the designated automatic accountingmethod change numbers for these changeson the appropriate line on that Form 3115.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.07 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.07of this APPENDIX is “14.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.08 Depreciation of cable TV fiberoptics.

(1) Description of change. This changeapplies to a taxpayer that wants to changethe method of accounting for depreciationof fiber optic node and trunk line con-sisting of fiber optic cable used in a ca-ble television distribution system ownedby the taxpayer at the beginning of theyear of change to the safe harbor methodof accounting provided by section 4 ofRev. Proc. 2003–63, 2003–2 C.B. 304.The taxpayer must operate a cable televi-sion distribution system designed to pro-vide one-way and two-way communica-tion services to subscribers (as describedin section 3.02 of Rev. Proc. 2003–63).The safe harbor method of accounting pro-vided by section 4 of Rev. Proc. 2003–63determines the unit of property for calcu-lating depreciation under §§ 167 and 168,and the primary use and placed-in-servicedate of that unit of property.

(2) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one asset for the same yearof change should file a single Form 3115for all such assets and provide a single net§ 481(a) adjustment for all the changes in-cluded in that Form 3115. If one or moreof the changes in that single Form 3115generate a negative § 481(a) adjustmentand other changes in that same Form 3115generate a positive § 481(a) adjustment,the taxpayer may provide a single nega-tive § 481(a) adjustment for all the changesthat are included in that Form 3115 gener-ating such adjustment and a single positive§ 481(a) adjustment for all the changes thatare included in that Form 3115 generatingsuch adjustment.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.08 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designated

automatic accounting method changenumber for a change under section 6.08of this APPENDIX is “15.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.09 Change in general asset accounttreatment due to a change in the use ofMACRS property.

(1) Description of change. This changeapplies to a taxpayer that wants to changethe method of accounting for generalasset account treatment of MACRS prop-erty (as defined in § 1.168(b)–1(a)(2))to the method of accounting pro-vided in §§ 1.168(i)–1(c)(2)(ii)(E) and1.168(i)–1(h)(2), which applies whenthere is a change in the use of MACRSproperty pursuant to § 1.168(i)–4(d). See§ 1.168(i)–1(l)(2)(ii).

(2) Manner of making change.The change is made on a mod-ified cut-off basis (as defined in§ 1.446–1(e)(2)(ii)(d)(5)(iii)) and, thus,the adjusted depreciable basis of theMACRS property as of the beginning ofthe year of change is recovered using thenew method of accounting for generalasset account treatment. Accordingly, a§ 481(a) adjustment is neither permittednor required. See § 1.168(i)–1(h)(2)(ii)and (iii) for more information regardinghow to establish the general asset accountwhen a change in the use of MACRS prop-erty occurs pursuant to § 1.168(i)–4(d).

(3) Concurrent automatic change. Ataxpayer that wants to make this change formore than one asset for the same year ofchange should file a single Form 3115 forall such assets.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.09 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

January 24, 2011 369 2011–4 I.R.B.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.09of this APPENDIX is “87.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.10 Change in method of accountingfor depreciation due to a change in theuse of MACRS property.

(1) Description of change. This changeapplies to a taxpayer that wants to (a)change the method of accounting for de-preciation of MACRS property (as definedin § 1.168(b)–1(a)(2)) to the method ofaccounting for depreciation provided in§ 1.168(i)–4, which applies when thereis a change in the use of MACRS prop-erty, or (b) revoke the election providedin § 1.168(i)–4(d)(3)(ii) to disregard achange in the use of MACRS property.See § 1.168(i)–4(g)(2).

(2) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one asset for the same yearof change should file a single Form 3115for all such assets and provide a single net§ 481(a) adjustment for all the changes in-cluded in that Form 3115. If one or moreof the changes in that single Form 3115generate a negative § 481(a) adjustmentand other changes in that same Form 3115generate a positive § 481(a) adjustment,the taxpayer may provide a single nega-tive § 481(a) adjustment for all the changesthat are included in that Form 3115 gener-ating such adjustment and a single positive§ 481(a) adjustment for all the changes thatare included in that Form 3115 generatingsuch adjustment.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.10 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.10of this APPENDIX is “88.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.11 Depreciation of qualifiednon-personal use vans and light trucks.

(1) Description of change. Thischange applies to a taxpayer that wantsto change the method of accounting fordepreciation for certain vehicles in accor-dance with § 1.280F–6(f)(2)(iv). Section1.280F–6(f)(2)(iv) applies to a truck orvan that is a qualified nonpersonal usevehicle as defined under § 1.274–5T(k),was placed in service by the taxpayer be-fore July 7, 2003, and was treated by thetaxpayer 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 bechanged from property to which § 280F(a)applies to property to which § 280F(a)does not apply.

(2) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one asset for the same yearof change should file a single Form 3115for all such assets and provide a single net§ 481(a) adjustment for all the changes in-cluded in that Form 3115. If one or moreof the changes in that single Form 3115generate a negative § 481(a) adjustmentand other changes in that same Form 3115generate a positive § 481(a) adjustment,the taxpayer may provide a single nega-tive § 481(a) adjustment for all the changesthat are included in that Form 3115 gener-ating such adjustment and a single positive§ 481(a) adjustment for all the changes thatare included in that Form 3115 generatingsuch adjustment.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.11 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 with

its federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.11of this APPENDIX is “89.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Bernard Harvey at202–622–4930 (not a toll-free call).

.12 Depreciation of qualifiedrevitalization building in the expandedarea of a renewal community.

(1) Description of change. This changeapplies to a taxpayer that wants to elect thecommercial revitalization deduction under§ 1400I(a) for a qualified revitalizationbuilding (as defined in § 1400I(b)(1)) thatis placed in service by the taxpayer afterDecember 31, 2001, in the area of a re-newal community that was expanded bythe U.S. Department of Housing and Ur-ban Development and for which the tax-payer receives a retroactive commercialrevitalization expenditure allocation madein accordance with section 3 of Rev. Proc.2006–16, 2006–1 C.B. 539. This changeapplies only if the taxpayer filed the fed-eral tax return for the placed-in-serviceyear of that building on or before the datethe taxpayer received the retroactive com-mercial revitalization expenditure alloca-tion. For further details, see Rev. Proc.2006–16.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Time for making change. Thechange in method of accounting undersection 6.12 of this APPENDIX must betimely filed with the taxpayer’s federal taxreturn for the taxable year that includesthe date on which the commercial revi-talization agency makes the retroactivecommercial revitalization expenditure al-location, or with the taxpayer’s federal taxreturn for the first taxable year succeedingthe taxable year that included the dateon which the commercial revitalizationagency made the retroactive commercialrevitalization expenditure allocation.

2011–4 I.R.B. 370 January 24, 2011

(4) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one qualified revitaliza-tion building for the same year of changeshould file a single Form 3115 for all suchbuildings and provide a single net § 481(a)adjustment for all the changes included inthat Form 3115.

(5) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.12 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.12of this APPENDIX is “97.” See section6.02(4) of this revenue procedure.

(7) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.13 Loss disallowance rule upon adisposition of an insurance contractacquired in an assumption re-insurancetransaction.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that chooses, on a transac-tion-by-transaction basis, to change theirtreatment of certain insurance contracts ac-quired in an assumption reinsurance trans-action under § 1.197–2(g)(5) for the firsttaxable year ending after April 10, 2006.

(b) Inapplicability. This change doesnot apply when the taxpayer’s treatment ofits property is an issue under considerationfor a taxable year under examination, be-fore an Appeals office, or before a federalcourt. See section 3.09 of this revenue pro-cedure for the definition of these terms.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Additional requirements. Thechange in accounting method results in

items being omitted or duplicated andthus, an adjustment under § 481(a) mustbe computed.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.13of this APPENDIX is “98.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Mark Weiss at202–622–7750 (not a toll-free call).

.14 Reserved.

.15 Reserved.

.16 Reserved.

.17 Impermissible to permissiblemethod of accounting for depreciation oramortization for disposed depreciable oramortizable property.

(1) Description of change. This changeapplies to a taxpayer that wants to makethe change in method of accounting for de-preciation or amortization (depreciation)provided under section 3 of Rev. Proc.2007–16, 2007–1 C.B. 358, for an itemof depreciable or amortizable property thathas been disposed of by the taxpayer. Sec-tion 3 of Rev. Proc. 2007–16 allows a tax-payer to make a change in method of ac-counting for depreciation for the disposedproperty if the taxpayer used an impermis-sible method of accounting for deprecia-tion for the property under which the tax-payer did not take into account any depre-ciation allowance, or did take into accountsome depreciation but less than the depre-ciation allowable, in the year of change (asdefined in section 6.17(4) of this APPEN-DIX) or any prior taxable year.

(2) Scope.(a) Applicability. Except as provided in

section 6.17(2)(b) of this APPENDIX, sec-tion 6.17 of this APPENDIX applies to ataxpayer that is changing from an imper-missible method of accounting for depreci-ation to a permissible method of account-ing for depreciation for any item of de-preciable or amortizable property subjectto §§ 167, 168, 197, 1400I, or 1400L(c),to former § 168, or to any additional firstyear depreciation deduction provision ofthe Code (for example, § 168(k), § 168(l),§ 1400L(b), or § 1400N(d)):

(i) that has been disposed of by the tax-payer during the year of change (as definedin section 6.17(4) of this APPENDIX); and

(ii) for which the taxpayer did not takeinto account any depreciation allowance,or did take into account some deprecia-tion but less than the depreciation allow-able (hereinafter, both are referred to as“claimed less than the depreciation allow-able”), in the year of change (as defined insection 6.17(4) of this APPENDIX) or anyprior taxable year.

(b) Inapplicability. Section 6.17 of thisAPPENDIX does not apply to:

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

(ii) any property for which a taxpayer isrevoking a timely valid depreciation elec-tion, or making a late depreciation elec-tion, under the Code or regulations there-under, or under other guidance publishedin the IRB (including under § 13261(g)(2)or (3) of the Revenue Reconciliation Act of1993 (1993 Act), 1993–3 C.B. 1, 128 (re-lating to amortizable § 197 intangibles));

(iii) any property for which the tax-payer deducted the cost or other basis ofthe property as an expense; or

(iv) any property disposed of by thetaxpayer in a transaction to which a non-recognition section of the Code applies(for example, § 1031, transactions subjectto § 168(i)(7)(B)). However, this section6.17(2)(b)(iv) of the APPENDIX doesnot apply to property disposed of by thetaxpayer in a § 1031 or § 1033 transactionif the taxpayer elects under § 1.168(i)–6(i)and (j) to treat the entire basis (that is,both the exchanged and excess basis (asdefined in § 1.168(i)–6(b)(7) and (8), re-spectively) of the replacement MACRSproperty (as defined in § 1.168(i)–6(b)(1))as property placed in service by the tax-payer at the time of replacement and treatthe adjusted depreciable basis of the relin-quished MACRS property (as defined in§ 1.168(i)–6(b)(2)) as being disposed ofby 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 bemade on a taxpayer’s timely filed (includ-ing extensions) original federal tax returnfor the year of change (as defined in sec-tion 6.17(4) of this APPENDIX), providedthe taxpayer files the original Form 3115in accordance with section 6.02(3) of thisrevenue procedure.

(b) Change made on an amended returnfor the year of change. This change may

January 24, 2011 371 2011–4 I.R.B.

also be made on an amended federal taxreturn for the year of change (as defined insection 6.17(4) of this APPENDIX), pro-vided:

(i) the taxpayer files the original Form3115 with the taxpayer’s amended fed-eral tax return for the year of change (asdefined in section 6.17(4) of this AP-PENDIX) prior to the expiration of theperiod of limitation for assessment under§ 6501(a) for the taxable year in which theitem of depreciable or amortizable prop-erty was disposed of by the taxpayer; and

(ii) the taxpayer’s amended federal taxreturn for the year of change (as definedin section 6.17(4) of this APPENDIX) in-cludes the adjustments to taxable incomeand any collateral adjustments to taxableincome or tax liability (for example, ad-justments to the amount or character of thegain or loss of the disposed depreciableor amortizable property) resulting from thechange in method of accounting for depre-ciation made by the taxpayer under section6.17 of this APPENDIX.

(4) Year of change. The year of changefor this change is the taxable year in whichthe item of depreciable or amortizableproperty was disposed of by the taxpayer.

(5) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(6) Filing requirements. Notwithstand-ing section 6.02(3)(a) of this revenueprocedure, a taxpayer making this changein accordance with section 6.17(3)(b) ofthis APPENDIX must attach the originalForm 3115 to the taxpayer’s timely filedamended federal tax return for the yearof change and must file the required copy(with signature) of the Form 3115 with thenational office no later than when the orig-inal Form 3115 is filed with the amendedfederal tax return for the year of change.If a taxpayer is making this change inaccordance with section 6.17(3)(a) of thisAPPENDIX, the filing requirements insection 6.02(3)(a) of this revenue proce-dure apply.

(7) Section 481(a) adjustment period.A taxpayer must take the § 481(a) adjust-ment into account in the year of change.

(8) Concurrent automatic change. Ataxpayer that wants to make this change formore than one asset for the same year ofchange should file a single Form 3115 forall such assets.

(9) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.17 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(10) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.17of this APPENDIX is “107.” See section6.02(4) of this revenue procedure.

(11) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.18 Depreciation of MACRS propertyacquired in a like-kind exchange or as aresult of an involuntary conversion.

(1) Description of change. This changeapplies to a taxpayer that wants to make achange in method of accounting for depre-ciation under § 168 to either:

(a) Apply the provisions of§ 1.168(i)–6, or rely on prior guidance bythe Service for determining the deprecia-tion deductions of replacement MACRSproperty and relinquished MACRSproperty, for a like-kind exchange oran involuntary conversion of MACRSproperty for which the time of disposition,the time of replacement, or both occur onor before February 27, 2004; or

(b) Apply § 1.168(i)–6(i)(2) to the re-linquished property and the replacementproperty for which the time of disposition,the time of replacement , or both occuron or before February 26, 2007, if the re-placement property replaces relinquishedproperty for which the taxpayer made avalid election under § 168(f)(1) to excludeit from the application of § 168.

(2) Applicability. The change in section6.18(1)(a) of this APPENDIX applies onlyif the taxpayer’s applicable federal tax re-turn has been filed on or before February27, 2004. The change in section 6.18(1)(b)of this APPENDIX applies only if the tax-payer wants to apply § 1.168(i)–6(i)(2)

and the taxpayer’s applicable federal taxreturn has been filed on or before Feb-ruary 26, 2007. For further details, see§ 1.168(i)–6(k)(2) and (3).

(3) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one asset for the same yearof change should file a single Form 3115for all such assets and provide a single net§ 481(a) adjustment for all the changes in-cluded in that Form 3115. If one or moreof the changes in that single Form 3115generate a negative § 481(a) adjustmentand other changes in that same Form 3115generate a positive § 481(a) adjustment,the taxpayer may provide a single nega-tive § 481(a) adjustment for all the changesthat are included in that Form 3115 gener-ating such adjustment and a single positive§ 481(a) adjustment for all the changes thatare included in that Form 3115 generatingsuch adjustment.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.18 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.18of this APPENDIX is “116.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.19 Lessor improvements abandoned attermination of lease.

(1) Description of change.(a) Applicability. This change applies

to a lessor that continued to depreciateunder § 168 an improvement describedin § 168(i)(8)(B)(i) and (ii) after the im-provement was irrevocably disposed of orabandoned by the lessor at the terminationof the applicable lease by the lessee andnow wants to comply with § 168(i)(8)(B)

2011–4 I.R.B. 372 January 24, 2011

by recognizing gain or loss upon the dis-position or abandonment of the improve-ment. To qualify for recognizing gain orloss under § 168(i)(8)(B), the intent of thelessor must be irrevocably to discard theimprovement so that it will neither be usedagain by the lessor nor retrieved by thelessor for resale, exchange, or other dispo-sition. See § 1.167(a)–8(a)(4).

(b) Inapplicability. This change doesnot apply to:

(i) improvements disposed of or aban-doned before June 13, 1996;

(ii) the extent § 280B applies to the de-molition of a structure, a portion of whichmay include leasehold improvements; or

(iii) improvements disposed of or aban-doned before the termination of the appli-cable lease.

(2) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.19 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.19of this APPENDIX is “117.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.20 Repairable and reusable spareparts.

(1) Description of change.(a) Applicability. This change ap-

plies to a taxpayer that wants to changefrom item accounting to multiple assetaccounting (pooling) for its repairable andreusable spare parts in accordance withsection 6.20(2) of this APPENDIX orthat wants to change its method of iden-tifying disposed repairable and reusablespare parts to a method described in sec-tion 6.20(3) of this APPENDIX. Thesechanges apply to repairable and reusable

spare parts that: are owned by the taxpayerat the beginning of the year of change; areused to repair equipment owned by thetaxpayer; are acquired by the taxpayer fora specific type of equipment at the timethat the related equipment is acquired;usually have the same useful life as therelated equipment; and have been placedin service by the taxpayer after 1986.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that is currently capital-izing and depreciating the cost of its re-pairable and reusable spare parts and thatelected to establish general asset accountsfor the repairable and reusable spare parts;

(ii) a taxpayer that is not currently cap-italizing and depreciating the cost of itsrepairable and reusable spare parts under§ 168 in accordance with the holdingsin Rev. Rul. 69–200, 1969–1 C.B. 60,and Rev. Rul. 69–201, 1969–1 C.B. 60,unless the taxpayer concurrently changesits method to properly capitalize and de-preciate these costs in conjunction witha change under section 10.07 of this AP-PENDIX. Rev. Rul. 69–200 and Rev. Rul.69–201 hold that repairable and reusablespare parts are tangible property for whichdepreciation is allowable at the time thatthe related equipment is placed in serviceby the taxpayer and the method of com-puting depreciation for the repairable andreusable spare parts is the same methodof computing depreciation for the relatedequipment;

(iii) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 6.20 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);or

(iv) a taxpayer that is using an im-permissible method of accounting fordepreciation for repairable and reusablespare parts or for the related equipment forwhich the repairable and reusable spareparts are acquired, unless the taxpayerconcurrently changes its method to usea permissible method of accounting fordepreciation under section 6.01 of thisAPPENDIX.

(2) Establishment of pools. A taxpayermay change from item accounting to pool-ing for repairable and reusable spare partsby establishing one or more pools for re-pairable and reusable spare parts begin-ning in the year of change. Each pool mustinclude only the repairable and reusablespare parts that are placed in service bythe taxpayer in the same taxable year andhave the same: (a) asset class under Rev.Proc. 87–56, 1987–2 C.B. 674, as clari-fied and modified by Rev. Proc. 88–22,1988–1 C.B. 785, (b) applicable depreci-ation method, (c) applicable recovery pe-riod, and (d) applicable convention. Ad-ditionally, repairable and reusable spareparts subject to the mid-quarter conventionmay only be grouped into a pool with re-pairable and reusable spare parts that areplaced in service in the same quarter of thetaxable year.

Further, each pool for repairable andreusable spare parts placed in service bythe taxpayer after 1986 and before the yearof change must include a beginning bal-ance for both the unadjusted depreciablebasis and the depreciation reserve. The be-ginning balance for the unadjusted depre-ciable basis of each pool is equal to thesum of the unadjusted depreciable bases asof the beginning of the year of change forall repairable and reusable spare parts in-cluded in that pool. The beginning balanceof the depreciation reserve of each pool isequal to the sum of the greater of the de-preciation allowed or allowable as of thebeginning of the year of change for all re-pairable and reusable spare parts includedin that pool.

(3) Permissible methods of identifyingdisposed repairable and reusable spareparts. Beginning in the year of change,a taxpayer may change to one of the fol-lowing methods of accounting to identifyits disposed repairable and reusable spareparts:

(a) Specific identification of each dis-posed repairable and reusable spare part;or

(b) A first-in, first-out method of ac-counting if: (i) the taxpayer establishespools for repairable and reusable spareparts in accordance with section 6.20(2)of this APPENDIX, (ii) the repairable andreusable spare parts are mass assets, and(iii) the total repairable and reusable spareparts dispositions during a particular tax-able year are readily determined from the

January 24, 2011 373 2011–4 I.R.B.

taxpayer’s records but it is impracticablefor the taxpayer to maintain records fromwhich the taxpayer can determine the par-ticular taxable year in which the disposedrepairable and reusable spare parts wereplaced in service by the taxpayer. A tax-payer using the first-in, first-out method ofaccounting under this section 6.20(3) mustidentify the repairable and reusable spareparts disposed of in a taxable year fromthe pool with the earliest placed in-serviceyear existing at the beginning of the tax-able year of the disposition. For purposesof this section 6.20(3), mass assets are amass or group of individual items of de-preciable property:

(i) that are not necessarily homoge-neous;

(ii) each of which is minor in value rela-tive to the total value of the mass or group;

(iii) numerous in quantity;(iv) usually accounted for only on a to-

tal dollar or quantity basis;(v) with respect to which separate iden-

tification is impracticable; and(vi) are placed in service by the tax-

payer in the same taxable year.(4) Manner of making change.(a) Establishment of pools. Because

the adjusted basis of the property is notchanged as a result of changing fromitem accounting to pooling under section6.20(2) of this APPENDIX, no items arebeing duplicated or omitted. Accordingly,a § 481(a) adjustment is neither requirednor necessary.

(b) Identifying disposed repairable andreusable spare parts. The change to amethod described in section 6.20(3) of thisAPPENDIX for identifying disposed re-pairable and reusable spare parts is madeon a cut-off basis and applies only to re-pairable and reusable spare parts disposedof by the taxpayer beginning in the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-justment is neither permitted nor required.

(5) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets.

(b) A taxpayer that wants to make boththis change and a change to a capitaliza-tion and depreciation method under sec-tion 10.07 of this APPENDIX for the sameyear of change should file a single Form

3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(c) A taxpayer that wants to make boththis change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(d) A taxpayer that wants to make boththis change and a change to a permissi-ble method of accounting for depreciationfor repairable and reusable spare parts, orfor the related equipment for which the re-pairable and reusable spare parts are ac-quired, under section 6.01 of this APPEN-DIX for the same year of change shouldfile a single Form 3115 for both changes,in which case the taxpayer must enter thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115.

(6) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.20 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(7) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.20of this APPENDIX is “118.” See section6.02(4) of this revenue procedure.

(8) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.21 Land.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change from de-preciating land to not depreciating land or

wants to change from depreciating a non-depreciable land improvement to not de-preciating a nondepreciable land improve-ment. This change applies to any land ornondepreciable land improvement that isowned by the taxpayer at the beginning ofthe year of change.

(b) Inapplicability. This change doesnot apply to:

(i) any depreciable land improvement;or

(ii) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 6.21 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(2) Concurrent automatic change.(a) A taxpayer that wants to make this

change for more than one asset for thesame year of change should file a singleForm 3115 for all such assets.

(b) A taxpayer that wants to make boththis change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(3) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.21 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of account-ing under section 6.21 of this APPENDIX

2011–4 I.R.B. 374 January 24, 2011

is “119.” See section 6.02(4) of this rev-enue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.22 Kansas additional first yeardepreciation.

(1) Description of change.(a) In general. This change applies to

a taxpayer that wants to make a change inmethod of accounting for depreciation forqualified Recovery Assistance (RA) prop-erty placed in service by the taxpayer on orafter May 5, 2007, during the taxable yearthat includes May 5, 2007, to claim theKansas additional first year depreciationdeduction for a class of property for whichthe taxpayer did not claim the Kansas ad-ditional first year depreciation deductionon the taxpayer’s timely filed federal taxreturn for the taxable year that includesMay 5, 2007, provided the taxpayer did notmake an election not to deduct the Kansasadditional first year depreciation for theclass of property pursuant to section 4.03of Notice 2008–67, 2008–32 I.R.B 307.For further details, see section 3.03 of No-tice 2008–67

(b) Return for the first taxable yearsucceeding the taxable year that in-cludes May 5, 2007, not filed on orbefore August 11, 2008. If, on or beforeAugust 11, 2008, the taxpayer did not fileits federal tax return for the first taxableyear succeeding the taxable year thatincludes May 5, 2007, and the taxpayerowns the property as of the first day ofthis taxable year, the taxpayer may fileForm 3115 to make the change in methodof accounting under section 6.22 of thisAPPENDIX with the taxpayer’s timelyfiled federal tax return for the first taxableyear succeeding the taxable year thatincludes May 5, 2007.

(c) Return for the first taxable yearsucceeding the taxable year that includesMay 5, 2007, filed on or before August 11,2008. If on or before August 11, 2008,the taxpayer filed its federal tax returnfor the first taxable year succeeding thetaxable year that includes May 5, 2007, thetaxpayer may make the change in methodof accounting under section 6.22 of thisAPPENDIX either by:

(i) Filing an amended federal tax return(or a qualified amended return) on or be-fore December 31, 2009, for the first tax-

able year succeeding the taxable year thatincludes May 5, 2007, attaching a Form3115 to the amended federal tax return,and including the statement “Filed Pur-suant to Notice 2008–67” at the top of anyamended return (or qualified amended re-turn); or

(ii) Filing a Form 3115 with the tax-payer’s timely filed federal tax return forthe second taxable year succeeding the tax-able year that includes May 5, 2007, if thetaxpayer owns the property as of the firstday of this taxable year.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Concurrent automatic change. Ataxpayer that wants to make this changefor more than one asset for the same yearof change should file a single Form 3115for all such assets and provide a single net§ 481(a) adjustment for all the changes in-cluded in that Form 3115. If one or moreof the changes in that single Form 3115generate a negative § 481(a) adjustmentand other changes in that same Form 3115generate a positive § 481(a) adjustment,the taxpayer may provide a single nega-tive § 481(a) adjustment for all the changesthat are included in that Form 3115 gener-ating such adjustment and a single positive§ 481(a) adjustment for all the changes thatare included in that Form 3115 generatingsuch adjustment.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.22 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.22of this APPENDIX is “115.” See section6.02(4) of this revenue procedure.

(6) Contact Information. For furtherinformation regarding a change under

this section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.23 Tenant construction allowances.(1) Description of change and scope.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting for tenant construc-tion allowances:

(i) from improperly treating the tax-payer as having a depreciable interest inthe property subject to the tenant construc-tion allowances for federal income tax pur-poses to properly treating the taxpayer asnot having a depreciable interest in suchproperty for federal income tax purposes;or

(ii) from improperly treating the tax-payer as not having a depreciable interestin the property subject to the tenant con-struction allowances for federal incometax purposes to properly treating the tax-payer as having a depreciable interest insuch property for federal income tax pur-poses.

(b) Inapplicability. This change doesnot apply to:

(i) any tenant construction allowancethat qualifies under § 110;

(ii) any portion of a tenant constructionallowance that is not expended on depre-ciable property; or

(iii) any amount expended for deprecia-ble property in excess of the tenant con-struction allowance.

(2) Definition. For purposes of section6.23 of this APPENDIX, the term “ten-ant construction allowance(s)” means anyamount received by a lessee from a lessorto construct, acquire, or improve propertyfor use by the lessee pursuant to a lease.

(3) Manner of making the change.(a) The change in method of accounting

under section 6.23 of this APPENDIX ismade using a cut-off method and only ap-plies to leases entered into on or after thebeginning of the year of change. See sec-tion 2.06 of this revenue procedure.

(b) If a taxpayer wants to change itsmethod of accounting for tenant construc-tion allowances under existing leases, thetaxpayer must file a Form 3115 with theCommissioner in accordance with the re-quirements of § 1.446–1(e)(3)(i) and Rev.Proc. 97–27. A change involving ten-ant construction allowances under existingleases will require a § 481(a) adjustment.Consent to change a method of accountingfor tenant construction allowances under

January 24, 2011 375 2011–4 I.R.B.

existing leases is granted only if the tax-payer’s treatment of the property subject tothe tenant construction allowances is con-sistent with the treatment of such propertyby the counterparty for federal income taxpurposes. The following information mustbe submitted with a Form 3115 submittedunder Rev. Proc. 97–27:

(i) If a lessee is filing the Form 3115, thelessee must submit with the Form 3115:(A) a statement that provides the amount ofthe tenant construction allowance receivedby the lessee, the amount of such tenantconstruction allowance expended by thelessee on property, and the name of thelessor that provided the tenant construc-tion allowance; and (B) a representation,signed under penalties of perjury, fromsuch lessor that provides the amount of thetenant construction allowance provided tothe lessee and an explanation as to howthe lessor is treating the property sub-ject to such tenant construction allowancefor federal income tax purposes. If thelessor capitalized the tenant constructionallowance (or any portion thereof) pro-vided to the lessee and depreciated theproperty subject to such tenant construc-tion allowance, the representation mustalso include the amount that was capital-ized by the lessor, the Internal RevenueCode section under which the property isdepreciated by the lessor, and the life overwhich the property is depreciated by thelessor.

(ii) If a lessor is filing the Form 3115,the lessor must submit with the Form 3115:(A) a statement that provides the amountof the tenant construction allowance pro-vided to a lessee and the name of thelessee that received such tenant construc-tion allowance; and (B) a representation,signed under penalties of perjury, fromsuch lessee that provides the amount ofthe tenant construction allowance receivedfrom the lessor, the amount of such ten-ant construction allowance recognized asgross income by the lessee, the amountof the tenant construction allowance ex-pended by the lessee on property, andan explanation as to how the lessee istreating the property subject to the tenantconstruction allowance for federal incometax purposes. If the lessee capitalized thetenant construction allowance (or any por-tion thereof) received from the lessor anddepreciated the property subject to suchtenant construction allowance, the repre-

sentation must also include the amountthat was capitalized by the lessee, the In-ternal Revenue Code section under whichthe property is depreciated by the lessee,and the life over which the property isdepreciated by the lessee.

(4) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(5) Concurrent automatic change. Ataxpayer that wants to make this change formore than one asset for the same year ofchange should file a single Form 3115 forall such assets.

(6) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.23 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(7) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 6.23of this APPENDIX is “145.” See section6.02(4) of this revenue procedure.

(8) Contact information. For furtherinformation regarding a change underthis section, contact Ruba Nasrallah at202–622–4930 (not a toll-free call).

.24 Dispositions of structuralcomponents of a building (section 168).

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change to a unitof property that is permissible under appli-cable legal authority for determining whenthe taxpayer has disposed of a building (asdefined in § 1.48–1(e)(1), except as oth-erwise provided under any other applica-ble provision of the Code or regulations re-lating to depreciation or amortization (forexample, § 1400I(f)(3))), and its structuralcomponents (as defined in § 1.48–1(e)(2))for depreciation purposes. This changealso will affect the determination of gainor loss from the disposition of the building(including its structural components).

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under section 6.24 of this AP-PENDIX if the taxpayer is not capitalizingthese costs, unless the taxpayer concur-rently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);

(ii) any property that is not depreciatedunder § 168 under the taxpayer’s presentand proposed methods of accounting;

(iii) any section 1245 property or depre-ciable land improvement (but see section6.25 of this APPENDIX for making thischange);

(iv) any leasehold improvement,whether made by the lessor or the lessee(unless the taxpayer leased land and con-structed a building on such leased land,and such building (including its structuralcomponents) is the leasehold improve-ment and is the unit of property under thetaxpayer’s proposed method of accountingunder section 6.24 of this APPENDIX);

(v) any property disposed of by the tax-payer in a transaction to which a non-recognition section of the Code applies(for example, § 1031, transactions subjectto § 168(i)(7));

(vi) any property subject to a generalasset account election under § 168(i)(4)and the regulations thereunder;

(vii) any building with multiple condo-minium or cooperative units (unless eachcondominium or cooperative unit is theunit of property under the taxpayer’s pro-posed method of accounting under section6.24 of this APPENDIX); or

(viii) any multiple buildings (includ-ing their structural components) that aretreated as a single building (single unitof property) under the taxpayer’s presentmethod of accounting or will be treated asa single building (single unit of property)under the taxpayer’s proposed method ofaccounting.

(2) Manner of making change. A tax-payer making this change must attach to itsForm 3115 a statement with the following:

(a) A detailed description of the typesof property to which this change applies;

(b) A detailed description of the unitof property under the taxpayer’s present

2011–4 I.R.B. 376 January 24, 2011

and proposed methods of accounting fordetermining when the building (includingits structural components) is disposed ofby the taxpayer for depreciation purposes(when depreciation ends);

(c) A detailed description of how thetaxpayer determined the unit of propertyunder its present method of accounting fordetermining when the building (includingits structural components) is disposed ofby the taxpayer for depreciation purposesand will determine the unit of propertyunder its proposed method of accountingfor determining when the building (includ-ing its structural components) is disposedof by the taxpayer for depreciation pur-poses. If this proposed unit of propertyis not each building (including its struc-tural components) (except as provided insection 6.24(1)(b)(vii) of this APPENDIXregarding condominium or cooperativeunits), also provide the legal authoritysupporting the taxpayer’s proposed unit ofproperty for determining when the build-ing (including its structural components)is disposed of by the taxpayer for depreci-ation purposes;

(d) A statement as to whether the tax-payer’s proposed unit of property for de-termining when the building (including itsstructural components) is disposed of bythe taxpayer for depreciation purposes isthe same as the taxpayer’s present unit ofproperty for determining when the build-ing (including its structural components) isplaced in service by the taxpayer (when de-preciation begins). If not, also provide theunit of property for determining when thebuilding (including its structural compo-nents) is placed in service by the taxpayerand explain why the taxpayer is using adifferent unit of property for determiningwhen the building (including its structuralcomponents) is placed in service; and

(e) if any item of property is publicutility property within the meaning of§ 168(i)(10) or former § 167(l)(3)(A), asapplicable, a statement providing that thetaxpayer agrees to the following additionalterms and conditions:

(i) a normalization method of ac-counting (within the meaning of former§ 167(l)(3)(G), former § 168(e)(3)(B), or§ 168(i)(9), as applicable) will be used forthe public utility property subject to theapplication;

(ii) as of the beginning of the year ofchange, the taxpayer will adjust its de-

ferred tax reserve account or similar re-serve account in the taxpayer’s regulatorybooks of account by the amount of the de-ferral of federal income tax liability asso-ciated with the § 481(a) adjustment appli-cable to the public utility property subjectto the application; and

(iii) within 30 calendar days of filing thefederal income tax return for the year ofchange, the taxpayer will provide a copyof the completed application to any reg-ulatory body having jurisdiction over thepublic utility property subject to the appli-cation.

(3) No ruling on unit of property. Theconsent granted under this revenue proce-dure for this change is not a determina-tion by the Commissioner that the taxpayeris using the appropriate unit of propertyfor determining when the building (includ-ing its structural components) is placed inservice or disposed of by the taxpayer fordepreciation purposes and does not cre-ate any presumption that the proposed unitof property is permissible for deprecia-tion purposes. The director will ascertainwhether the taxpayer’s determination of itsunit of property for depreciation purposesis correct.

(4) Concurrent automatic change.(a) A taxpayer that wants to make both

this change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(b) A taxpayer that wants to make boththis change and a change under section6.25 of this APPENDIX for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(5) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.24 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date the

taxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of account-ing under section 6.24 of this APPENDIXis “146.” See section 6.02(4) of this rev-enue procedure.

(7) Contact information. For furtherinformation regarding a change underthis section, contact Charles Magee at202–622–4930 (not a toll-free call).

.25 Dispositions of tangible depreciableassets (other than a building or itsstructural components) (section 168).

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change to aunit of property that is permissible un-der applicable legal authority for deter-mining when the taxpayer has disposedof a section 1245 property or a deprecia-ble land improvement for depreciation pur-poses. This change also will affect the de-termination of gain or loss from the dispo-sition of the section 1245 property or thedepreciable land improvement.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under section 6.25 of this AP-PENDIX if the taxpayer is not capitalizingthese costs, unless the taxpayer concur-rently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);

(ii) any property that is not depreciatedunder § 168 under the taxpayer’s presentand proposed methods of accounting;

(iii) any building (including its struc-tural components) (but see section 6.24 ofthis APPENDIX for making this change);

(iv) any leasehold improvement,whether made by the lessor or the lessee(unless each leasehold improvement is theunit of property under the taxpayer’s pro-posed method of accounting under section6.25 of this APPENDIX);

January 24, 2011 377 2011–4 I.R.B.

(v) any property disposed of by the tax-payer in a transaction to which a non-recognition section of the Code applies(for example, § 1031, transactions subjectto § 168(i)(7));

(vi) any property subject to a generalasset account election under § 168(i)(4)and the regulations thereunder;

(vii) any property subject to a massasset account election under former§ 168(d)(2)(A); or

(viii) any property subject to the re-pair allowance under § 1.167(a)–11(d)(2)(including expenditures incurred afterDecember 31, 1980, for the repair, main-tenance, rehabilitation, or improvementof property placed in service beforeJanuary 1, 1981).

(2) Manner of making change. A tax-payer making this change must attach to itsForm 3115 a statement with the following:

(a) A detailed description of the typesof property to which this change applies;

(b) A detailed description of the unit ofproperty under the taxpayer’s present andproposed methods of accounting for deter-mining when the property is disposed ofby the taxpayer for depreciation purposes(when depreciation ends);

(c) A detailed description of how thetaxpayer determined the unit of propertyunder its present method of accounting fordetermining when the property is disposedof by the taxpayer for depreciation pur-poses and will determine the unit of prop-erty under its proposed method of account-ing for determining when the property isdisposed of by the taxpayer for depreci-ation purposes. If this proposed unit ofproperty is not determined using only thefunctional interdependence standard (see,e.g., Armstrong World Industries, Inc. v.Commissioner, T.C. Memo. 1991–326,aff’d, 974 F.2d 422 (3rd Cir. 1992); Hawai-ian Independent Refinery, Inc. v. UnitedStates, 697 F.2d 1063, 1069 (Fed. Cir.1983)), also provide the legal authoritysupporting the taxpayer’s proposed unit ofproperty for determining when the prop-erty is disposed of by the taxpayer for de-preciation purposes;

(d) A statement as to whether the tax-payer’s proposed unit of property for de-termining when the property is disposedof by the taxpayer for depreciation pur-poses is the same as the taxpayer’s presentunit of property for determining when theproperty is placed in service by the tax-

payer (when depreciation begins). If not,also provide the unit of property for deter-mining when the property is placed in ser-vice by the taxpayer and explain why thetaxpayer is using a different unit of prop-erty for determining when the property isplaced in service; and

(e) if any item of property is publicutility property within the meaning of§ 168(i)(10) or former § 167(l)(3)(A), asapplicable, a statement providing that thetaxpayer agrees to the following additionalterms and conditions:

(i) a normalization method of ac-counting (within the meaning of former§ 167(l)(3)(G), former § 168(e)(3)(B), or§ 168(i)(9), as applicable) will be used forthe public utility property subject to theapplication;

(ii) as of the beginning of the year ofchange, the taxpayer will adjust its de-ferred tax reserve account or similar re-serve account in the taxpayer’s regulatorybooks of account by the amount of the de-ferral of federal income tax liability asso-ciated with the § 481(a) adjustment appli-cable to the public utility property subjectto the application; and

(iii) within 30 calendar days of filing thefederal income tax return for the year ofchange, the taxpayer will provide a copyof the completed application to any reg-ulatory body having jurisdiction over thepublic utility property subject to the appli-cation.

(3) No ruling on unit of property. Theconsent granted under this revenue pro-cedure for this change is not a determi-nation by the Commissioner that the tax-payer is using the appropriate unit of prop-erty for determining when the property isplaced in service or disposed of by the tax-payer for depreciation purposes and doesnot create any presumption that the pro-posed unit of property is permissible fordepreciation purposes. The director willascertain whether the taxpayer’s determi-nation of its unit of property for deprecia-tion purposes is correct.

(4) Concurrent automatic change.(a) A taxpayer that wants to make both

this change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbers

for both changes on the appropriate line onthat Form 3115.

(b) A taxpayer that wants to make boththis change and a change under section6.24 of this APPENDIX for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(5) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting underthis section 6.25 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of account-ing under section 6.25 of this APPENDIXis “147.” See section 6.02(4) of this rev-enue procedure.

(7) Contact information. For furtherinformation regarding a change underthis section, contact Charles Magee at202–622–4930 (not a toll-free call).

SECTION 7. RESEARCH ANDEXPERIMENTAL EXPENDITURES(§ 174)

.01 Changes to a different method ordifferent amortization period.

(1) Description of change.(a) This change applies to a taxpayer

that wants to change the treatment of ex-penditures that qualify as research and ex-perimental expenditures under § 174.

(b) Section 174 and the regulationsthereunder provide the specific rules forchanging a method of accounting un-der § 174 for research and experimentalexpenditures. Under § 174, a taxpayermay treat research and experimental ex-penditures that are paid or incurred bythe taxpayer during the taxable year inconnection with the taxpayer’s trade or

2011–4 I.R.B. 378 January 24, 2011

business as expenses under § 174(a) oras deferred expenses amortizable ratablyover a period of not less than 60 monthsunder § 174(b). Pursuant to § 1.174–1,research and experimental expendituresthat are not treated as expenses or deferredexpenses under § 174 must be treated ascapital expenditures. Further, § 1.174–1provides that the expenditures to which§ 174 applies may relate either to a generalresearch program or to a particular project.

(c) If a taxpayer has not treated re-search and experimental expenditures asexpenses 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 researchand experimental expenditures as ex-penses under § 174(a), § 174(a)(3) and§ 1.174–3(b)(3) provide that the taxpayermay, with consent, change to a differentmethod of treating research and experi-mental expenditures.

(e) If a taxpayer has treated researchand experimental expenditures as deferredexpenses under § 174(b), § 174(b)(2) and§ 1.174–4(b)(2) provide that the taxpayermay, with consent, change to a differentmethod of treating research or experimen-tal expenditures or to a different period ofamortization for deferred expenses.

(2) Scope.(a) Applicability. This change applies

to any taxpayer that is changing:(i) from treating research and ex-

perimental expenditures for a particularproject or projects as expenses under§ 174(a) to treating such expenditures asdeferred expenses under § 174(b), or viceversa;

(ii) to a different period of amortiza-tion for research and experimental expen-ditures for a particular project or projectsthat are being treated as deferred expensesunder § 174(b); or

(iii) from treating research and ex-perimental expenditures for a particularproject or projects as expenses under§ 174(a) or deferred expenses under§ 174(b) to treating such expenditures as acapital expenditure under § 263(a), or viceversa.

(b) Inapplicability. This change doesnot apply to:

(i) a portion of the research and ex-perimental expenditures paid or incurredfor a particular project during the year

of change or in subsequent taxable years(that is, the change must apply to all ofsuch expenditures; see §§1.174–3(a) and1.174–4(a)(5));

(ii) a change in the treatment of com-puter software costs under Rev. Proc.2000–50, 2000–1 C.B. 601, as modifiedby Rev. Proc. 2007–16, 2007–4 I.R.B.358 (but see section 9 of this APPENDIXfor making that change); or

(iii) a change in the treatment of Year2000 costs under Rev. Proc. 97–50,1997–2 C.B. 525.

(3) Scope limitations clarified. Thescope limitation under section 4.02(7) ofthis revenue procedure is applied on aproject by project basis.

(4) Manner of making change.(a) This change is made on a cut-off ba-

sis and applies to all research and exper-imental expenditures paid or incurred fora particular project or projects on or af-ter the beginning of the year of change.See section 2.06 of this revenue proce-dure and § 174(b)(2), and §§ 1.174–3(a),1.174–3(b)(2), and 1.174–4(a)(5) for moreinformation regarding a cut-off basis. Ac-cordingly, a § 481(a) adjustment is neitherpermitted nor required.

(b) The requirement under§§ 1.174–3(b)(2), 1.174–3(b)(3), and1.174–4(b)(2) to file an application nolater than the end of the first taxableyear in which the different method ordifferent amortization period is to be usedis waived for this change. However, seesection 6 of this revenue procedure forfiling requirements applicable under thisrevenue procedure.

(c) The consent granted under thisrevenue procedure satisfies the consentrequired 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 taxpayermust attach to its Form 3115 a writtenstatement providing:

(a) the information required in§ 1.174–3(b)(2) if the taxpayer is chang-ing to treating research and experimentalexpenditures as expenses under § 174(a);

(b) the information required in§ 1.174–3(b)(3) if the taxpayer is changingfrom treating research and experimentalexpenditures 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 experimentalexpenditures as deferred expenses under§ 174(b) or is changing to a differentperiod of amortization for research andexperimental expenditures being treatedas deferred expenses under § 174(b).

(6) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(7) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 7.01of this APPENDIX is “17.” See section6.02(4) of this revenue procedure.

(8) Contact information. For furtherinformation regarding a change under thissection, contact Grant D. Anderson at202–622–4930 (not a toll-free call).

.02 Reserved.

SECTION 8. ELECTIVE EXPENSINGPROVISIONS (§ 179D)

.01 Reserved.

.02 Reserved.

.03 Reserved.

.04 Deduction for Energy EfficientCommercial Buildings (§ 179D).

(1) Description of change. This changeapplies to a taxpayer that wants to changeits method of accounting to deduct un-der § 179D amounts paid or incurred forthe installation of energy efficient com-mercial building property, as defined in§ 179D(c)(1). The deduction for energy ef-ficient commercial building property mustbe claimed in the taxable year in which theproperty is placed in service and is subjectto the limits of § 179D(b). The basis ofthe energy efficient commercial buildingproperty is reduced by the amount of the§ 179D deduction taken and the remain-ing basis of the energy efficient commer-cial building property is depreciated overits recovery period.

(2) Applicability. This change appliesto:

(a) energy efficient commercial build-ing property that is installed on orin any building that is located in theUnited States and is within the scopeof ANSI/ASHRAE/IESNA Standard90.1–2001, Energy Standard for BuildingsExcept Low-Rise Residential Buildings,developed for the American National Stan-

January 24, 2011 379 2011–4 I.R.B.

dards Institute by the American Societyof Heating, Refrigerating, and Air Condi-tioning Engineers and the Illuminating En-gineering Society of North America (as ineffect on April 2, 2003, including addenda90.1a–2003, 90.1b–2002, 90.1c–2002,90.1d–2002, and 90.1k–2002 as in effecton that date) (Standard 90.1–2001);

(b) energy efficient commercial build-ing property that is installed as part of theinterior lighting systems; the heating, cool-ing, ventilation, and hot water systems;or the building envelope of a commercialbuilding; and

(c) it is certified that the interior light-ing systems, heating, cooling, ventilation,and hot water systems, or the building en-velope that have been incorporated into thebuilding, or that the taxpayer plans to in-corporate into the building subsequent tothe installation of such property, will re-duce the total annual energy and powercosts with respect to combined usage ofthe building’s heating, cooling, ventila-tion, hot water, and interior lighting sys-tems by 50 percent or more as compared toa Reference Building that meets the mini-mum requirements of Standard 90.1–2001.

(3) Manner of making change. A tax-payer making this change must attach astatement with a detailed description of thetax treatment of the property under the tax-payer’s present and proposed methods ofaccounting.

(4) Additional filing requirement. Inaddition to the statement required by sec-tion 8.04(3) of the APPENDIX of thisrevenue procedure, a taxpayer makingthis change must attach a certification asrequired by section 4 of Notice 2006–52,2006–1 C.B. 1175, and section 5 of Notice2008–40, 2008–14 I.R.B. 725, to demon-strate the energy efficient commercialbuilding property has achieved the reduc-tion energy and power costs to qualifyfor the § 179D deduction. In the case ofa publicly owned building for which adesigner has been allocated a deductionunder § 179D, the designer becomes thetaxpayer for purposes of the deduction andmust attach a certification as required byNotice 2006–52 and Notice 2008–40, andan allocation from the owner of the build-ing to the designer as required by section3.04 of Notice 2008–40.

(5) No audit protection. A taxpayerdoes not receive audit protection under

section 7 of this revenue procedure in con-nection with this change.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change in method of ac-counting under this section 8.04 of theAPPENDIX is “152.” See section 6.02(4)of this revenue procedure.

(7) Contact information. For furtherinformation regarding a change under thissection, contact Jennifer Bernardini at202–622–3110 (not a toll-free call).

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

.01 Computer software expenditures.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for the costs ofcomputer software to a method describedin Rev. Proc. 2000–50, 2000–1 C.B.601, as modified by Rev. Proc. 2007–16,2007–1 C.B. 358. Section 5 of Rev. Proc.2000–50 describes the methods applicableto the costs of developing computer soft-ware. Section 6 of Rev. Proc. 2000–50 de-scribes the method applicable to the costsof acquired computer software. Section7 of Rev. Proc. 2000–50 describes themethod applicable to leased or licensedcomputer software. If a taxpayer treats thecosts of computer software in accordancewith the applicable method described inRev. Proc. 2000–50, the Service will notdisturb the taxpayer’s treatment of its costsof computer software.

(2) Scope. This change applies to allcosts of computer software as defined insection 2 of Rev. Proc. 2000–50. How-ever, this change does not apply to anycomputer software that is subject to amor-tization as an “amortizable section 197 in-tangible” as defined in § 197(c) and theregulations thereunder, or to costs that ataxpayer has treated as research and exper-imentation expenditures under § 174.

(3) Statement required. If a taxpayeris changing to the method described insection 5.01(2) of Rev. Proc. 2000–50,the taxpayer must attach to its Form 3115a statement providing the information re-quired in section 8.02(2) of Rev. Proc.2000–50.

(4) Ogden copy of Form 3115 requiredin lieu of national office copy. A taxpayerchanging its method of accounting under

this section 9.01 of the APPENDIX mustfile a signed copy of its completed Form3115 with the IRS in Ogden, UT, (Ogdencopy) in lieu of filing the national officecopy no earlier than the first day of the yearof change and no later than the date thetaxpayer files the original Form 3115 withits federal income tax return for the yearof change. See sections 6.02(3)(a)(ii)(B)(providing the general rules) and section6.02(7)(b) (providing the mailing address)of this revenue procedure.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 9.01of this APPENDIX is “18.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Douglas Kim at202–622–4930 (not a toll-free call).

.02 Reserved.

SECTION 10. CAPITALEXPENDITURES (§ 263)

.01 Package design costs.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting for package de-sign costs that are within the scope ofRev. Proc. 97–35, 1997–2 C.B. 448, asmodified by Rev. Proc. 98–39, 1998–1C.B. 1320, to one of the three alternativemethods of accounting for package designcosts described in section 5 of Rev. Proc.97–35. The three alternative methods ofaccounting for package design costs de-scribed are: (i) the capitalization method,(ii) the design-by-design capitalizationand 60-month amortization method, and(iii) the pool-of-cost capitalization and48-month amortization method.

(b) Inapplicability. This change doesnot apply to a taxpayer that wants tochange to the capitalization method forcosts of developing (or modifying) anypackage design that has an ascertainableuseful 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-designcapitalization and 60-month amortizationmethod, the taxpayer must attach a state-ment to its timely filed Form 3115. The

2011–4 I.R.B. 380 January 24, 2011

statement must provide a description ofeach package design, the date on whicheach was placed in service, and the cost ba-sis of each (as determined under sections5.01(2) or 5.02(2) of Rev. Proc. 97–35).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.01of this APPENDIX is “19.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (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 changeits method of accounting for line pack gasor cushion gas to a method consistent withthe holding in Rev. Rul. 97–54, 1997–2C.B. 23. Rev. Rul. 97–54 holds that thecost of line pack gas or cushion gas is acapital expenditure under § 263, the costof recoverable line pack gas or recover-able cushion gas is not depreciable, and thecost of unrecoverable line pack gas or un-recoverable cushion gas is depreciable un-der §§ 167 and 168.

(2) Additional requirements. A tax-payer that changes its method of account-ing for unrecoverable line pack gas orunrecoverable cushion gas under section10.02 of this APPENDIX must change toa permissible method of accounting fordepreciation for the cost of that gas.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.02of this APPENDIX is “20.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

.03 Removal costs.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for certain costsincurred in the retirement and removal ofdepreciable assets to conform with Rev.Rul. 2000–7, 2000–1 C.B. 712.

(2) Additional requirements.(a) Except for assets for which depre-

ciation is determined in accordance with§ 1.167(a)–11 (ADR), the taxpayer’s newmethod of treating removal costs for assets

accounted for in a multiple asset accountmust be consistent with the taxpayer’smethod of treating salvage proceeds. SeeRev. Rul. 74–455, 1974–2 C.B. 63. (Seesection 6.02 of the APPENDIX of thisrevenue procedure for changing a tax-payer’s present method of treating salvageproceeds.)

(b) If this change involves assetsthat are public utility property withinthe meaning of § 168(i)(10) or former§ 167(l)(3)(A), the taxpayer must complywith the terms and conditions in section6.01(3)(b)(v) of this APPENDIX.

(3) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.03of this APPENDIX is “21.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

.04 Distributor commissions.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change fromcurrently 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, 2007–1C.B. 358) to a method of capitalizing andamortizing distributor commissions usingthe distribution fee period method, the5-year method, or the useful life method(all described in Rev. Proc. 2000–38).

(b) Inapplicability. This change doesnot apply to an amortizable section 197 in-tangible (including any property for whicha timely election under § 13261(g)(2) ofthe Revenue Reconciliation Act of 1993,1993–3 C.B. 1, 128, was made).

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to distributor commissions paidor incurred on or after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(3) Designated automatic accountingmethod change number. The designated

automatic accounting method changenumber for a change under section 10.04of this APPENDIX is “47.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

.05 Intangibles.(1) Description of change. This change

applies to a taxpayer that wants to changeits treatment of an item to a method ofaccounting permitted by §§ 1.263(a)–4,1.263(a)–5, and 1.167(a)–3(b). See Rev.Proc. 2006–12, 2006–1 C.B. 310, as mod-ified by Rev. Proc. 2006–37, 2006–2 C.B.499, for the specific requirements, infor-mation, and documentation required forthis change.

(2) Prior unauthorized change inmethod of accounting. In certain circum-stances, a taxpayer that made an unautho-rized change in method of accounting foran item the treatment of which is providedfor in §§ 1.263(a)–4, 1.263(a)–5, and1.167(a)–3(b) is eligible for this changeonly if the taxpayer amends prior federalincome tax returns to correct the unautho-rized change in method of accounting. Seesection 4.03 of Rev. Proc. 2006–12 fordetails.

(3) Scope limitations. The 5-year priorchange scope limitation in section 4.02(7)of this revenue procedure is modified forthis change in that the taxpayer does nottake into account a change in method ofaccounting provided in §§ 1.263(a)–4,1.263(a)–5, and 1.167(a)–3(b) requestedor made for a tax year ending on or beforeDecember 31, 2005.

(4) Section 481(a) adjustment. In com-puting the § 481(a) adjustment for thischange, the taxpayer takes into accountonly amounts paid or incurred in taxableyears ending on or after January 24, 2002.See section 5 of Rev. Proc. 2006–12 fordetailed rules for computing the § 481(a)adjustment and reporting it on Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.05of this APPENDIX is “78.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

January 24, 2011 381 2011–4 I.R.B.

.06 Rotable spare parts.(1) Description of change. This change

applies to a taxpayer that maintains a poolor pools of rotable spare parts that areprimarily used to repair customer-owned(or customer-leased) equipment underwarranty or maintenance agreements, andwants to change its method of account-ing for the rotable spare parts to the safeharbor method of accounting provided inRev. Proc. 2007–48, 2007–2 C.B. 110.The taxpayer must meet the requirementsin section 4.01 of Rev. Proc. 2007–48 touse this safe harbor method of accounting.

(2) Change from safe harbor method.A taxpayer that is required to change itsmethod of accounting from the safe harbormethod under section 5.06 of Rev. Proc.2007–48, must make the change under sec-tion 21.09 of this APPENDIX.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.06of this APPENDIX is “109.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

.07 Repairable and reusable spareparts.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change itsmethod of accounting to treat repairableand reusable spare parts as depreciableproperty to conform with the holdings inRev. Rul. 69–200, 1969–1 C.B. 90, andRev. Rul. 69–201, 1969–1 C.B. 60. Thischange applies to repairable and reusablespare parts that: are owned by the taxpayerat the beginning of the year of change; areused to repair equipment owned by thetaxpayer; are acquired by the taxpayer fora specific type of equipment at the timethat the related equipment is acquired;usually have the same useful life as therelated equipment; and have been placedin service by the taxpayer after 1986. Ataxpayer making a change in method ofaccounting under this section 10.07 ofthe APPENDIX may treat its repairableand reusable spare parts as tangible prop-erty for which depreciation is allowable

at the time that the related equipment isplaced in service by the taxpayer. Themethod of computing depreciation for therepairable and reusable spare parts is thesame method of computing depreciationfor the related equipment.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that is currently capital-izing and depreciating the cost of its re-pairable and reusable spare parts, or thatis currently capitalizing the cost of its re-pairable and reusable spare parts and treat-ing these parts as nondepreciable property(but see section 6.01 of this APPENDIXfor making a change from an impermissi-ble to a permissible method of accountingfor depreciation);

(ii) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 10.07 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable);or

(iii) a taxpayer that is using an imper-missible method of accounting for depre-ciation for the related equipment for whichthe repairable and reusable spare parts areacquired, unless the taxpayer concurrentlychanges its method to use a permissiblemethod of accounting for depreciation un-der section 6 of this APPENDIX.

(2) Additional requirements. In addi-tion to the other filing requirements of thisrevenue procedure, to change a methodof accounting under this section 10.07 ofthe APPENDIX, a taxpayer must completeSchedule E of Form 3115 for the repairableand reusable spare parts and also provideand attach the following to the completedapplication:

(a) A description of the repairable andreusable spare parts;

(b) A list of related equipment for whichthe repairable and reusable spare parts areacquired; and

(c) A complete description of themethod of computing depreciation (e.g.,depreciation method, recovery period,

convention, and applicable asset class un-der Rev. Proc. 87–56, 1987–2 C.B. 674,as clarified and modified by Rev. Proc.88–22, 1988–1 C.B. 785) that the taxpayeruses for the related equipment for whichthe repairable and reusable spare parts areacquired.

(3) Concurrent automatic change.(a) A taxpayer that wants to make both

this change and a change to a UNICAPmethod under section 11.01 or 11.02 of thisAPPENDIX (as applicable) for the sameyear of change should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(b) A taxpayer that wants to make boththis change and a change to a permissi-ble method of accounting for depreciationfor repairable and reusable spare parts, orfor the related equipment for which the re-pairable and reusable spare parts are ac-quired, under section 6 of this APPENDIX(as applicable) for the same year of changeshould file a single Form 3115 for bothchanges, in which case the taxpayer mustenter the designated automatic accountingmethod change numbers for both changeson the appropriate line on that Form 3115.

(c) A taxpayer that makes this changealso may establish pools for the repairableand reusable spare parts or may identifydisposed repairable and reusable spareparts in accordance with section 6.20 ofthis APPENDIX. A taxpayer that wantsto make both this change and the changeunder section 6.20 of this APPENDIXfor the same year of change should filea single Form 3115 for both changes, inwhich case the taxpayer must enter thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 10.07of this APPENDIX is “121”. See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

2011–4 I.R.B. 382 January 24, 2011

SECTION 11. UNIFORMCAPITALIZATION (UNICAP)METHODS (§ 263A)

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

(1) Description of change.(a) Applicability. This change applies

to:(i) a small reseller of personal prop-

erty that wants to change from a permissi-ble UNICAP method to a permissible non-UNICAP inventory capitalization methodin any taxable year that it qualifies as asmall reseller;

(ii) a formerly small reseller thatwants to change from a permissiblenon-UNICAP inventory capitalizationmethod to a permissible UNICAP methodin the first taxable year that it does notqualify as a small reseller;

(iii) a reseller-producer that wantsto change from a permissible UNICAPmethod for both its production and resaleactivities to a permissible simplified resalemethod described in § 1.263A–3(d)(3)in any taxable year that it qualifies touse a simplified resale method for bothits production and resale activities under§ 1.263A–3(a)(4) (resellers with de min-imis production activities);

(iv) a reseller-producer that wants tochange from a permissible simplified re-sale method described in § 1.263A–3(d)(3)for both its production and resale activitiesto a permissible UNICAP method for bothits production and resale activities in thefirst taxable year that it does not qualifyto use a simplified resale method for bothits production and resale activities under§ 1.263A–3(a)(4);

(v) a reseller that wants to change itspermissible UNICAP method to include aspecial reseller cost allocation rule;

(vi) a reseller or reseller-producer thatwants to change to a UNICAP method(or methods) specifically described in theregulations and includes any necessarychanges in the identification of costs sub-ject to § 263A that will be accounted forusing the new method in any taxable year,other than the first taxable year, that it doesnot qualify as a small reseller. However,this does not include a change for purposesof recharacterizing “section 471 costs” as“additional § 263A costs” (or vice versa)under the simplified resale method; or

(vii) a reseller or reseller-producer thatwants to change from not capitalizing acost subject to § 263A to capitalizing thatcost, if the reseller or reseller-produceris otherwise already using a UNICAPmethod (or methods) specifically de-scribed in the regulations.

(b) Inapplicability.(i) Self-constructed assets. This

change does not apply to a taxpayerthat wants to use either the simplifiedservice cost method or the simplifiedproduction method for self-constructedassets under §§ 1.263A–1(h)(2)(i)(D) and1.263A–2(b)(2)(i)(D).

(ii) Historic absorption ratio. Thischange does not apply to a taxpayer thatwants to make an historic absorptionratio election under §§ 1.263A–2(b)(4)or 1.263A–3(d)(4), or to a taxpayerthat wants to revoke an election touse the historic absorption ratio withthe simplified resale method (see§ 1.263A–3(d)(4)(iii)(B)), including a tax-payer using the simplified resale methodwith an historic absorption ratio that wantsto change to a UNICAP method specif-ically described in the regulations thatdoes not include the historic absorptionratio. However, this change applies to asmall reseller that wants to change fromthe historic absorption ratio with the sim-plified resale method to a permissiblenon-UNICAP inventory capitalizationmethod under section 11.01(1)(a)(i) of thisAPPENDIX.

(c) Scope limitations inapplicable.The scope limitation of § 4.02(7) of thisrevenue procedure does not apply to thechanges described in §§ 11.01(1)(a)(i) and(ii) of the APPENDIX of this revenueprocedure.

(2) Definitions.(a) “Reseller” means a taxpayer that ac-

quires real or personal property describedin § 1221(a)(1) for resale.

(b) “Small reseller” means a resellerwhose average annual gross receipts forthe three immediately preceding taxableyears (or fewer, if the taxpayer has notbeen in existence for the three precedingtaxable years) do not exceed $10,000,000.See § 263A(b)(2)(B).

(c) “Formerly small reseller” means areseller that no longer qualifies as a smallreseller.

(d) “Producer” means a taxpayer thatproduces real or tangible personal prop-erty.

(e) “Reseller-producer” means a tax-payer that is both a producer and a reseller.

(f) “Permissible UNICAP method”means a method of capitalizing costs thatis permissible under § 263A.

(g) “A UNICAP method specificallydescribed in the regulations” includesthe 90–10 de minimis rule to allocatea mixed service department’s costs toresale activities (§ 1.263A–1(g)(4)(ii)),the 1/3–2/3 rule to allocate labor costsof personnel to purchasing activities(§ 1.263A–3(c)(3)(ii)(A)), the 90–10 deminimis rule to allocate a dual-functionstorage facility’s costs to property acquiredfor resale (§ 1.263A–3(c)(5)(iii)(C)),the specific identification method(§ 1.263A–1(f)(2)), the burden ratemethod (§ 1.263A–1(f)(3)), the stan-dard cost method (§ 1.263A–1(f)(3)),the direct reallocation method(§ 1.263A–1(g)(4)(iii)(A)), the step-allo-cation method (§ 1.263A–1(g)(4)(iii)(B)),the simplified service cost method(§ 1.263A–1(h)) (with a labor-basedallocation ratio), and the simplified resalemethod without the historic absorptionratio election (§ 1.263A–3(d)), but doesnot include any other reasonable allo-cation method within the meaning of§ 1.263A–1(f)(4).

(h) “Special reseller cost alloca-tion rule” means the 90–10 de minimisrule to allocate a mixed service de-partment’s costs to property acquiredfor resale (§ 1.263A–1(g)(4)(ii)), the1/3 — 2/3 rule to allocate labor costsof personnel to purchasing activities(§ 1.263A–3(c)(3)(ii)(A)), and the 90–10de minimis rule to allocate a dual-functionstorage facility’s costs to property acquiredfor resale (§ 1.263A–3(c)(5)(iii)(C)).

(i) “Permissible non-UNICAP in-ventory capitalization method” means amethod of capitalizing inventory costs thatis permissible under § 471.

(3) Section 481(a) adjustment pe-riod. Beginning with the year of change,a taxpayer changing its method of ac-counting for costs pursuant to sec-tions 11.01(1)(a)(i), 11.01(1)(a)(iii), or11.01(1)(a)(iv) of this APPENDIX gener-ally must take any applicable net positive§ 481(a) adjustment for such change intoaccount ratably over the same number of

January 24, 2011 383 2011–4 I.R.B.

taxable years, not to exceed four, that thetaxpayer used its former method of ac-counting. A taxpayer changing its methodof accounting for costs pursuant to sec-tions 11.01(1)(a)(ii), 11.01(1)(a)(v) or11.01(1)(a)(vi) of this APPENDIX gener-ally must take any applicable net positive§ 481(a) adjustment for such change intoaccount ratably over four taxable years.See section 5.04(3) of this revenue proce-dure for exceptions to this general rule.

(4) Multiple changes. A taxpayer thatwants to make both this change and an-

other change in method of accounting forthe same year of change must comply withthe ordering rules of § 1.263A–7(b)(2).

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.01of this APPENDIX is “22.” See section6.02(4) of this revenue procedure.

(6) Example. The following exampleillustrates the principles of section 11.01of this APPENDIX for small resellers andformerly small resellers.

Assume X, a corporate resellerof personal property, incorporatedJanuary 2, 2001, adopted a taxable yearending December 31. X determinesthat its average annual gross receiptsfor the three taxable years (or fewer,if applicable) immediately precedingtaxable years 2001 through 2010 are asshown in the table below:

CurrentTaxableYear

AVERAGE Annual GrossReceipts for the Three TaxableYears Immediately Preceding theCurrent Taxable Year

2001 $ 02002 5,000,0002003 6,000,0002004 7,000,0002005 11,000,0002006 11,000,0002007 9,000,0002008 8,000,0002009 11,000,0002010 12,000,000

Furthermore, X which adopted thedollar-value LIFO inventory method,

has the following LIFO inventory bal- ances determined without consideringthe effects of the UNICAP method:

Beginning Ending

2005 $1,000,000 $1,100,0002006 1,100,000 1,200,0002007 1,200,000 1,300,0002008 1,300,000 1,400,0002009 1,400,000 1,500,0002010 1,500,000 1,600,000

X was required by § 263A to changeto the UNICAP method for 2005 be-cause its average annual gross receiptsfor the three taxable years immediatelypreceding 2005 were $11,000,000,which exceeded the $10,000,000 ceil-ing permitted by the small resellerexception. Assume that X was re-quired to capitalize $80,000 of “ad-ditional § 263A costs” to the cost ofits 2005 beginning inventory because

of this change in inventory method.In addition, X was required to includeone-fourth of the § 481(a) adjustmentwhen computing taxable income foreach of the four taxable years begin-ning with 2005. Thus, X was requiredto include a $20,000 positive § 481(a)adjustment in its 2005 taxable income.

X elected to use the simplified resalemethod without an historic absorptionratio election under § 1.263A–3(d)(3)

for determining the amount of addi-tional § 263A costs to be capitalized toeach LIFO layer. Assume that X wasrequired to add $10,000 of additional§ 263A costs to the cost of its 2005 end-ing inventory because of the $100,000increment for 2005.

2011–4 I.R.B. 384 January 24, 2011

X’s 2005 Ending Inventory:

Beginning Inventory (Without UNICAP costs) $1,000,0002005 Increment 100,000Additional § 263A Costs in Beginning Inventory 80,000Additional § 263A Costs in 2005 Increment 10,000Total 2005 Ending Inventory $1,190,000

X’s Unamortized 2005 § 481(a) Adjustment:

2005 § 481(a) Adjustment $ 80,000Amount included in 2005 Taxable Income <20,000>Unamortized 2005 § 481(a) Adjustment–12/31/05 $ 60,000

Because X failed to satisfy the smallreseller exception for 2006, X was re-quired to continue using the UNICAPmethod for its inventory costs. Fur-

thermore, X was required to include$20,000 of the unamortized 2005 posi-tive § 481(a) adjustment in 2006 taxableincome. Assume that X was required to

add $10,000 of additional § 263A coststo the cost of its 2006 ending inventorybecause of the $100,000 increment for2006.

X’s 2006 Ending Inventory:

Beginning Inventory (With UNICAP costs) $1,190,0002006 Increment 100,000

Additional § 263A Costs in 2006 Increment 10,000Total 2006 Ending Inventory $1,300,000

X’s Unamortized 2005 § 481(a) Adjustment:

Unamortized 2005 § 481(a) Adjustment–12/31/05 $ 60,000Amount Included in 2006 Taxable Income <20,000>Unamortized 2005 § 481(a) Adjustment–12/31/06 $ 40,000

Because X satisfies the small resellerexception for 2007, X may change vol-untarily from the UNICAP method toa permissible non-UNICAP inventorycapitalization method under section11.01 of this APPENDIX. To reflect the

removal of the additional § 263A costsfrom the cost of its 2007 beginninginventory, X must compute a corre-sponding § 481(a) adjustment, whichis a negative $100,000 ($1,200,000- $1,300,000). The entire amount of

this negative § 481(a) adjustment isincluded in the computation of X’s tax-able income for 2007. In addition, Xmust include $20,000 of the unamor-tized 2005 § 481(a) adjustment in 2007taxable income.

X’s 2007 Ending Inventory:

Beginning Inventory (With UNICAP costs) $1,300,0002007 Increment 100,0002007 § 481(a) Adjustment <Negative> <100,000>Total 2007 Ending Inventory $1,300,000

X’s Unamortized 2005 § 481(a) Adjustment:

Unamortized 2005 § 481(a) Adjustment–2/31/06 $ 40,000Amount included in 2007 Taxable Income <20,000>Unamortized 2005 § 481(a) Adjustment–12/21/07 $ 20,000

X’s Unamortized 2007 § 481(a) Adjustment:

2007 § 481(a) Adjustment <Negative> $<100,000>Amount included in 2007 Taxable Income 100,000Unamortized 2007 § 481(a) Adjustment–12/31/07 $ 0

X also satisfies the small resellerexception for 2008 and, therefore, isnot required to return to the UNICAP

method for 2008. X, however, must in-clude $20,000 of the unamortized 2005

positive § 481(a) adjustment in its 2008taxable income.

January 24, 2011 385 2011–4 I.R.B.

X’s 2008 Ending Inventory:

Beginning Inventory (Without UNICAP costs) $1,300,0002008 Increment 100,000Total 2008 Ending Inventory $1,400,000

X’s Unamortized 2005 § 481(a) Adjustment:

Unamortized 2005 § 481(a) Adjustment–12/31/07 $ 20,000Amount in 2008 Taxable Income <20,000>Unamortized 2005 § 481(a) Adjustment–12/31/08 $ 0

X’s Unamortized 2009 § 481(a) Adjustment:

In 2009, X fails to satisfy the smallreseller exception and, therefore, mustreturn to the UNICAP method asprovided under section 11.01 of thisAPPENDIX. X changes to the sim-plified resale method without a his-toric 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 2009beginning inventory because of thischange in inventory method. BecauseX used a non-UNICAP method for twotaxable years prior to 2009, the § 481spread period for the positive §481(a)adjustment is two years. Therefore, X

must include one-half of the § 481(a)adjustment ($60,000) when comput-ing taxable income for 2009 and 2010.Assume that X must add $10,000 ofadditional § 263A costs to the cost ofits 2009 ending inventory because ofthe $100,000 increment for 2009.

X’s 2009 Ending Inventory:

Beginning Inventory (Without UNICAP costs) $1,400,0002009 Increment 100,000Additional § 263A costs in Beginning Inventory 120,000Additional § 263A costs in 2009 Increment 10,000Total 2009 Ending Inventory $1,630,000

X’s Unamortized 2009 § 481(a) Adjustment:

2009 § 481 Adjustment $ 120,000Amount included in 2009 Taxable Income <60,000>Unamortized 2009 § 481(a) Adjustment–12/31/09 $ 60,000

Because X fails to satisfy the smallreseller exception for 2010, X must con-tinue using the UNICAP method for itsinventory costs. Furthermore, X is re-

quired to include $60,000 of the un-amortized 2009 positive § 481(a) ad-justment in 2010 taxable income. As-sume that X is required to add $10,000

of additional § 263A costs to the costof its 2010 ending inventory because ofthe $100,000 increment for 2010.

X’s 2010 Ending Inventory:

Beginning Inventory (With UNICAP costs) $1,630,0002010 Increment 100,000Additional § 263A Costs in 2010 Increment 10,000Total 2010 Ending Inventory $1,740,000

X’s Unamortized 2009 § 481(a) Adjustment:

Unamortized 2009 § 481(a) Adjustment–12/31/09 $ 60,000Amount included in 2010 Taxable Income <60,000>Unamortized 2009 § 481(a) Adjustment–12/31/10 $ 0

(7) Contact information. For further in-formation regarding a change under thissection, contact Alexander R. Roche orKari Fisher, at 202–622–4970 (not a toll-free call).

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

(1) Description of change.(a) Applicability. This change ap-

plies to a producer (as defined in sec-

tion 11.01(2)(d) of this APPENDIX) ora reseller-producer (as defined in sec-tion 11.01(2)(e) of this APPENDIX) thatwants to change to a UNICAP method (ormethods) specifically described in the reg-ulations, including any necessary changes

2011–4 I.R.B. 386 January 24, 2011

in the identification of costs subject to§ 263A that will be accounted for using thenew method. This change also includes achange from not capitalizing a cost subjectto § 263A to capitalizing that cost for aproducer or a reseller-producer that is oth-erwise already using a UNICAP method(or methods) specifically described inthe regulations. However, this changedoes not include a change for purposesof recharacterizing “section 471 costs” as“additional § 263A costs” (or vice versa)under the simplified production method.

(b) Inapplicability. This change doesnot apply to a producer or reseller-pro-ducer that wants to revoke an electionto use the historic absorption ratio withthe simplified production method (see§ 1.263A–2(b)(4)(iii)(B)), including ataxpayer using the simplified productionmethod with an historic absorption ratiochanging to a UNICAP method specifi-cally described in the regulations that doesnot include the historic absorption ratio.This change also does not apply to a tax-payer that wants to use either the simpli-fied service cost method or the simplifiedproduction method for self-constructedassets under §§ 1.263A–1(h)(2)(i)(D)and 1.263A–2(b)(2)(i)(D). Also, thischange does not apply to a producer orreseller-producer that wants to change itsmethod of accounting for interest capital-ization.

(2) Definition. A “UNICAP methodspecifically described in the regula-tions” includes the 90–10 de minimisrule to allocate a mixed service depart-ment’s costs to production or resaleactivities (§ 1.263A–1(g)(4)(ii)), the1/3 — 2/3 rule to allocate labor costsof personnel to purchasing activities(§ 1.263A–3(c)(3)(ii)(A)), the 90–10 deminimis rule to allocate a dual-functionstorage facility’s costs to property acquiredfor resale (§ 1.263A–3(c)(5)(iii)(C)),the specific identification method(§ 1.263A–1(f)(2)), the burden ratemethod (§ 1.263A–1(f)(3)), the stan-dard cost method (§ 1.263A–1(f)(3)),the direct reallocation method(§ 1.263A–1(g)(4)(iii)(A)), the step-allo-cation method (§ 1.263A–1(g)(4)(iii)(B)),the simplified service cost method(§ 1.263–1(h)) (with either a labor-basedallocation ratio or a production costallocation ratio), and the simplifiedproduction method without the historic

absorption ratio election (§ 1.263A–2(b)),but does not include any other reasonableallocation method within the meaning of§ 1.263A–1(f)(4).

(3) Multiple changes. A taxpayer thatwants to make both this change and an-other change in method of accounting inthe same year of change must comply withthe ordering rules of § 1.263A–7(b)(2).

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.02of this APPENDIX is “23.” See section6.02(4) of this revenue procedure.

(5) Contact information. For further in-formation regarding a change under thissection, contact Alexander R. Roche orKari Fisher, at 202–622–4970 (not a toll-free call).

.03 Change to no longer capitalizeresearch and experimental expendituresunder § 263A.

(1) Description of change. The changeapplies to a taxpayer who no longer wantsto capitalize research and experimental ex-penditures to inventory under § 263A andthe regulations thereunder. A taxpayermaking this change must be in compliancewith all other aspects of § 263A and theregulations thereunder and must have aneffective election under either § 174(a) or(b).

(2) Manner of making change. A tax-payer must attach to its Form 3115 the fol-lowing representations:

(a) “The § 174 costs that are the subjectof this Form 3115 filed under section 11.03of the APPENDIX of Rev. Proc. 2011–14and will not be capitalized to inventory un-der § 263A and the regulations thereunderare costs that are subject to the taxpayer’seffective election under [Insert, as appro-priate: § 174(a) or § 174(b)] and the regu-lations thereunder” and

(b) “All § 174 costs that will be re-moved from inventory costs, have beenidentified as § 174 costs at the time that thecosts were capitalized to inventory under§ 263A and the regulations thereunder.”

(3) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.03

of this APPENDIX is “24.” See section6.02(4) of this revenue procedure.

(5) Contact information. For further in-formation regarding a change under thissection, contact Alexander R. Roche orKari Fisher, at 202–622–4970 (not a toll-free call).

.04 Impact fees.(1) Description of change. This change

applies to a taxpayer that incurs impactfees as defined in Rev. Rul. 2002–9,2002–1 C.B. 614, in connection with theconstruction of a new residential rentalbuilding that wants to capitalize the coststo the building under §§ 263(a) and 263A.See Rev. Rul. 2002–9 for further informa-tion.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.04of this APPENDIX is “25.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Cheryl Oseekey at202–622–4970 (not a toll-free call).

.05 Change to capitalizingenvironmental remediation costsunder § 263A.

(1) Description of change. This changeapplies to a taxpayer that wants to changeits method of accounting for environmen-tal remediation costs from a method thatdoes not comply with the holding in Rev.Rul. 2004–18, 2004–1 C.B. 509, to capi-talizing them to inventory under § 263A.

(2) Concurrent automatic changes. Ataxpayer that wants to make both thischange and another automatic change inmethod of accounting under § 263A forthe same year of change may file a singleForm 3115 for both changes, providedthe taxpayer enters the designated auto-matic change numbers for both changeson the appropriate line on that Form 3115,and complies with the ordering rules of§ 1.263A–7(b)(2).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.05of this APPENDIX is “77.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact John Faron at202–622–4930 (not a toll-free call).

January 24, 2011 387 2011–4 I.R.B.

.06 Change in allocating environmentalremediation costs under § 263A.

(1) Description of change. This changeapplies to a taxpayer that capitalizes envi-ronmental remediation costs to inventoryunder § 263A, but allocates these costs toinventory using a method of accountingthat does not comply with the holding inRev. Rul. 2005–42, 2005–2 C.B. 67, andwants to change to allocating these coststo inventory produced during the taxableyear in which the costs are incurred under§ 263A. See Rev. Rul. 2005–42 for furtherinformation.

(2) Concurrent automatic changes. Ataxpayer that wants to make both thischange and another automatic change inmethod of accounting under § 263A forthe same year of change may file a singleForm 3115 for both changes, provided thetaxpayer enters the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115, and complies with theordering rules of § 1.263A–7(b)(2).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 11.06of this APPENDIX is “92.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact John Faron at202–622–4930 (not a toll-free call).

.07 Safe harbor methods under § 263Afor certain dealerships of motor vehicles.

(1) Description of change. This changeapplies to a motor vehicle dealership,as defined in section 4 of Rev. Proc.2010–44, 2010–49 I.R.B. 811, that iswithin the scope of section 3 of Rev. Proc.2010–44 and wants to change its methodof accounting to (1) treat its sales facilityas a retail sales facility or (2) be treatedas a reseller without production activities,as described in section 5 of Rev. Proc.2010–44. A motor vehicle dealership thatwants to make an automatic change inmethod of accounting to use one or bothsafe harbor methods described in section5 of Rev. Proc. 2010–44 may make anycorresponding changes in the identifica-tion of costs subject to § 263A that will beaccounted for using the new method (forexample, to remove internal profit frominventory costs) or to no longer includenegative amounts as additional § 263A

costs in the numerator of the simplifiedresale method formula or the simplifiedproduction method formula. However,except as provided in the preceding sen-tence, a change under this section does notinclude a change for purposes of rechar-acterizing “§ 471 costs” as “additional§ 263A costs” (or vice versa) under thesimplified resale method or the simplifiedproduction method.

(2) Certain scope limitations temporar-ily inapplicable. The scope limitations insections 4.02(1) through (4) and (7) of thisrevenue procedure do not apply to a motorvehicle dealership that changes to one orboth of the safe harbor methods in section5 of Rev. Proc. 2010–44 for its first or sec-ond taxable year ending after November 9,2010.

(3) Concurrent automatic changes. Amotor vehicle dealership making an auto-matic change in method of accounting toone or both safe harbor methods describedin section 5 of Rev. Proc. 2010–44 andanother automatic change in method of ac-counting under § 263A for the same tax-able year may file one Form 3115 to makeboth changes, provided the dealership en-ters the designated automatic change num-bers for all such changes in Part I on thatForm 3115, and complies with the order-ing rules of § 1.263A–7(b)(2).

(4) Multiple adjustments. In the eventthat a motor vehicle dealership is tak-ing into account a § 481(a) adjustmentfrom another accounting method changein addition to the § 481(a) adjustmentrequired by a change to a safe harbormethod described in section 5 of Rev.Proc. 2010–44, the § 481(a) adjustmentsmust be taken into account separately.For example, a motor vehicle dealershipthat changed to comply with § 263A in2009 and was required to take its § 481(a)adjustment into account over four yearsmust continue to take into account thatadjustment over the remainder of thatfour year § 481(a) adjustment period eventhough the dealership changed to a safeharbor method described in section 5 ofRev. Proc. 2010–44 in 2010 and has anadditional § 481(a) adjustment requiredby that change.

(5) Designated automatic accountingmethod change numbers. The designatedautomatic accounting method changenumber for a change to treat certain salesfacilities as retail sales facilities as de-

scribed in section 5.01 of Rev. Proc.2010–44 is “150.” The designated auto-matic accounting method change numberfor a change to be treated as a resellerwithout production activities as describedin section 5.02 of Rev. Proc. 2010–44 is“151.”

(6) Contact information. For furtherinformation regarding a change underthis section, contact Kari Fisher at (202)622–4970 (not a toll-free call).

SECTION 12. LOSSES, EXPENSESAND INTEREST WITH RESPECTTO TRANSACTIONS BETWEENRELATED TAXPAYERS (§ 267)

.01 Change to comply with § 267.(1) Description of change. This change

applies to a taxpayer that wants to changeits method or methods of accounting tocomply with the requirements of § 267,which disallows or defers certain deduc-tions attributable to transactions betweenrelated taxpayers. However, this changeapplies to a change for stated interestonly to the extent the stated interest isqualified stated interest (as defined in§ 1.1273–1(c)).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 12.01of this APPENDIX is “26.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Steven Gee at202–622–4970 (not a toll-free call).

.02 Reserved.

SECTION 13. DEFERREDCOMPENSATION (§ 404)

.01 Change to comply with§ 404(a)(11).

(1) Description of change. This changeapplies to a taxpayer that wants to changeits method of accounting to comply with§ 404(a)(11). Section 404(a)(11) providesthat, for purposes of determining under§ 404 whether compensation of an em-ployee is deferred compensation and whendeferred compensation is paid, no amountis treated as received by the employee, orpaid, until it is actually received by theemployee. Section 404(a)(11) overturnsthe decision in Schmidt Baking Co., Inc.

2011–4 I.R.B. 388 January 24, 2011

v. Commissioner, 107 T.C. 271 (1996), inwhich the court held that a § 83(a) incomeinclusion event upon securitization of va-cation and severance pay benefits with aletter of credit constitutes receipt of thosebenefits by employees for purposes of de-termining whether an employer’s deduc-tion for the benefits is subject to § 404. SeeNotice 99–16, 1999–1 C.B. 842.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Section 481(a) adjustment period.A taxpayer must take the § 481(a) ad-justment into account ratably over threetaxable years beginning with the year ofchange.

(4) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 13.01of this APPENDIX is “27.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Maryellen Furr at202–622–6030 (not a toll-free call).

.02 Deferred compensation.(1) Description of change. This change

applies to an accrual method taxpayer thatwants to change its method of accountingto treat bonuses or vacation pay as follows(see § 404(a)(5) and § 1.404(b)–1T, Q&A2):

(a) Applicability.(i) Bonuses.(A) Bonuses not subject to capitaliza-

tion under § 263A. If by the end of the tax-able year all the events have occurred thatestablish the fact of the liability to pay abonus and the amount of the liability canbe determined with reasonable accuracy(see § 1.446–1(c)(1)(ii)), and the bonus isotherwise deductible, but the bonus is re-ceived by the employee after the 15th dayof the 3rd calendar month after the end ofthat taxable year, to treat the bonus as de-ductible in the taxable year of the employerin which or with which ends the taxableyear of the employee in which the bonus isincludible in the gross income of the em-ployee; or

(B) Bonuses that are subject to capital-ization under § 263A. If by the end of thetaxable year all the events have occurredthat establish the fact of the liability to paya bonus and the amount of the liability canbe determined with reasonable accuracy(see § 1.446–1(c)(1)(ii)), and the bonusis otherwise deductible (without regard to§ 263A), but the bonus is received by theemployee after the 15th day of the 3rd cal-endar month after the end of that taxableyear, to treat the bonus as capitalizable(within the meaning of § 1.263A–1(c)(3))in the taxable year of the employer inwhich or with which ends the taxable yearof the employee in which the bonus isincludible in the gross income of the em-ployee.

(ii) Vacation pay.(A) Vacation pay not subject to capital-

ization under § 263A. If by the end of thetaxable year all the events have occurredthat establish the fact of the liability to payvacation pay and the amount of the liabilitycan be determined with reasonable accu-racy (see § 1.446–1(c)(1)(ii)), and the va-cation pay is otherwise deductible but thevacation pay is received by the employeeafter the 15th day of the 3rd calendar monthafter the end of that taxable year, to treatthe vacation pay as deductible in the tax-able year of the employer in which the va-cation pay is paid to the employee; or

(B) Vacation pay that is subject to capi-talization under § 263A. If by the end of thetaxable year all the events have occurredthat establish the fact of the liability to payvacation pay and the amount of the liabilitycan be determined with reasonable accu-racy (see § 1.446–1(c)(1)(ii)), and the va-cation pay is otherwise deductible (with-out regard to § 263A), but the vacation payis received by the employee after the 15th

day of the 3rd calendar month after the endof that taxable year, to treat the vacationpay as capitalizable (within the meaningof § 1.263A–1(c)(3)) in the taxable year ofthe employer in which the vacation pay ispaid to the employee.

(b) Inapplicability. This change doesnot apply to the extent that it is also de-scribed in section 13.01 of this APPEN-DIX.

This change also does not apply to a tax-payer that is required under § 263A andthe regulations thereunder to capitalize thecosts with respect to which the taxpayerwants to change its method of account-

ing under this section 13.02 of the AP-PENDIX if the taxpayer is not capitaliz-ing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 13.02of this APPENDIX is “28.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Maryellen Furr at202–622–6030 (not a toll-free call).

.03 Grace period contributions.(1) Description of change. This change

applies to a taxpayer that wants to ceasededucting contributions made during the§ 404(a)(6) grace period to a qualified cashor deferred arrangement within the mean-ing of § 401(k) or to a defined contribu-tion plan as matching contributions withthe meaning of § 401(m) when the con-tributions are attributable to compensationearned by plan participants after the endof a taxable year as required by Rev. Rul.2002–46, 2002–2 C.B. 117, as modified byRev. Rul. 2002–73, 2002–2 C.B. 805.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 13.03of this APPENDIX is “29.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact James Holland at202–283–9699 or Carlton Watkins at202–283–9625 (not toll-free calls).

SECTION 14. METHODS OFACCOUNTING (§ 446)

.01 Change in overall method from thecash method to an accrual method.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change itsoverall method of accounting from thecash receipts and disbursements (cash)method to an accrual method, with orwithout a “special method” as defined re-spectively in sections 14.01(3)(a), (b), and(e) of this APPENDIX, if subsequent tothis change, the taxpayer will be using an

January 24, 2011 389 2011–4 I.R.B.

overall accrual method of accounting (thatis, all items of income and expense areaccounted for using an accrual method).A taxpayer changing its overall methodof accounting to an accrual method underthis section 14.01 of the APPENDIX mayalso adopt the recurring item exception forone or more types of recurring items. Ataxpayer that wants to change its methodof accounting for one or more items ofincome or expense, but not its overallmethod of accounting, may be eligible tomake such change(s) using section 14.09of this APPENDIX.

If the year of change is the first taxableyear the taxpayer is required by § 448 tochange from the cash method (the first§ 448 year) and the taxpayer qualifiesto make this change under the automaticconsent procedures of § 1.448–1(g) and(h)(2) as well as this revenue procedure,the taxpayer may make the change un-der this revenue procedure provided thetaxpayer complies with the provisions of§ 1.448–1(h)(2) and the requirements ofthis revenue procedure. For a hospital, de-fined in § 1.448–1(g)(2)(ii)(B), that makesthe change for the first § 448 year underthe provisions of this revenue procedure,see § 1.448–1(g)(2)(ii) for the applicable§ 481(a) adjustment period. If a taxpayerdoes not change from the cash method forthe first § 448 year under the provisions ofthis revenue procedure, the taxpayer mustmake the change under the provisions of§ 1.448–1(g) and (h)(2).

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that will not use an “over-all accrual method of accounting” subse-quent to this change under section 14.01 ofthis APPENDIX;

(ii) a taxpayer that is required by § 447to change to an accrual method when theyear of change is the first taxable yearthe taxpayer is required to change to thatmethod;

(iii) a cooperative organization de-scribed in § 501(c)(12), 521, or 1381;

(iv) an individual taxpayer, except foractivities conducted as a sole proprietor-ship;

(v) a taxpayer that is required by §§ 446and 471 and §§ 1.446–1(a)(4)(i) and1.471–1 to use an inventory method in theyear of change. However, the taxpayerqualifies to make the change to an overallaccrual method under this section 14.01

of this APPENDIX when in the year ofchange either:

(A) the taxpayer adopts or changes toa proper inventory method or continues touse a proper inventory method that it hadused in the taxable year immediately priorto the year of change but only when:

(1) the taxpayer is a small resellerwithin the meaning of § 1.263A–3(a)and, if the taxpayer also has produc-tion activities, those activities qualifyunder the de minimis presumption of§ 1.263A–3(a)(2)(iii);

(2) the taxpayer is a reseller within themeaning of § 263A and the regulationsthereunder that qualifies to use the simpli-fied resale method under § 1.263A–3(d)and the taxpayer either adopts or changesto that method in the year of change or con-tinues its use of that method from the tax-able year immediately prior to the year ofchange; or

(3) the taxpayer is a producer of realor tangible personal property describedin § 1.263A–2 that adopts in the year ofchange a “UNICAP method specificallydescribed in the regulations” within themeaning of section 14.01(3)(d) of thisAPPENDIX. (For purposes of this section14.01(1)(b)(v)(A)(3) of the APPENDIX,a method not listed in section 14.01(3)(d)may not be adopted or changed in the yearof change); or

(B) the taxpayer continues to use theproper inventory method and proper UN-ICAP method that it had used in the tax-able year immediately prior to the yearof change and the taxpayer is a producerof real or tangible personal property de-scribed in § 1.263A–2;

(vi) a taxpayer that is either requiredto or voluntarily wants to use a “specialmethod of accounting” in the year ofchange regardless of whether a change tothat special method is requested in thatyear. However, the taxpayer can requestits change to an overall accrual methodunder this section 14.01 of the APPEN-DIX when (a) the change to the specialmethod of accounting is permitted to bechanged automatically either under thisrevenue procedure or any other Code, reg-ulation, or administrative provision, and(b) the change to the special method ofaccounting is requested for the identicaltaxable year of the change requested underthis section 14.01 of the APPENDIX if

the taxpayer is required to use the specialmethod of accounting;

(vii) a taxpayer engaged in two or moretrades or businesses, unless the taxpayermakes such changes so that the same over-all accrual method is used for each suchtrade or business beginning with the yearof change; and

(viii) a taxpayer making a change froma hybrid method of accounting to an over-all accrual method of accounting. For pur-poses of section 14.01 of this APPENDIX,a hybrid method of accounting is a combi-nation of the cash and accrual methods un-der which one or more items of income orexpense are reported on the cash methodand one or more items of income or ex-pense are reported on an accrual method.This section 14.01(1)(b)(viii) does not ap-ply to a taxpayer accounting for invento-ries under section 1.446–1(c)(2)(i) and ac-counting for all other items of income andexpense on the cash method of accounting,and otherwise permitted to make a changeto an overall accrual method of account-ing under this section 14.01 of the APPEN-DIX.

(2) Scope limitation inapplicable. Ifthe year of change is the first taxable yearthe taxpayer is required by § 448 to changefrom the cash method (first § 448 year),the scope limitation in section 4.02(6) ofthis revenue procedure does not apply toa change in method of accounting requestmade under section 14.01 of this APPEN-DIX. For all other changes in methodof accounting requests made under sec-tion 14.01 of this APPENDIX, any priorchange to the overall cash method underthe provisions of Rev. Proc. 2001–10,2001–1 C.B. 272, as modified by Rev.Proc. 2011–14 (see section 14.05), orRev. Proc. 2002–28, 2002–1 C.B. 815, asmodified by Rev. Proc. 2011–14 (see sec-tion 14.06), is disregarded for purposes ofsection 4.02(6) of this revenue procedure.

(3) 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), and1.461–1(a)(1).

(b) Accrual method of accounting isthe method identified by § 446(c)(2) and§§ 1.446–1(c)(1)(ii), 1.451–1(a), and1.461–1(a)(2).

(c) Recurring item exception is themethod described in § 461(h)(3) and§ 1.461–5.

2011–4 I.R.B. 390 January 24, 2011

(d) UNICAP method specifically de-scribed in the regulations is one of thefollowing:

(i) the specific identification methodwithin the meaning of § 1.263A–1(f)(2);

(ii) the burden rate method within themeaning of § 1.263A–1(f)(3);

(iii) the standard cost method within themeaning of § 1.263A–1(f)(3);

(iv) the direct reallocationmethod within the meaning of§ 1.263A–1(g)(4)(iii)(A);

(v) the step-allocation method withinthe meaning of § 1.263A–1(g)(4)(iii)(B);

(vi) the simplified service cost methodwithin the meaning of § 1.263A–1(h); and

(vii) the simplified production methodwithout the historic absorption ratio elec-tion within the meaning of § 1.263A–2(b).

(e) Special method of accounting withinthe meaning of this section 14.01 of theAPPENDIX is a method of accounting,other than the cash method, expresslypermitted by the Code, regulations, orguidance published in the IRB that devi-ates from the tax accrual accounting rulesof §§ 451 and 461 and the regulationsthereunder. For example, the installmentmethod of accounting under § 453, themark-to-market method under § 475, along-term contract method such as thepercentage of completion method, and thedeferral method of Rev. Proc. 2004–34,2004–1 C.B. 991, used to account for ad-vance payments are special methods ofaccounting. In contrast, application of theall-events test under a specific set of factsis not a special method of accounting. See,for example, Rev. Rul. 69–314, 1969–1C.B. 139 (concerning the treatment of re-tainages).

(f) Overall accrual method of account-ing within the meaning of this section14.01 of the APPENDIX is a method ofaccounting where, but for the use of a“special method of accounting,” all itemsof income and expense are accounted forusing an accrual method.

(4) Manner of making change.(a) Section 481(a) adjustment. A tax-

payer changing its method of accountingunder this section 14.01 of the APPEN-DIX must compute a § 481(a) adjustment.This adjustment must reflect the accountreceivables, account payables, inventory,and any other item determined to be nec-essary in order to prevent items from be-ing duplicated or omitted. However, the

adjustment does not include any item ofincome accrued but not received that wasworthless or partially worthless (within themeaning of § 166(a)) on the last day ofthe year immediately prior to the year ofchange.

(b) Concurrent change to a specialmethod of accounting not permitted to bemade under this revenue procedure. Ataxpayer, that can not change to an over-all accrual method of accounting usingthis section 14.01 of the APPENDIX be-cause the taxpayer is seeking to make aconcurrent change to a special method ofaccounting not permitted automaticallyunder this revenue procedure, may requestboth changes by filing one Form 3115under Rev. Proc. 97–27 (or any succes-sor). Only one user fee per taxpayer willbe required when a Form 3115 is filed forboth changes.

(c) Adoption of recurring item excep-tion. The taxpayer must attach to its Form3115 a statement describing the types of li-abilities for which the recurring item ex-ception will be used.

(5) Coordination with section 33.01of this APPENDIX for short-term obliga-tions. When a taxpayer subject to § 1281is changing its method of accounting forinterest income on short-term obligationsas part of the change to an overall ac-crual method, the taxpayer must requestthe change for the interest income undersection 33.01 of this APPENDIX. Section14.01 will govern the request for change inmethod of accounting to an overall accrualmethod. The taxpayer must timely fileindividual Forms 3115 for each changerequested.

(6) Concurrent automatic change to thedeferral method for advance payments. Ataxpayer that wants to make both a changeto an overall accrual method under thissection 14.01 of the APPENDIX and anautomatic change to the deferral methodfor advance payments under Rev. Proc.2004–34 (see section 15.07 of this AP-PENDIX) for the same year of changemust file a single Form 3115 for bothchanges and enter the designated auto-matic accounting method change numbersfor both changes on the appropriate lineon that Form 3115.

(7) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.01

of this APPENDIX for (a) a taxpayer notsubject to § 448, or (b) a taxpayer subjectto § 448 that is not making the change forits first § 448 year is “122.”

The designated automatic accountingmethod change number for a change un-der section 14.01 of this APPENDIX forthe taxpayer’s first § 448 year is “123.”Entering designated automatic accountingmethod change number “123” on the ap-propriate line on the Form 3115 fulfillsthe requirement of § 1.448–1(h)(2) to typeor print “Automatic Change to AccrualMethod — Section 448” at the top of page1 of the Form 3115. See section 6.02(4) ofthis revenue procedure.

(8) Contact information. For furtherinformation regarding a change under thissection, contact Karen Myrick or KariFisher, at 202–622–4970 (not a toll-freecall).

.02 Multi-year insurance policies formulti-year service warranty contracts.

(1) Description of change.(a) Applicability. This change applies

to a manufacturer, wholesaler, or retailer ofmotor vehicles or other durable consumergoods that wants to change its method ofaccounting for insurance costs paid or in-curred to insure its risks under multi-yearservice warranty contracts to the methoddescribed in section 14.02(2) of this AP-PENDIX. Multi-year service warrantycontracts to which this change appliesinclude only those separately priced con-tracts sold by a manufacturer, wholesaler,or retailer also selling the motor vehiclesor other durable consumer goods (to theultimate customer or to an intermediary)underlying the contracts. The classifica-tion of goods as “durable consumer goods”for purposes of this change depends on thecommon usage of the goods, rather thanthe purchaser’s actual intended use of thegoods.

(b) Inapplicability. This change doesnot apply to a taxpayer that covers its risksunder its multi-year service warranty con-tracts through arrangements not constitut-ing insurance.

(2) Description of method. If a taxpayerpurchases a multi-year service warrantyinsurance policy (in connection with itssale of multi-year service warranty con-tracts to customers) by paying a lump-sumpremium in advance, the taxpayer mustcapitalize the amount paid or incurredand may only obtain deductions for that

January 24, 2011 391 2011–4 I.R.B.

amount by prorating (or amortizing) it overthe life of the insurance policy (whetherthe cash method or an accrual method ofaccounting is used to account for servicewarranty transactions).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.02of this APPENDIX is “31.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Erika Reigle, at202–622–4950 (not a toll-free call).

.03 Taxpayers changing to overall cashmethod.

(1) Description of change. This changeapplies to either:

(a) a taxpayer (other than a taxpayer de-scribed in § 448(a)(3) or a bank describedin section 14.12(2)(a) of this APPENDIX)with “average annual gross receipts” (asdefined in section 5.01 of Rev. Proc.2001–10, 2001–1 C.B. 272) of $1,000,000or less that wants to change to the overallcash receipts and disbursements (cash)method of accounting as provided in Rev.Proc. 2001–10, as modified by Announce-ment 2004–16 and Rev. Proc. 2011–14;or

(b) a taxpayer (other than a taxpayerprohibited from using the cash methodunder § 448 or a bank described in section14.12(2)(a) of this APPENDIX) with “av-erage annual gross receipts” (as definedin section 5.02 of Rev. Proc. 2002–28,2002–1 C.B. 815) of $10,000,000 or lessthat wants to change to the overall cashreceipts and disbursements (cash) methodof accounting as provided in Rev. Proc.2002–28, as modified by Rev. Proc.2011–14.

(2) Scope limitations applicable. Thescope limitations in section 4.02 of thisrevenue procedure (including the limita-tion regarding a prior change within fivetaxable years of section 4.02(6)) and the re-quirements in sections 6.03 (regarding tax-payers under examination), 6.04 (regard-ing taxpayers before an appeals office) and6.05 (regarding taxpayers before a federalcourt) of this revenue procedure apply to achange in method of accounting made un-der this section 14.03 of the APPENDIX.

(3) Manner of making change. See ei-ther Rev. Proc. 2001–10 or Rev. Proc.2002–28 for additional guidance on the

computation of the § 481(a) adjustmentand the completion of the Form 3115.

(4) Concurrent automatic change totreat inventoriable items as nonincidentalmaterials and supplies under Rev. Proc.2001–10 or Rev. Proc. 2002–28. A tax-payer that wants to make both a change tothe overall cash method under this section14.03 of the APPENDIX and a changeto treat inventoriable items as materialsand supplies that are not incidental un-der § 1.162–3 (see section 21.03 of thisAPPENDIX) for the same year of changemay file a single Form 3115 for bothchanges, provided the taxpayer enters thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115.

(5) Banks changing to overall cash/hy-brid method. This change does not applyto a bank described in section 14.12(2)(a)of this APPENDIX. However, such a bankmay be eligible to change to the overallcash/hybrid method under section 14.12 ofthis APPENDIX if it meets the require-ments of that section.

(6) Designated automatic account-ing method change number. The des-ignated automatic accounting methodchange number for a change under sec-tion 14.03(1)(a) of this APPENDIX is“32.” The designated automatic account-ing method change number for a changeunder section 14.03(1)(b) of this APPEN-DIX is “33.” See section 6.02(4) of thisrevenue procedure.

(7) Contact information. For furtherinformation regarding a change under thissection, contact Karen Myrick or KariFisher, at 202–622–4970 (not a toll-freecall).

.04 Nonaccrual-experience method.(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to make one ormore of the changes in method of account-ing to, from, or within a nonaccrual-expe-rience (NAE) method of accounting thatare described in sections 3.01(1) through(5) of Rev. Proc. 2006–56, 2006–2 C.B.1169.

(b) Inapplicability. This change doesnot apply to a taxpayer within the scopeof section 3.01(6) through 3.01(8) of Rev.Proc. 2006–56.

(2) Manner of making the change. Achange in method of accounting describedin section 3.01(1), (2), (3), or (5) of Rev.

Proc. 2006–56 is made with a § 481(a)adjustment. A change described in sec-tion 3.01(4) of Rev. Proc. 2006–56 ismade on a cut-off basis and the new ap-plicable period applies only to the tax-payer’s nonaccrual-experience calculationof its uncollectible amount for the year ofchange and for subsequent years. Accord-ingly, a § 481(a) adjustment is neither per-mitted nor required for changes describedin section 3.01(4) of Rev. Proc. 2006–56.

(3) Concurrent change to overall ac-crual method and a NAE method ofaccounting. A taxpayer that wants tomake both a change to, from, or within aNAE method of accounting under section14.04 of the APPENDIX of this revenueprocedure and a change to an overall ac-crual method under section 14.01 of theAPPENDIX of this revenue procedure(whether or not it is the taxpayer’s first§ 448 year), must file a single Form 3115for both changes. The taxpayer must com-plete all applicable sections of Form 3115,including sections that apply to the changeto an overall accrual method and to thechange to a NAE method, and must enterthe automatic accounting method changenumbers for both changes on Form 3115.

A taxpayer that wants to make both achange to, from, or within a NAE methodof accounting under section 14.04 of theAPPENDIX of this revenue procedure anda required change to an overall accrualmethod under § 448 (the taxpayer’s first§ 448 year), and is either not eligible tomake the change to an overall accrualmethod under section 14.01 of the AP-PENDIX or chooses to make the change toan overall accrual method using the proce-dures of § 1.448–1(h)(2), must make bothchanges (change to, from, or within a NAEmethod and change to an overall accrualmethod) on a single Form 3115. The tax-payer must follow the procedures of thisrevenue procedure for the NAE change,and the procedures of § 1.448–1(h)(2) forthe change to an overall accrual method(except that entering the designated auto-matic accounting method change number“34” on the Form 3115 fulfills the require-ment of § 1.448–1(h)(2) to type or print“Automatic Change to Accrual — Section448” at the top of page 1 of the Form3115). The taxpayer must complete allapplicable sections of Form 3115, includ-ing sections that apply to the change to anoverall accrual method and to the change

2011–4 I.R.B. 392 January 24, 2011

to the NAE method and must enter thedesignated automatic accounting methodchange numbers for both changes on Form3115.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change to, from, or within aNAE method of accounting under section14.04 of this APPENDIX is “35.”

(5) Contact information. For furtherinformation regarding a change underthis section, contact Karla M. Meola, at202–622–4930 (not a toll-free call).

.05 Interest accruals on short-termconsumer loans-Rule of 78’s method.

(1) Description of change. This changeapplies to a taxpayer that wants to changeits method of accounting from the Rule of78’s method to the constant yield methodfor stated interest (including stated in-terest that is original issue discount) onshort-term consumer loans described inRev. Proc. 83–40, 1983–1 C.B. 774,which was obsoleted by Rev. Proc. 97–37,1997–2 C.B. 455.

(2) Background.(a) A short-term consumer loan is de-

scribed in Rev. Proc. 83–40, provided:(i) the loan is a self-amortizing loan that

requires level payments, at regular inter-vals at least annually, over a period not inexcess of five years (with no balloon pay-ment at the end of the loan term); and

(ii) the loan agreement between the bor-rower and the lender provides that interestis earned, or upon the prepayment of theloan interest is treated as earned, in accor-dance with the Rule of 78’s method.

(b) In general, the Rule of 78’s methodallocates interest over the term of a loanbased, in part, on the sum of the periods’digits for the term of the loan. See Rev.Rul. 83–84, 1983–1 C.B. 97, for a descrip-tion of the Rule of 78’s method.

(c) In general, the constant yieldmethod allocates interest and original is-sue discount over the term of a loan basedon a constant yield. See § 1.1272–1(b)for a description of the constant yieldmethod. The Rule of 78’s method gener-ally front-loads interest as compared to theconstant yield method.

(d) Rev. Proc. 83–40 was obsoletedbecause, under §§ 1.446–2 and 1.1272–1(which were effective for debt instrumentsissued on or after April 4, 1994), taxpayersgenerally must account for stated interest

and original issue discount on a debt in-strument (loan) by using a constant yieldmethod. As a result, the Rule of 78’smethod is no longer an acceptable methodof accounting for federal income tax pur-poses.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.05of this APPENDIX is “71.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.06 Film producer’s treatment ofcertain creative property costs.

(1) Description of change. This changeapplies to a taxpayer that wants to changethe method of accounting for creativeproperty costs to the safe harbor methodprovided by section 5 of Rev. Proc.2004–36, 2004–1 C.B. 1063. This safeharbor method of accounting applies to ataxpayer engaged in the trade of businessof film production and to creative propertycosts (as defined in section 2.01 of Rev.Proc. 2004–36) properly written off bythe taxpayer under The American Instituteof Certified Public Accountants Statementof Position (SOP) 00–2, “Accounting forProducers or Distributors of Film.”

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.06of this APPENDIX is “85.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Bernard Harvey at202–622–4930 (not a toll-free call).

.07 Deduction of incentive payments tohealth care providers.

(1) Description of change. Rev. Proc.2004–41, 2004–2 C.B. 90, permits aninsurance company that makes incentivepayments to health care providers to in-clude those payments in discounted unpaidlosses without regard to § 404. A paymentby a taxpayer to a health care provider is a“provider incentive payment,” and thus el-igible for this treatment, if (a) the taxpayeris taxable as an insurance company underPart II of subchapter L; (b) the paymentis made pursuant to a written agreementthe purpose of which is to encourage par-

ticipating health care providers to providequality health care to the taxpayer’s sub-scribers in a cost-efficient manner; (c) thetaxpayer’s liability for the payment is de-pendent on the attainment of one or morepreestablished goals during a performanceperiod consisting of not more than 12 con-secutive months; (d) the terms of the ar-rangement pursuant to which the paymentis made are established unilaterally bythe taxpayer, and are not negotiated withthe health care providers; (e) the taxpayernormally makes payments to health careproviders under the arrangement within 12months after the close of the performanceperiod; (f) deferring the receipt of incomeby the health care provider or otherwiseproviding a tax benefit to the provider isnot a principal purpose of the arrange-ment; (g) the taxpayer records a liabilityfor the payment on its annual statementfiled for state regulatory purposes, andincludes this liability in the determinationof discounted unpaid losses under § 846;and (h) the health care provider is not anemployee, and is not providing health careas an agent, of the taxpayer. See Rev.Proc. 2004–41.

(2) Scope. This procedure applies toa taxpayer that wants to change to themethod of accounting for provider incen-tive payments, under which those pay-ments are included in discounted unpaidlosses without regard to § 404.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.07of this APPENDIX is “90.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Kay Hossofsky, at202–622–3970 (not a toll-free call).

.08 Change by bank for uncollectedinterest.

(1) Description of change. Thischange applies to a “bank” as defined in§ 1.166–2(d)(4)(i) that: (1) uses an ac-crual method of accounting to determineits taxable income for federal income taxpurposes; (2) is subject to supervision byFederal authorities, or by state authoritiesmaintaining substantially equivalent stan-dards; (3) has uncollected interest otherthan interest described in § 1.446–2(a)(2);and (4) has six or more years of collectionexperience. Under the safe harbor method

January 24, 2011 393 2011–4 I.R.B.

of accounting provided by section 4 ofRev. Proc. 2007–33, 2007–1 C.B. 1289, abank determines for each taxable year theamount of uncollected interest (other thaninterest described in § 1.446–2(a)(2)) forwhich it is considered to have a reasonableexpectancy of payment by multiplying:(1) the total accrued (determined under§ 1.446–2) but uncollected interest forthe year by, (2) the bank’s “recovery per-centage” (determined under section 4.02of Rev. Proc. 2007–33) for that year.Solely for purposes of this safe harbor,the bank is not considered to have a rea-sonable expectancy of payment for theexcess, if any, of the accrued but uncol-lected interest over the expected collectionamount determined using the bank’s re-covery percentage. The bank includes ingross income the portion of accrued butuncollected interest for which it has a rea-sonable expectancy of payment. The bankexcludes from income the portion of ac-crued but uncollected interest for which ithas no reasonable expectancy of payment.

(2) Recovery percentage. Subject to thelimitations and conditions in Rev. Proc.2007–33, sections 4.02(2), (3), and (4), abank determines its recovery percentagefor each taxable year by dividing: (a) totalpayments that the bank received on loans(including principal and interest) duringthe 5 taxable years immediately precedingthe taxable year, by (b) total amounts thatwere due and payable to the bank on loansduring the same 5 taxable years. The re-covery percentage cannot exceed 100 per-cent and must be calculated to at least fourdecimal places. The data used in the re-covery percentage must take into accountacquisitions and dispositions. If a bank ac-quires the major portion of a trade or busi-ness of another person (predecessor) or themajor portion of a separate unit of a tradeor business of a predecessor, then in apply-ing Rev. Proc. 2007–33 for any taxableyear ending on or after the acquisition, thedata from preceding taxable years of thepredecessor attributable to the portion ofthe trade or business acquired, if available,must be used in determining the bank’s re-covery percentage. If a bank disposes ofa major portion of a trade or business orthe major portion of a separate unit of atrade or business, and the bank furnishedthe acquiring person the information nec-essary for the computations required byRev. Proc. 2007–33, then in applying

the revenue procedure for any taxable yearending on or after the disposition, the datafrom preceding taxable years attributableto the disposed portion of the trade or busi-ness may not be used in determining thebank’s recovery percentage.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.08of this APPENDIX is “108.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Timothy Sebastian at202–622–3920 (not a toll-free call).

.09 Change from the cash method to anaccrual method for specific items.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer whose overall method of ac-counting is an accrual method of account-ing but has identified a specific item oritems of income and expense that are be-ing accounted for on the cash method ofaccounting. This change does not applyto a taxpayer that is changing its overallmethod of accounting from cash to accrual.Such a taxpayer may be eligible to changeto an overall accrual method using section14.01 of this APPENDIX.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that will not have allitems of income and expense on an accrualmethod subsequent to this change underthis section 14.09 of the APPENDIX;

(ii) a cooperative organization de-scribed in § 501(c)(12), 521, or 1381;

(iii) an individual taxpayer, except foractivities conducted as a sole proprietor-ship;

(iv) a taxpayer engaged in two or moretrades or businesses, unless the taxpayermakes this change so that the identicalaccrual method is used for each such tradeor business beginning with the year ofchange;

(v) a change in method of accountingfor any payment liability described in§ 1.461–4(g); and

(vi) any change that is specifically pro-vided in another section of the APPENDIXof this revenue procedure.

(2) Definitions.(a) Cash method of accounting is

the method identified by § 446(c)(1)

and §§ 1.446–1(c)(1)(i), 1.451–1(a), and1.461–1(a)(1).

(b) Accrual method of accountingis the method identified by § 446(c)(2)and §§ 1.446–1(c)(1)(ii), 1.451–1(a), and1.461–1(a)(2).

(3) Additional requirements. In addi-tion to the other filing requirements of thisrevenue procedure, to change a method ofaccounting under this section 14.09 of theAPPENDIX, a taxpayer must fully andcompletely describe each specific item forwhich the change in method of account-ing is being made and how the accrualmethod applies to each item and list the§ 481(a) adjustment for each item, if any,associated with the change. The changeis fully and completely described if therevenue or expense item is described withspecificity and how the all-events test (andthe economic performance requirement,if applicable) applies to the item is de-scribed under the facts and circumstancesof the taxpayer’s trade or business. Forexample, a taxpayer that merely statesthat it is changing its accounting methodfor advertising expenses from the cashmethod to an accrual method, recites theregulations under § 1.461–1(a)(2), andenters the associated § 481(a) adjustmenthas failed to describe fully and completelythe specific item for which the changein method of accounting is being made.In contrast, a taxpayer that states that itis changing its method of accounting forprint advertising expenses from the cashmethod to an accrual method, describesall of the relevant facts related to the printadvertising expenses, and explains howthe all-events test applies to those factsand when economic performance occurshas fully and completely described theitem and the change. See section 6.02of this revenue procedure for additionalfiling requirements.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.09of this APPENDIX is “124.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Gwen Turner at202–622–5020 (not a toll-free call).

2011–4 I.R.B. 394 January 24, 2011

.10 Multi-year service warrantycontracts.

(1) Description of change.(a) Applicability. This change applies

to an eligible accrual method manufac-turer, wholesaler, or retailer of motor vehi-cles or other durable consumer goods thatwants to change to the service warrantyincome method described in section 5 ofRev. Proc. 97–38, 1997–2 C.B. 479. Un-der the service warranty income method, aqualifying taxpayer may, in certain speci-fied and limited circumstances, include aportion of an advance payment related tothe sale of a multi-year service warrantycontract in gross income generally over thelife of the service warranty obligation.

(b) Inapplicability. This change doesnot apply to a taxpayer outside the scopeof Rev. Proc. 97–38.

(2) Manner of making change anddesignated automatic accounting methodchange number.

(a) This change is made on a cut-offbasis and applies only to qualified advancepayments for multi-year service warrantycontracts on or after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(b) In accordance with§ 1.446–1(e)(3)(ii), the requirement of§ 1.446–1(e)(3)(i) to file an applicationon Form 3115 is waived and a statementin lieu of the Form 3115 is authorized forthis change. The statement must set forth:

(i) the designated automatic accountingmethod change number for this change,which is “125”;

(ii) the taxpayer’s name and employeridentification number (or social securitynumber in the case of an individual);

(iii) the year of change (both the begin-ning and ending dates); and

(iv) the information required under sec-tion 6.03 of Rev. Proc. 97–38, except thatthe statement under section 6.03(2) (thatthe taxpayer agrees to all of the terms andconditions of the revenue procedure) alsoshould refer to Rev. Proc. 2011–14.

(3) Additional requirement. A taxpayerchanging to the service warranty incomemethod of accounting under section 14.10of this APPENDIX must satisfy the annualreporting requirement set forth in section6.04 of Rev. Proc. 97–38.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Erika Reigle at202–622–4950 (not a toll-free call).

.11 Overall cash method for specifiedtransportation industry taxpayers.

(1) Description of change. This changeapplies to a “specified transportation in-dustry taxpayer” with “average annualgross receipts” of more than $10,000,000and not in excess of $50,000,000 thatwants to change to the overall cash re-ceipts and disbursement (cash) method.

(2) Definitions. For purposes of thissection 14.11 of this APPENDIX, the fol-lowing definitions apply:

(a) Specified transportation indus-try taxpayer. A specified transportationindustry taxpayer is a taxpayer that satis-fies the following criteria for the year ofchange:

(i) The taxpayer reasonably identi-fies its “business” (as defined in section14.11(2)(b) below) as being described inone of the following NAICS subsectorcodes (first three digits of the six-digitNAICS codes):

(A) Air Transportation, Rail Trans-portation, Water Transportation, TruckTransportation, Transit and Ground Pas-senger Transportation, or Scenic andSightseeing Transportation, within themeaning of NAICS subsector codes481–485 and 487; or

(B) Support Activities for Transporta-tion within the meaning of NAICS subsec-tor code 488.

(ii) The taxpayer is not prohibited fromusing the overall cash method under § 448.

(b) Business. A taxpayer may use anyreasonable method of applying the rele-vant facts and circumstances to determineits business. A business may consist ofseveral activities, which may or may notbe related. For example, a taxpayer en-gaged in transportation activities may pro-vide various services such as transport-ing air cargo and then subsequently truck-ing the cargo throughout a metropolitanarea to warehouses and wholesale/retailstores. However, each activity within ataxpayer’s business must individually sat-isfy the description of a NAICS subsectorcode in section 14.11(2)(a)(i)(A) or (B) ofthis APPENDIX. For example, a sightsee-ing bus operator that sells box lunches inconnection with its tours is not a “specifiedtransportation industry taxpayer” because

each of its two activities (that is, sightsee-ing transportation and food sales) do noteach satisfy the description of a NAICSsubsector code in section 14.11(2)(a)(i)(A)or (B) of this APPENDIX. Similarly, atrain operator who operates a dining carwhere meals are served is not a “speci-fied transportation industry taxpayer” be-cause all of the activities of its “business”fail to satisfy the descriptions of one ormore of the NAICS subsector codes in sec-tion 14.11(2)(a)(i)(A) or (B) of this AP-PENDIX. That is, while the rail servicesatisfies the description of a NAICS sub-sector code in section 14.11(2)(a)(i)(A) ofthis APPENDIX, the food service does notsatisfy the description of any NAICS sub-sector code in section 14.11(2)(a)(i)(A) or(B) of this APPENDIX, and thus, the tax-payer’s business fails to meet the criteriaof section 14.11(2)(a)(i).

(c) Average annual gross receipts. Ataxpayer has average annual gross receiptsof 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 grossreceipts for the three prior taxable-year pe-riod ending with the applicable prior tax-able year are more than $10,000,000 anddo not exceed $50,000,000. If a taxpayerhas not been in existence for three priortaxable years, the taxpayer must determineits average annual gross receipts for thenumber of years (including short taxableyears) that the taxpayer has been in exis-tence. See § 448(c)(3)(A).

(d) Gross receipts. Gross receipts is de-fined consistent with § 1.448–1T(f)(2)(iv).Thus, gross receipts for a taxable yearequal all receipts that must be recognizedunder the method of accounting actuallyused by the taxpayer for that taxable yearfor federal income tax purposes. See also§ 448(c)(3)(C).

(e) Aggregation of gross receipts. Forpurposes of computing gross receipts un-der section 14.11(2)(d) of this APPEN-DIX, all taxpayers treated as a single em-ployer under § 52(a) or (b) or § 414(m) or(o) (or that would be treated as a singleemployer under these sections if the tax-payers had employees) will be treated asa single taxpayer. However, when trans-actions occur between taxpayers that aretreated as a single taxpayer by the previoussentence, gross receipts arising from thesetransactions will not be treated as gross re-

January 24, 2011 395 2011–4 I.R.B.

ceipts for purposes of the average annualgross receipts limitation. See § 448(c)(2)and § 1.448–1T(f)(2)(ii).

(f) Treatment of short taxable year. Inthe case of a short taxable year, a tax-payer’s gross receipts must be annualizedby multiplying the gross receipts for theshort taxable year by 12 and then dividingthe result by the number of months in theshort taxable year. See § 448(c)(3)(B) and§ 1.448–1T(f)(2)(iii).

(g) Treatment of predecessors. Any ref-erence to a taxpayer in this section 14.11of the APPENDIX includes a referenceto any predecessor of that taxpayer. See§ 448(c)(3)(D).

(h) Cash method. The cash methodis the method identified by § 446(c)(1)and §§ 1.446–1(c)(1)(i), 1.451–1(a), and1.461–1(a)(1).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.11of this APPENDIX is “126.” See section6.02(4) of this revenue procedure.

(4) Example.Example. Taxpayer X is an LLC and taxed

for federal income tax purposes as a partnership.Taxpayer X does not have any C corporations aspartners and Taxpayer X is not a tax shelter withinthe meaning of § 448(d)(3). Taxpayer X’s busi-ness consists of short-haul trucking among vari-ous cities within State Y, which satisfies the de-scription of the NAICS subsector code 484. Tax-payer X determines that its average annual grossreceipts for each of the three prior taxable yearshave been more than $10,000,000 and not in ex-cess of $50,000,000. Taxpayer X qualifies tochange to the overall cash method using this sec-tion 14.11 of the APPENDIX.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Kari Fisher at202–622–4970 (not a toll-free call).

.12 Change to overall cash/hybridmethod for certain banks.

(1) Description of change.(a) Applicability. This change applies

to a bank described in section 14.12(2)(a)of this APPENDIX that wants to change toan overall cash/hybrid method described insection 14.12(2)(b) of this APPENDIX.

(b) Inapplicability. A bank’s change toan overall cash/hybrid method under thissection 14.12 of the APPENDIX does notinclude any change in the accounting treat-ment of an item for which the bank usesa special method (as described in section14.12(2)(b) of this APPENDIX) before the

change, or is required to use a specialmethod, or will use a special method afterthe change. No change in the accountingtreatment of such an item may be made un-der this section 14.12 of the APPENDIX.Any change in the accounting treatment ofsuch an item must be made under an ap-plicable section of this APPENDIX, un-der Rev. Proc. 97–27 (or any successor),or under another guidance published in theIRB, as appropriate.

(2) Definitions. The following defini-tions apply for purposes of section 14.12of this APPENDIX.

(a) Bank. A bank is described in thissection 14.12(2)(a) of the APPENDIX ifthe bank:

(i) is a bank as defined in § 581;(ii) is an S corporation as defined in

§ 1361(a)(1), or a qualified subchapter Ssubsidiary as defined in § 1361(b)(3)(B);and

(iii) has average annual gross receipts(computed as described in section 14.12(5)of this APPENDIX) not in excess of$50,000,000.

(b) Overall cash/hybrid method. Anoverall cash/hybrid method is the use of acombination of accounting methods underwhich some items of income or expenseare reported on the cash receipts and dis-bursements method (cash method) andother items of income or expense are re-ported on methods permitted or requiredfor the accounting treatment of specialitems (special methods).

(i) Cash method. The cash methodis the method identified by § 446(c)(1)and §§ 1.446–1(c)(1)(i), 1.451–1(a), and1.461–1(a)(1).

(ii) Special methods. A few of thespecial methods typically used by banksinclude those provided for the accountingtreatment of the following items: secu-rities held by a dealer in securities asdefined in § 475(c)(1) (the mark-to-mar-ket method of § 475); securities heldby a dealer in securities as defined in§ 1.471–5 (inventories maintained under§ 471 and § 1.446–1(c)(2)(i)); hedgingtransactions (§ 1.446–4); contracts towhich § 1256 applies (§ 1256); origi-nal issue discount on debt instruments(§§ 163(e) and 1271–1275); interest in-come (including acquisition discount andoriginal issue discount) on short-termobligations (§§ 1281–1283); and strippeddebt instruments (§ 1286). For example, a

bank that regularly purchases or originatesmortgages in the ordinary course of itsbusiness and engages in more than negli-gible sales of those mortgages generallyis a dealer in securities under § 475(c)(1)and § 1.475(c)–1(c) and thus must use themark-to-market method of § 475 for mort-gages and any other securities (as definedin § 475(c)(2)) held by the bank.

(3) Additional condition of change. Tochange to an overall cash/hybrid methodunder this section 14.12 of the APPEN-DIX, a bank must comply with the fol-lowing additional condition. In additionto complying with the terms and condi-tions set forth in section 5 of this revenueprocedure, the bank must keep its booksand records for the year of change andfor subsequent taxable years on an over-all cash/hybrid method allowed by thissection 14.12 of the APPENDIX. Thiscondition is considered satisfied if thebank reconciles the results obtained un-der the method used in keeping its booksand records and those obtained under themethod used for federal income tax pur-poses pursuant to this section 14.12 ofthe APPENDIX and the bank maintainssufficient records to support such recon-ciliation. See also § 1.446–1(a)(4).

(4) Additional filing requirement. Tochange to an overall cash/hybrid methodunder this section 14.12 of this APPEN-DIX, a bank must include the following ad-ditional information on its Form 3115 filedin accordance with section 6.02 of this rev-enue procedure. In addition to comply-ing with all other applicable requirements,the Form 3115 must describe each specificitem of the bank’s income or expense thatis affected by the change under this sec-tion 14.12 of the APPENDIX and, for eachsuch item, identify the following: the ac-counting method under which the bank re-ports that item for federal income tax pur-poses immediately before the change; andthe amount of the § 481(a) adjustment as-sociated with changing that item to thecash method under this section 14.12 of theAPPENDIX.

(5) Computation of average annualgross receipts. For purposes of section14.12(2)(a)(iii) of this APPENDIX, abank’s average annual gross receipts arecomputed as described in this section14.12(5) of the APPENDIX.

(a) Average annual gross receipts.A bank has average annual gross re-

2011–4 I.R.B. 396 January 24, 2011

ceipts not in excess of $50,000,000 if,for each prior taxable year ending onor after December 31, 2006, the bank’saverage annual gross receipts for the threeprior taxable-year period ending withthe applicable prior taxable year do notexceed $50,000,000. If a bank has notbeen in existence for three prior taxableyears, the bank must determine its averageannual gross receipts for the numberof years (including short taxable years)that the bank has been in existence. See§ 448(c)(3)(A).

(b) Gross receipts. Gross receipts is de-fined consistent with § 1.448–1T(f)(2)(iv).Thus, gross receipts for a taxable yearequal all receipts that must be recognizedunder the method of accounting actuallyused by the bank for that taxable year forfederal income tax purposes. See also§ 448(c)(3)(C).

(c) Aggregation of gross receipts. Forpurposes of computing gross receipts un-der section 14.12(5)(b) of this APPEN-DIX, all taxpayers treated as a single em-ployer under § 52(a) or (b) or § 414(m) or(o) (or that would be treated as a singleemployer under these sections if the tax-payers had employees) will be treated as asingle taxpayer (i.e., a single bank). How-ever, when transactions occur between tax-payers that are treated as a single taxpayerby the previous sentence, gross receiptsarising from these transactions will not betreated as gross receipts for purposes of theaverage annual gross receipts limitation.See § 448(c)(2) and § 1.448–1T(f)(2)(ii).

(d) Treatment of short taxable year. Inthe case of a short taxable year, a bank’sgross receipts must be annualized by mul-tiplying the gross receipts for the shorttaxable year by 12 and then dividing theresult by the number of months in theshort taxable year. See § 448(c)(3)(B) and§ 1.448–1T(f)(2)(iii).

(e) Treatment of predecessors. Any ref-erence to a bank or taxpayer in section14.12(5) of this APPENDIX includes a ref-erence to any predecessor of that bank ortaxpayer. See § 448(c)(3)(D).

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.12of this APPENDIX is “127.” See section6.02(4) of this revenue procedure.

(7) Contact information. For furtherinformation regarding a change under

this section, contact David B. Silber at202–622–3930 (not a toll-free call).

.13 Change to overall cash method forfarmers.

(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 tothe overall cash receipts and disbursement(cash) method. If a taxpayer is engagedin more than one trade or business, thischange applies only to the taxpayer’s tradeor business of farming.

(b) Inapplicability. This change doesnot apply to a taxpayer that is required touse an accrual method pursuant to § 447 orprohibited 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), and1.461–1(a)(1). See also, §§ 1.61–4 and1.162–12 for specific rules relating tofarmers.

(b) The trade or business of farm-ing is a farming business as defined by§ 263A(e)(4) and the regulations thereun-der.

(3) Manner of making change. Gen-erally, a taxpayer changing its method ofaccounting under this section 14.13 of theAPPENDIX, must compute a § 481(a)adjustment. However, if the taxpayeris changing from the crop method, thatportion of the change shall be made us-ing a cut-off basis under which expensesreported on the crop method and not de-ducted prior to the year of change arededucted in the year the related crop issold.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.13of this APPENDIX is “128.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Robert Bassoat 202–622–4950 or Renay France at202–622–5020 (not a toll-free call).

.14 Nonshareholder contributions tocapital under § 118.

(1) Description of change.(a) Water and sewerage disposal utili-

ties.

(i) This change applies to a regulatedpublic utility described in § 118(c) thatwants to change its method of account-ing for payments received from customersas customer connection fees, which arenot contributions to the capital of the reg-ulated public utility within the meaningof § 118(c), from excluding the paymentsfrom gross income as nontaxable contribu-tions to capital under § 118 to including thepayments in gross income under § 61. SeeRev. Rul. 2008–30, 2008–1 C.B. 1156.

(ii) This change applies to a regulatedpublic utility described in § 118(c) thatwants to change its method of account-ing for payments or property received thatare contributions in aid of construction un-der § 118(c) and § 1.118–2 and that meetthe requirements of §§ 118(c)(1)(B) and118(c)(1)(C) from including the paymentsor the fair market value of the property ingross income under § 61 to excluding thepayments or the fair market value of theproperty from income as nontaxable con-tributions to capital under § 118(a).

(b) Other payments or property re-ceived. This change applies to a taxpayerthat wants to change its method of account-ing for payments or property received(other than the payments received by apublic utility described in § 118(c) thatare addressed in section 14.14(1)(a)(i) ofthis APPENDIX) that do not constitutecontributions to the capital of the taxpayerwithin the meaning of § 118 and the reg-ulations thereunder, from excluding thepayments or the fair market value of theproperty from gross income as nontaxablecontributions to capital under § 118 toincluding the payments or the fair marketvalue of the property in gross income un-der § 61.

(2) Additional requirement. In additionto the other filing requirements of this rev-enue procedure, a taxpayer that is making achange described in section 14.14(1)(a)(i)or (1)(b) must complete Schedule E ofForm 3115 for the depreciable property towhich the change relates.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.14of this APPENDIX is “129.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change under this

January 24, 2011 397 2011–4 I.R.B.

section, contact David H. McDonnell at202–622–3040 (not a toll-free call).

.15 Debt issuance costs.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for capital-ized debt issuance costs to comply with§ 1.446–5, which provides rules for allo-cating the costs over the term of the debt.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 14.15of this APPENDIX is “148.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Sonja Kotlica at202–622–3950 (not a toll-free number).

SECTION 15. TAXABLE YEAR OFINCLUSION (§ 451)

.01 Accrual of interest onnonperforming loans.

(1) Description of change.(a) This change applies to an accrual

method taxpayer that is a bank as definedin § 581 (or whose primary business ismaking or managing loans) and wantsto change its method of accounting tocomply with § 451 and § 1.451–1(a) forqualified stated interest (as defined in§ 1.1273–1(c)) on nonperforming loans.

(b) Section 1.451–1(a) requires incometo be accrued when all the events haveoccurred that fix the right to receive theincome and the amount thereof can bedetermined with reasonable accuracy. Ataxpayer may not stop accruing qualifiedstated interest on a nonperforming loanfor federal income tax purposes merelybecause payments on the loan are over-due by a certain length of time, such as90 days, even if a federal, state, or otherregulatory authority having jurisdictionover the taxpayer permits or requires thatthe overdue interest not be accrued forregulatory purposes.

(c) Under § 451 and § 1.451–1(a), ataxpayer must continue accruing qualifiedstated interest on any nonperforming loanuntil either (i) the loan is worthless un-der § 166 and charged off as a bad debt,or (ii) the interest is determined to be un-collectible. In order for interest to be de-termined uncollectible, the taxpayer mustsubstantiate, taking into account all the

facts and circumstances, that it has no rea-sonable expectation of payment of the in-terest. This substantiation requirement isapplied on a loan by loan basis.

(d) A taxpayer that changes its methodof accounting under section 15.01 of thisAPPENDIX must do so for all of its loans.

(2) Section 481(a) adjustment. Ingeneral, the § 481(a) adjustment for amethod change under section 15.01 ofthis APPENDIX represents the amount ofqualified stated interest, on the taxpayer’snonperforming loans outstanding as ofthe beginning of the year of change, thatshould have been accrued under § 451 and§ 1.451–1(a) and was not accrued. Interestfor which the taxpayer, as of the beginningof the year of change, has no reasonableexpectation of payment is not taken intoaccount in determining the amount of the§ 481(a) adjustment.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.01of this APPENDIX is “36.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Timothy Sebastian at202–622–3920 (not a toll-free call).

.02 Advance rentals.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for advancerentals (other than advance rentals subjectto § 467 and the regulations thereunder)to include such advance rentals in grossincome in the taxable year received. See§ 1.61–8(b).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.02of this APPENDIX is “37.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change under thissection, contact R. Matthew Kelley at202–622–7900 (not a toll-free call).

.03 State or local income or franchisetax refunds.

(1) Description of change. This changeapplies to an accrual method taxpayer de-scribed in Rev. Rul. 2003–3, 2003–1 C.B.252, that receives a state or local incomeor franchise tax refund and wants to accruethe refund in the year payment or notice of

the approval of the refund claim is received(whichever is earlier).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.03of this APPENDIX is “38.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change under thissection, contact R. Matthew Kelley at202–622–7900 (not a toll-free call).

.04 Capital Cost Reduction Payments.(1) Description of change. This change

applies to a taxpayer that purchases motorvehicles subject to leases and assumes theassociated leases from the vehicles’ deal-ers and wants to use the safe harbor ac-counting method for capital cost reduction(CCR) payments specified in Rev. Proc.2002–36, 2002–1 C.B. 993.

(2) Audit protection. If a taxpayer com-plies with the requirements of Rev. Proc.2002–36 and changes its method of ac-counting for CCR payments to the CCRmethod provided in section 5 of Rev. Proc.2002–36, the treatment of CCR paymentswill not be raised as an issue in any taxableyear before the year of change.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.04of this APPENDIX is “39.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change under thissection, contact R. Matthew Kelley at202–622–7900 (not a toll-free call).

.05 Credit card annual fees.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for credit cardannual fees as described in Rev. Rul.2004–52, 2004–1 C.B. 973, either to amethod that satisfies the all events test inaccordance with Rev. Rul. 2004–52 orto the Ratable Inclusion Method for CreditCard Annual Fees that is described in sec-tion 4 of Rev. Proc. 2004–32, 2004–1C.B. 988. Rev. Rul. 2004–52 holds thatcredit card annual fees are not interest forfederal income tax purposes and that suchfees are includible in income by the cardissuer when the all events test under § 451is satisfied. Rev. Proc. 2004–32 providesadditional guidance for taxpayers seekingto change their methods of accounting for

2011–4 I.R.B. 398 January 24, 2011

such fees, including guidance with respectto the Ratable Inclusion Method for CreditCard Annual Fees. However, a taxpayermay make either change under this rev-enue procedure only if the taxpayer usesan overall accrual method of accountingfor federal income tax purposes and issuescredit cards to, and receives annual feesfrom, cardholders under agreements thatallow each cardholder to use a credit cardto access a revolving line of credit to makepurchases of goods and services and, if soauthorized, to obtain cash advances.

(2) Manner of making change. A tax-payer making this change must identify thespecific method to which the taxpayer ischanging. See also section 15.05(3) of thisAPPENDIX.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.05of this APPENDIX to a method that sat-isfies the all events test in accordancewith Rev. Rul. 2004–52 is “80.” Thedesignated automatic accounting methodchange number for a change under section15.05 of this APPENDIX to the RatableInclusion Method for Credit Card AnnualFees is “81.” See section 6.02(4) of thisrevenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Jon Silver at202–622–3930 (not a toll-free call).

.06 Credit card late fees.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for credit cardlate fees to a method that treats these feesas interest income that creates or increasesthe amount of original issue discount(OID) on the pool of credit card loansto which the fees relate. This change isavailable only to a taxpayer that issuescredit cards allowing cardholders to accessa revolving line of credit established bythe taxpayer and that, for federal incometax purposes, does not treat the credit cardpurchase transactions of its cardholders ascreating either debt that is given in consid-eration for the sale or exchange of property(within the meaning of § 1274) or debt thatis deferred payment for property (withinthe meaning of § 483). See Rev. Proc.2004–33, 2004–1 C.B. 989, for additionalguidance relating to this change.

(2) Additional requirements. A tax-payer making this change must be able todemonstrate both of the following:

(a) the amount of any credit card late feecharged to each cardholder by the taxpayeris separately stated on the cardholder’s ac-count when that fee is imposed; and

(b) under the applicable credit cardagreement governing each cardholder’suse of the credit card, no amount iden-tified as a credit card late fee is chargedfor property or for specific services per-formed by the taxpayer for the benefit ofthe cardholder.

(3) Audit protection. The audit pro-tection provided in connection with thischange is not a determination by the Com-missioner that the taxpayer is properly ac-counting for any OID income on that poolof credit card loans. Thus, for example,the Service is not precluded from pursuingthe issue of whether a taxpayer is properlyaccounting for its OID income (includingany OID income attributable to credit cardlate fees) on its pool of credit card loans inaccordance with § 1272(a)(6).

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.06of this APPENDIX is “82.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Jon Silver at202–622–3930 (not a toll-free call).

.07 Advance payments.(1) Description of change.(a) Applicability. This change applies

to a taxpayer using or changing to anoverall accrual method of accounting thatreceives advance payments, as defined inRev. Proc. 2004–34, 2004–1 C.B. 991,as modified and clarified by Rev. Proc.2011–18, 2011–5 I.R.B., and wants tochange to either the full inclusion or de-ferral method, as described in Rev. Proc.2004–34, other than a taxpayer changingto a method described in section 15.11 ofthis APPENDIX. See also Announcement2004–48, 2004–1 C.B. 998.

(b) Inapplicability. This change doesnot apply to a taxpayer that wants to usethe Deferral Method for payments de-scribed in section 5.02(4)(a) of Rev. Proc.2004–34 (other than allocable paymentsdescribed 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. Thetaxpayer must request any such change inmethod of accounting using the non-auto-matic procedures in Rev. Proc. 97–27 (orany successor). See section 8.03 of Rev.Proc. 2004–34.

(2) Scope limitations temporarily inap-plicable for certain changes. The scopelimitations in section 4.02 of this revenueprocedure do not apply to a change inmethod of accounting for advance pay-ments received from the sale of gift cards,as described in section 6.01(1) of Rev.Proc. 2011–18, for the taxpayer’s first orsecond taxable year ending on or after De-cember 31, 2010.

(3) Concurrent automatic change to anoverall accrual method. A taxpayer thatwants to make both a change to its methodof accounting for advance payments un-der section 15.07 of this APPENDIX anda change to an overall accrual method un-der section 14.01 of this APPENDIX forthe same year of change must file a singleForm 3115 for both changes and enter thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115. Seesection 8.04(1) of Rev. Proc. 2004–34.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.07 ofthis APPENDIX to use the full-inclusionmethod is “83.” The designated automaticaccounting method change number for achange under 15.07 of this APPENDIXto use the deferral method is “84.” Seesection 6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change under thissection, contact R. Matthew Kelley at202–622–7900 (not a toll-free call).

.08 Credit card cash advance fees.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for credit cardcash advance fees to a method that treatsthese fees as creating or increasing origi-nal issue discount (OID) on a pool of creditcard loans that includes the cash advancesthat give rise to the fees. This changeis available only to a taxpayer that issuescredit cards allowing cardholders to accessa revolving line of credit established bythe taxpayer both to make credit card pur-chase transactions and to obtain cash ad-

January 24, 2011 399 2011–4 I.R.B.

vances and that, for federal income tax pur-poses, does not treat the credit card pur-chase transactions of its cardholders as cre-ating debt that is given in consideration forthe sale or exchange of property. See Rev.Proc. 2005–47, 2005–2 C.B. 269, for ad-ditional guidance relating to this change.

(2) Other requirements. A taxpayermaking this change must be able to demon-strate both of the following:

(a) the amount of any credit card cashadvance fee charged to a cardholder by thetaxpayer is separately stated on the card-holder’s account when that fee is imposed;and

(b) under the credit card agreement withthe cardholder, no amount identified as acredit card cash advance fee is charged forproperty or for specific services performedby the taxpayer for the benefit of the card-holder.

(3) Audit protection. The audit pro-tection provided in connection with thischange is not a determination by the Com-missioner that the taxpayer is properly ac-counting for any OID income on that poolof credit card loans. Thus, for example, theService is not precluded from pursuing theissue of whether, under § 1272(a)(6), a tax-payer is correctly accounting for its OIDincome (including any OID income attrib-utable to credit card cash advance fees) onits pool of credit card loans.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.08of this APPENDIX is “94.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Jon Silver at202–622–3930 (not a toll-free call).

.09 Reserved.

.10 Retainages.(1) Description of change.(a) Applicability. This change applies

to an accrual method taxpayer that wants tochange its method of accounting for treat-ing retainages to a method consistent withthe holding in Rev. Rul. 69–314, 1969–1C.B. 139. A taxpayer changing its methodof accounting for retainages under section15.10 of this APPENDIX must treat all re-tainages (receivables and payables) in thesame manner.

(b) Inapplicability. This change doesnot apply to retainages that are receivedunder long-term contracts as defined in§ 460.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 15.10of this APPENDIX is “130.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change under thissection, contact R. Matthew Kelley at202–622–7900 (not a toll-free call).

.11 Advance payments — change inapplicable financial statements (AFS).

(1) Description of change.(a) Applicability.(i) This change applies to a taxpayer

that: (A) receives advance payments, asdefined in Rev. Proc. 2004–34, 2004–1C.B. 991, (B) uses the deferral method de-scribed in section 5.02(3)(a) of Rev. Proc.2004–34 for including those advance pay-ments in gross income in accordance withits applicable financial statement (AFS),(C) changes the manner in which it recog-nizes advance payments in revenues in itsAFS, and (D) wants to change its methodof accounting to use its new method of rec-ognizing advance payments in revenues inits AFS for determining the extent to whichadvance payments are included in gross in-come under Rev. Proc. 2004–34.

(ii) A taxpayer’s restatement of its AFSfor financial accounting presentation doesnot affect the propriety of the taxpayer’smethod of accounting for advance pay-ments in the prior taxable year(s). Thus, ifthe taxpayer uses the deferral method de-scribed in section 5.02(3)(a) of Rev. Proc.2004–34 for including advance paymentsin gross income in accordance with its AFS(even if the AFS for that taxable year islater restated), the taxpayer satisfies the re-quirement of section 15.11(1)(a)(i)(B) andmay change its method of accounting un-der this section if it is otherwise eligible.

(b) Inapplicability. This change doesnot apply to:

(i) a taxpayer that uses a present methodof accounting for advance payments that isnot the deferral method described in sec-tion 5.02(3)(a) of Rev. Proc. 2004–34.For example, this change does not applyto a taxpayer that uses the full inclusionmethod under section 5.01 of Rev. Proc.2004–34;

(ii) a taxpayer that wants to change itsmethod for allocating payments under sec-tion 5.02(4) of Rev. Proc. 2004–34.

(2) Manner of making change anddesignated automatic accounting methodchange number.

(a) This change is made on a cut-off ba-sis and applies only to advance paymentsreceived on or after the beginning of theyear of change. Any advance paymentsreceived prior to the year of change areaccounted for under the taxpayer’s formermethod of accounting (i.e., according to itsformer AFS). See also section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(b) In accordance with§ 1.446–1(e)(3)(ii), the requirement of§ 1.446–1(e)(3)(i) to file an application onForm 3115 is waived and a statement inlieu of the Form 3115 is authorized for thischange. To secure automatic consent forthe change in method of accounting undersection 15.11 of this APPENDIX, thetaxpayer must attach the statement to itsoriginal return for the year of change (orto the amended return if the limited relieffor a late application provided in section6.02(3)(d) of this revenue procedureapplies). Except as provided in section15.11(4)(b) of this APPENDIX, therequirement to file a duplicate application,under section 6.02(3)(a) of this revenueprocedure, is waived. The statementattached to the taxpayer’s return for theyear of change must include all of thefollowing:

(i) the designated automatic accountingmethod change number for this change,which is “153;”

(ii) the taxpayer’s name and employeridentification (or social security number inthe case of an individual) for each appli-cant as would be provided had a Form 3115been required;

(iii) the year of change (both the begin-ning and ending dates);

(iv) for each applicant, identify thetype of applicable financial statement (asdefined in section 4.06 of Rev. Proc.2004–34) used by the taxpayer;

(v) a detailed and complete descriptionof each type of item affected by the changein revenue recognition and the line number(or schedule) where the affected item is

2011–4 I.R.B. 400 January 24, 2011

reflected on the federal tax return for theyear of change; and

(vi) a detailed description of the ba-sis used for deferral (i.e., the method thetaxpayer uses in its applicable financialstatement or how the taxpayer determinesamounts earned, as applicable) both beforeand after the change in the revenue recog-nition policy for the applicable financialstatement.

(3) Scope limitation inapplicable. Thescope limitation in section 4.02(7) of thisrevenue procedure does not apply to achange in method of accounting requestmade under section 15.11 of this APPEN-DIX.

(4) Special transition rules. In lieu ofthe general transition rules in section 13.02of this revenue procedure, the followingtransition rules apply regarding this sec-tion 15.11 of the APPENDIX.

(a) Form 3115 filed under Rev. Proc.97–27. If before January 10, 2011, ataxpayer within the scope of Rev. Proc.97–27 timely filed a Form 3115 underRev. Proc. 97–27 requesting consent for achange in method of accounting describedin section 15.11 of this APPENDIX for ayear of change ending on or after April 30,2010, and the Form 3115 is pending withthe national office on January 10, 2011,the taxpayer may choose to make thechange under this revenue procedure andmake the change on a cut-off basis asprovided in section 15.11(2)(a) of thisAPPENDIX if the taxpayer is otherwiseeligible under this revenue procedure. Thetaxpayer must notify the national office ofits intent to make the change under thissection 15.11(4)(a) before the later of (a)February 11, 2011, or (b) the issuance ofeither a letter ruling granting or denyingconsent for the change or a letter closingthe case. If the taxpayer timely notifies thenational office that it will make the changeunder this section 15.11(4)(a), the nationaloffice ordinarily will return the Form 3115to the taxpayer and refund the user fee.

A taxpayer may make the change un-der this section 15.11(4)(a) if the taxpayerattaches an application that complies withthe provisions of section 15.11(2) of thisAPPENDIX to its original or amended re-turn for the year of change, filed no laterthan the date required in section 6.02(3)of this revenue procedure. If the taxpayerconverts the Form 3115 under this sec-tion 15.11(4)(a), for purposes of the au-

dit protection in section 7 of this revenueprocedure, the application will be consid-ered filed as of the date the taxpayer origi-nally filed the Form 3115 under Rev. Proc.97–27.

A Form 3115 filed under Rev. Proc.97–27 before January 10, 2011, thatis pending with the national office onJanuary 10, 2011, will be disregarded forpurposes of the prior 5 year change rule insection 4.02(7) of Rev. Proc. 2011–14, inthe following circumstances:

(1) the taxpayer converts the Form 3115under this section 15.11(4)(a); or

(2) the taxpayer withdraws the Form3115 and files an application under Rev.Proc. 2011–14 for the same change inmethod of accounting for a year of changeending on or before April 30, 2011.

(b) Form 3115 filed under Rev. Proc.2008–52. If before January 10, 2011, ataxpayer properly filed a Form 3115 un-der Rev. Proc. 2008–52 for a year ofchange ending on or after April 30, 2010,for a change in method of accounting de-scribed in section 15.11 of this APPEN-DIX, the taxpayer may choose to file an ap-plication for that year of change under thisrevenue procedure and make the changeon a cut-off basis as provided in section15.11(2)(a) of this APPENDIX if, within6 months from the due date of the federalincome tax return for the year of change(excluding any extension), the taxpayer (i)files an original or amended return im-plementing the new method of accountingpursuant to this revenue procedure; (ii) at-taches an application (amending the previ-ously filed Form 3115) that complies withthe provisions of section 15.11(2) of thisAPPENDIX to its original (or amended)return for the year of change; (iii) writeson the top of page 1 of a copy of the ap-plication: “Statement Revising Form 3115Filed Pursuant to Sec. 15.11 of the AP-PENDIX of Rev. Proc. 2011–14”; and(iv) sends the copy of the application tothe following address no later than the datethe application is filed with the originalor amended return: Internal Revenue Ser-vice, P.O. Box 14095, Benjamin FranklinStation, Washington, D.C. 20044, Atten-tion — CC:ITA:8. A Form 3115 filed un-der Rev. Proc 2008–52 before January 10,2011, for a taxable year ending on or af-ter April 30, 2010, that is amended underthis section 15.11 of the APPENDIX willbe disregarded for purposes of the prior 5

year change rule in section 4.02(7) of Rev.Proc. 2011–14.

(c) No Form 3115 filed.(i) Background. Under § 446(e), a

taxpayer that changes its book methodof accounting must secure the Com-missioner’s consent before applying itsnew book method of accounting for taxpurposes. See also § 1.446–1(e)(2)(i).Accordingly, a taxpayer that previouslyelected to defer advance payments underRev. Proc. 2004–34 is required to obtainconsent under § 446(e) if the taxpayersubsequently changes its book methodfor the deferred advance payments andwants to use its new AFS in determiningthe extent to which advance paymentsare included in gross income under Rev.Proc. 2004–34. The Service recognizesthat some taxpayers took the position thatconsent under § 446(e) was not requiredin these circumstances and changed theirmethod of accounting without properlyobtaining consent. The safe harbor de-scribed below in section 15.11(4)(c)(ii)of this APPENDIX is provided to reducecontroversy in this area.

(ii) Safe harbor. If before January 10,2011, a taxpayer: (1) received advancepayments, as defined in Rev. Proc.2004–34; (2) used the deferral methoddescribed in section 5.02(3)(a) of Rev.Proc. 2004–34 for including thoseadvance payments in gross income inaccordance with its AFS; (3) changedthe manner in which advance paymentsare recognized in revenues in its AFS;and (4) used its new AFS method withrespect to a timely filed original federalincome tax return in determining theamount of advance payments included ingross income under the deferral methodof Rev. Proc. 2004–34 without securingthe consent of the Commissioner to thatchange in accordance with § 446(e) and§ 1.446–1(e)(2)(i), the Service will notassert that the taxpayer’s present methodof accounting for advance payments isnot a proper deferral method describedin section 5.02(3)(a) of Rev. Proc.2004–34 solely on the ground that thetaxpayer failed to obtain the consent of theCommissioner for that change.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Nancy Lee at202–622–5020 (not a toll-free number).

January 24, 2011 401 2011–4 I.R.B.

SECTION 16. OBLIGATIONS ISSUEDAT DISCOUNT (§ 454)

.01 Series E, EE or I U.S. savingsbonds.

(1) Description of change. This changeapplies to a cash method taxpayer thatwants to change its method of account-ing for interest income on Series E, EE,or I U.S. savings bonds. However, thischange only applies to a taxpayer that haspreviously made an election under § 454to report as interest income the increasein redemption price on a bond occurringin a taxable year, and that now wants toreport this income in the taxable year inwhich the bond is redeemed, disposed of,or finally matures, whichever is earliest.

(2) Manner of making change anddesignated automatic accounting methodchange number.

(a) This change is made on a cut-off ba-sis and is effective for any increase in re-demption price occurring after the begin-ning of the year of change for all Series E,EE and I U.S. savings bonds held by thetaxpayer on or after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(b) In accordance with§ 1.446–1(e)(3)(ii), the requirement of§ 1.446–1(e)(3)(i) to file an applicationon Form 3115 is waived and a statementin lieu of the Form 3115 is authorized forthis change. The statement must set forth:

(i) the designated automatic accountingmethod change number for this change,which is “131”;

(ii) the taxpayer’s name and employeridentification number or social securitynumber, as applicable;

(iii) the year of change (both the begin-ning and ending dates);

(iv) the Series E, EE or I U.S. savingsbonds for which this change in accountingmethod is requested;

(v) an agreement to report all intereston any bonds acquired during or after theyear of change when the interest is realizedupon disposition, redemption, or final ma-turity, whichever is earliest; and

(vi) an agreement to report all intereston the bonds acquired before the year ofchange when the interest is realized upondisposition, redemption, or final maturity,

whichever is earliest, with the exception ofany interest income previously reported inprior taxable years.

(3) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.02 Reserved.

SECTION 17. PREPAIDSUBSCRIPTION INCOME (§ 455)

.01 Prepaid subscription income.(1) Description of change. This change

applies to an accrual method taxpayer thatwants to change its method of account-ing for prepaid subscription income to themethod described in § 455 and the regula-tions thereunder, including an eligible tax-payer that wants to make the “within 12months” election under § 1.455–2.

(2) Manner of making change anddesignated automatic accounting methodchange number.

(a) This change is made on a cut-off ba-sis and applies only to prepaid subscriptionincome received on or after the beginningof the year of change. Any prepaid sub-scription income received prior to the yearof change is accounted for under the tax-payer’s former method of accounting. Seesection 2.06 of this revenue procedure formore information regarding a cut-off basis.Accordingly, 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 an applicationon Form 3115 is waived and a statementin lieu of the Form 3115 is authorized forthis change. The statement must set forth:

(i) the designated automatic accountingmethod change number for this change,which is “132”;

(ii) the taxpayer’s name and employeridentification number (or social securitynumber in the case of an individual);

(iii) the year of change (both the begin-ning and ending dates);

(iv) the information described in§ 1.455–6(a), as required by § 1.455–6(b);

(v) if the taxpayer wants to makea “within 12 months” election under§ 1.455–6(c), the information described insection § 1.455–6(c)(2).

(c) The consent granted under this rev-enue procedure satisfies the consent re-quired under § 455(c)(3) and § 1.455–6(b).

(3) Contact information. For furtherinformation regarding a change underthis section, contact Patrick M. Clinton at202–622–4970 (not a toll-free call).

.02 Reserved.

SECTION 18. SPECIAL RULES FORLONG-TERM CONTRACTS (§ 460)

.01 Change from exempt-contractmethod to percentage-of-completionmethod.

(1) Description of change. This changeapplies to a taxpayer that:

(a) is not required by § 460 and regu-lations thereunder to use the percentage-of-completion method to account for itslong-term contracts, and

(b) wants to change its method of ac-counting for long-term contracts from anexempt-contract method properly applied(see § 1.460–4(c)) to the percentage-of-completion method (see § 1.460–4(b)).

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to long-term contracts enteredinto on or after the beginning of the yearof change. See § 1.460–1(c)(2) for a de-scription of when a contract is treated as“entered into.” See section 2.06 of this rev-enue procedure for more information re-garding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(3) No audit protection. The taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 18.01of this APPENDIX is “41.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Lore Cavanaugh at202–622–4960 (not a toll-free call).

.02 Reserved.

2011–4 I.R.B. 402 January 24, 2011

SECTION 19. TAXABLE YEAR OFDEDUCTION (§ 461)

.01 Timing of incurring liabilities foremployee compensation.

(1) Self-insured employee medicalbenefits.

(a) Description of change.(i) Applicability. This change ap-

plies to an accrual method taxpayer thatwants to change its method of accountingfor self-insured liabilities (including anyamounts not covered by insurance, such asa “deductible” amount under an insurancepolicy) relating to employee medical ex-penses (including liabilities resulting frommedical services provided to retirees andto employees who have filed claims undera workers’ compensation act) that are notpaid from a welfare benefit fund withinthe meaning of § 419(e) to a method asfollows:

(A) If the taxpayer has a liability topay an employee for medical expenses in-curred by the employee, the taxpayer willtreat the liability as incurred in the tax-able year in which the employee files theclaim with the employer. See United Statesv. General Dynamics Corp., 481 U.S. 239(1987), 1987–2 C.B. 134.

(B) If the taxpayer has a liability to paya 3rd party for medical services provided toits employees, the taxpayer will treat theliability as incurred in the taxable year inwhich the services are provided.

(ii) Inapplicability. This change doesnot apply to a taxpayer that is required un-der § 263A and the regulations thereunderto capitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 19.01(1) ofthe APPENDIX if the taxpayer is not cap-italizing these costs, unless the taxpayerconcurrently changes its method to cap-italize these costs in conjunction with achange to a UNICAP method under sec-tion 11.01 or 11.02 of this APPENDIX (asapplicable).

(b) Amounts taken into account. Ap-plicable provisions of the Code, regula-tions, and other guidance published in theIRB prescribe the manner in which a lia-bility that has been incurred is taken intoaccount. For example, for a taxpayer withinventories, direct labor costs must be in-cluded in inventory costs and may be re-covered through cost of goods sold. See§ 1.263A–1(e)(2)(i)(B). A taxpayer may

not rely on the provisions of this section19.01 of the APPENDIX to take a currentyear deduction.

(c) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(d) Designated automatic account-ing method change number. The des-ignated automatic accounting methodchange number for a change under section19.01(1) of this APPENDIX is “42.” Seesection 6.02(4) of this revenue procedure.

(2) Bonuses.(a) Description of change.(i) Applicability. This change applies

to an accrual method taxpayer that wantsto change its method of accounting to treatbonuses as incurred in the taxable yearin which all events have occurred thatestablish the fact of the liability to pay abonus and the amount of the liability canbe determined with reasonable accuracy(see § 1.446–1(c)(1)(ii)). Specifically, ataxpayer may change its method of ac-counting under section 19.01(2) of thisAPPENDIX to one of the following meth-ods:

(A) If all the events that establish thefact of the liability to pay a bonus haveoccurred by the end of the taxable year inwhich the related services are provided andthe bonus is received by the employee nolater than the 15th day of the 3rd calendarmonth after the end of the taxable year inwhich the related services are provided, thetaxpayer will treat the bonus liability asincurred in that taxable year. See Rev. Rul.55–446, 1955–2 C.B. 531, as modified byRev. Rul. 61–127, 1961–2 C.B. 36.

(B) If all the events that establish thefact of the liability to pay a bonus occur inthe taxable year subsequent to the taxableyear in which the related services are pro-vided, the taxpayer will treat the bonus li-ability as incurred in such subsequent tax-able year.

(ii) Inapplicability. This change doesnot apply to a taxpayer that is required un-der § 263A and the regulations thereunderto capitalize the costs with respect to which

the taxpayer wants to change its method ofaccounting under section 19.01(2) of thisAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(b) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(c) Designated automatic account-ing method change number. The des-ignated automatic accounting methodchange number for a change under section19.01(2) of this APPENDIX is “133.” Seesection 6.02(4) of this revenue procedure.

(3) Vacation pay.(a) Description of change.(i) Applicability. This change applies

to an accrual method taxpayer that wantsto change its method of accounting to treatvacation pay as incurred in the taxable yearin which all events have occurred that es-tablish the fact of the liability to pay va-cation pay and the amount of the liabil-ity can be determined with reasonable ac-curacy (see § 1.446–1(c)(1)(ii)). Specifi-cally, a taxpayer may change its method ofaccounting under section 19.01(3) of thisAPPENDIX to one of the following meth-ods:

(A) If all the events that establish thefact of the liability to pay vacation payhave occurred by the end of the taxableyear in which the related services are pro-vided, the taxpayer will treat the vaca-tion pay liability as incurred in that tax-able year. A taxpayer may change to thismethod of accounting only if the vacationpay vests in that taxable year.

(B) If all the events that establish thefact of the liability to pay vacation payoccur in the taxable year subsequent to thetaxable year in which the related servicesare provided, the taxpayer will treat thevacation pay liability as incurred in suchsubsequent taxable year.

(ii) Inapplicability. This change doesnot apply:

January 24, 2011 403 2011–4 I.R.B.

(A) if the vacation pay is not receivedby the employee by the 15th day of the 3rd

calendar month after the end of the taxableyear in which the related services are pro-vided; or

(B) to a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under section 19.01(3) of thisAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(b) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(c) Designated automatic account-ing method change number. The des-ignated automatic accounting methodchange number for a change under section19.01(3) of this APPENDIX is “134.” Seesection 6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Sandra Cheston at202–622–7900 (not a toll-free call).

.02 Timing of incurring liabilities forreal property taxes, personal propertytaxes, state income taxes, and statefranchise taxes.

(1) Background. An accrual methodtaxpayer generally incurs a liabilityin the taxable year that all the eventshave occurred that establish the fact ofthe liability, the amount of the liabil-ity can be determined with reasonableaccuracy, and economic performancehas occurred with respect to the lia-bility. See § 1.446–1(c)(1)(ii). Under§ 1.461–4(g)(6), if the liability of thetaxpayer is to pay a tax, economic per-formance occurs as the tax is paid to thegovernment authority that imposed thetax.

(2) Description of change.

(a) Applicability. This change appliesto an accrual method taxpayer that wantsto change its method of accounting to:

(i) treat liabilities (for which the allevents test of § 461(h)(4) is otherwise met)for real property taxes, personal propertytaxes, state income taxes, or state fran-chise taxes as incurred in the taxable yearin which the taxes are paid, under § 461and § 1.461–4(g)(6);

(ii) account for real property taxes, per-sonal property taxes, state income taxes,or state franchise taxes under the recurringitem 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 doesnot apply to:

(i) a taxpayer’s liability for a tax subjectto the limitation on acceleration of accrualof taxes under § 461(d); or

(ii) a taxpayer that is required under§ 263A and the regulations thereunder tocapitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 19.02 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(3) Amounts taken into account. Ap-plicable provisions of the Code, regula-tions, and other guidance published in theIRB prescribe the manner in which a liabil-ity that has been incurred is taken into ac-count. For example, for a taxpayer with in-ventories, certain real property taxes mustbe included in inventory costs and may berecovered through cost of goods sold. See§ 1.263A–1(e)(3)(ii)(L). A taxpayer maynot rely on the provisions of this section19.02 of the APPENDIX to take a currentyear deduction.

(4) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.02of this APPENDIX is “43.” See section6.02(4) of this revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact Jamie Kim at202–622–4950 (not a toll-free call).

.03 Timing of incurring liabilitiesunder a workers’ compensation act, tort,breach of contract, or violation of law.

(1) Description of change.(a) Applicability. This change applies

to an accrual method taxpayer that wants tochange its method of accounting for self-insured liabilities (including any amountsnot covered by insurance, such as a “de-ductible” amount under an insurance pol-icy) arising under any workers’ compen-sation act or out of any tort, breach of con-tract, or violation of law, to treating the lia-bility for the workers’ compensation, tort,breach of contract, or violation of law asbeing incurred in the taxable year in whichall the events have occurred that estab-lish the fact of the liability, the amount ofthe liability can be determined with rea-sonable accuracy, and payment is made tothe person to which the liability is owed.See § 461 and § 1.461–4(g)(1) and (2).If the taxpayer has self-insured liabilitiesresulting from medical services providedto employees who have filed claims undera workers compensation act, the taxpayermay change its method of accounting forthose liabilities under section 19.01(1) ofthis APPENDIX.

(b) Inapplicability. This change doesnot apply to a taxpayer that is required un-der § 263A and the regulations thereunderto capitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 19.03 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(2) Amounts taken into account. Ap-plicable provisions of the Code, regula-tions, and other guidance published in theIRB prescribe the manner in which a lia-bility that has been incurred is taken intoaccount. For example, for a taxpayer withinventories, certain employee benefit costs

2011–4 I.R.B. 404 January 24, 2011

(including workers’ compensation) mustbe included in inventory costs and may berecovered through costs of goods sold. See§ 1.263A–1(e)(3)(ii)(D). A taxpayer maynot rely on the provisions of this section19.03 of the APPENDIX to take a currentyear deduction.

(3) Concurrent automatic change. Ataxpayer that wants to make both thischange and change to either a methodprovided in section 19.01(1) of this AP-PENDIX for self-insured employee medi-cal expenses or a UNICAP method undersection 11.01 or 11.02 of this APPEN-DIX (as applicable) for the same year ofchange should file a single Form 3115,in which case the taxpayer must enter thedesignated automatic accounting methodchange numbers for each change on theappropriate line on that Form 3115.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.03of this APPENDIX is “44.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Jamie Kim at202–622–4950 (not a toll-free call).

.04 Timing of incurring certainliabilities for payroll taxes.

(1) Description of change.(a) Applicability. This change applies

to:(i) an accrual method employer that

wants to change its method of accountingfor:

(A) FICA and FUTA taxes to a methodconsistent with the holding in Rev. Rul.96–51, 1996–2 C.B. 36. Rev. Rul. 96–51holds that, under the all events test of§ 461, an accrual method employer maydeduct in Year 1 its otherwise deductibleFICA and FUTA taxes imposed with re-spect to year-end wages properly accruedin Year 1, but paid in Year 2, if the require-ments of the recurring item exception aremet; and

(B) state unemployment taxes and, inthe event the taxpayer is an employerwithin the meaning of the Railroad Re-tirement Tax Act (RRTA) (see § 3231(a)),RRTA taxes to a method under which thetaxpayer may deduct in Year 1 its other-wise deductible state unemployment taxesand railroad retirement taxes (if appli-cable) imposed with respect to year-end

wages properly accrued in year 1, butpaid in Year 2, if the requirements of therecurring item exception are met (includ-ing the requirement that, as of the end ofthe taxable year, all events have occurredthat establish the fact of the liability andthe amount of the liability can be de-termined with reasonable accuracy, see§ 1.461–5(b));

(ii) an accrual method employer thatutilizes a method of accounting for FICAand FUTA taxes that is consistent with theholding in Rev. Rul. 96–51 and wants tochange its method of accounting for stateunemployment taxes and, in the event theemployer is an employer within the mean-ing of RRTA (see § 3231(a)), RRTA taxesto a method under which the taxpayer maydeduct in Year 1 its otherwise deductiblestate unemployment taxes and railroadretirement taxes (if applicable) imposedwith respect to year-end wages properlyaccrued in Year 1, but paid in Year 2, ifthe requirements of the recurring item ex-ception are met (including the requirementthat, as of the end of the taxable year, allevents have occurred that establish the factof the liability and the amount of the lia-bility can be determined with reasonableaccuracy, see § 1.461–5(b)); or

(iii) an accrual method taxpayer thatwants to change its method of account-ing for FICA and FUTA taxes to the safeharbor method provided in Rev. Proc.2008–25, 2008–1 C.B. 686. Rev. Proc.2008–25 provides that for purposes of therecurring item exception, a taxpayer willbe treated as satisfying the requirement in§ 1.461–5(b)(1)(i) for its payroll tax liabil-ity in the same taxable year in which allevents have occurred that establish the factof the related compensation liability andthe amount of the related compensation li-ability can be determined with reasonableaccuracy.

(b) Inapplicability. This change doesnot apply to a taxpayer that is required un-der § 263A and the regulations thereunderto capitalize the costs with respect to whichthe taxpayer wants to change its method ofaccounting under this section 19.04 of theAPPENDIX if the taxpayer is not capital-izing these costs, unless the taxpayer con-currently changes its method to capitalizethese costs in conjunction with a change toa UNICAP method under section 11.01 or11.02 of this APPENDIX (as applicable).

(2) Recurring item exception. A tax-payer that previously has not changed toor adopted the recurring item exception forFICA taxes, FUTA taxes, state unemploy-ment taxes, and railroad retirement taxes(if applicable) must change to the recurringitem exception method for FICA taxes,FUTA taxes, state unemployment taxes,and railroad retirement taxes (if applica-ble) as specified in § 461(h)(3) as part ofthis change.

(3) Amounts taken into account. Appli-cable provisions of the Code, regulation,and other guidance published in the IRBprescribe the manner in which a liabil-ity that has been incurred is taken intoaccount. For example, for a taxpayerwith inventories, certain taxes must beincluded in inventory costs and may berecovered through cost of goods sold. See§ 1.263A–1(e)(3)(ii)(L). A taxpayer maynot rely on the provisions of this section19.04 of the APPENDIX to take a currentyear deduction.

(4) Concurrent automatic change. Ataxpayer that wants to make both thischange and a change to a UNICAP methodunder section 11.01 or 11.02 of this AP-PENDIX (as applicable) for the same yearof change should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(5) Designated automatic account-ing method change number. The des-ignated automatic accounting methodchange number for a change under section19.04(1)(a)(i) or (ii) of this APPENDIX is“45.” The designated automatic account-ing method change number for a changeunder section 19.04(1)(a)(iii) of this AP-PENDIX is “113.” See section 6.02(4) ofthis revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact Jamie Kim at202–622–4950 (not a toll-free call).

.05 Cooperative advertising.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for cooperativeadvertising costs to a method consistentwith the holding in Rev. Rul. 98–39,1998–2 C.B. 198. Rev. Rul. 98–39 gen-erally provides that, under the all eventstest of § 461, an accrual method manufac-

January 24, 2011 405 2011–4 I.R.B.

turer’s liability to pay a retailer for cooper-ative advertising services is incurred in theyear in which the services are performed,provided the manufacturer is able to rea-sonably estimate this liability, and eventhough the retailer does not submit the re-quired claim form until the following year.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.05of this APPENDIX is “46.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Jamie Kim at202–622–4950 (not a toll-free call).

.06 Timing of incurring certainliabilities for services or insurance.

(1) Description of change. This changeapplies to a taxpayer that is currently treat-ing the mere execution of a contract for ser-vices or insurance as establishing the factof the liability under § 461 and wants tochange from that method of accounting forliabilities for services or insurance to com-ply with Rev. Rul. 2007–3, 2007–1 C.B.350, that is, all the events needed to estab-lish the fact of the liability occur when (a)the event fixing the liability, whether thatbe the required performance or other eventoccurs or (b) payment is due, whicheverhappens earliest.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.06of this APPENDIX is “106.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Charles Kim at202–622–5020 (not a toll-free call).

.07 Rebates and allowances.(1) Description of change.(a) Applicability. This change applies

to an accrual method taxpayer that wants tochange its method of accounting for treat-ing its liability for rebates and allowancesto the recurring item exception method un-der § 461(h)(3) and § 1.461–5.

(b) Inapplicability. This change doesnot apply to a taxpayer’s liability to pay arefund.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.07

of this APPENDIX is “135.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Jamie Kim at202–622–4950 (not a toll-free call).

.08 Ratable accrual of real propertytaxes.

(1) Description of change. This changeapplies to an accrual method taxpayer thatwants to change its method of accountingfor real property taxes to the method de-scribed in § 461(c) and § 1.461–1(c)(1)(ratable accrual election). This change ap-plies to real property taxes that relate to adefinite period of time. This change doesnot apply to a taxpayer’s first taxable yearin which the taxpayer incurs real propertytaxes, in which case the change is made us-ing the provisions of § 1.461–1(c)(3)(i).

(2) Manner of making change anddesignated automatic accounting methodchange number.

(a) This change is made on a cut-offbasis and applies only to real propertytaxes accrued on or after the beginningof the year of change. Any real prop-erty taxes accrued prior to the year ofchange are accounted for under the tax-payer’s former method of accounting. See§ 1.461–1(c)(6), Examples (2) — (5). Seealso section 2.06 of this revenue procedurefor more information regarding a cut-offbasis. Accordingly, a § 481(a) adjustmentis 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 an applicationon Form 3115 is waived and a statementin lieu of the Form 3115 is authorized forthis change. The taxpayer’s request (Form3115 or statement) to make the changeunder this section of the APPENDIX mustinclude all of the following:

(i) the designated automatic accountingmethod change number for this change,which is “149”;

(ii) the taxpayer’s name and employeridentification number (or social securitynumber in the case of an individual);

(iii) the year of change (both the begin-ning and ending dates); and

(iv) the information described in§ 1.461–1(c)(3)(ii)(a) through (f).

(c) The consent granted under thisrevenue procedure satisfies the con-sent required under § 461(c)(2)(B) and§ 1.461–1(c)(3)(ii).

(3) Contact information. For furtherinformation regarding a change underthis section, contact Daniel Cassano at202–622–7900 (not a toll-free call).

.09 California Franchise Taxes.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for Californiafranchise taxes to a method consistent withthe holding in Rev. Rul. 2003–90, 2003–2C.B. 353. Rev. Rul. 2003–90 providesthat for taxable years beginning on or afterJanuary 1, 2000, a taxpayer that uses an ac-crual method of accounting incurs a liabil-ity for California franchise tax for federalincome tax purposes in the taxable yearfollowing the taxable year in which theCalifornia franchise tax is incurred underthe Cal. Rev. & Tax Code, as amended.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.09of this APPENDIX is “154.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Charles Kim at202–622–5020.

.10 Gift cards issued as a refund forreturned goods.

(1) Description of change.(a) Applicability. This change applies

to an accrual method taxpayer that sellsgoods at retail and that wants to changeits method of accounting for gift cards (asdefined by section 4.02 of Rev. Proc.2011–17, 2011–5 I.R.B.) issued as a refundfor returned goods to treat the transactionas (1) the payment of a cash refund in theamount of the gift card, and (2) the sale ofa gift card in the amount of the gift card.

(b) Treatment of proceeds of the deemedsale. A taxpayer must treat the proceedsof the deemed sale of a gift card in ac-cordance with the method of accounting itotherwise employs for sales of gift cards.

(2) Scope limitations temporarily inap-plicable. The scope limitations in section4.02 of this revenue procedure do not ap-ply to the taxpayer’s first or second tax-able year ending on or after December 31,2010.

(3) Concurrent automatic change. Ataxpayer that wants to make both thischange and an automatic change to thedeferral method for advance paymentsunder Rev. Proc. 2004–34 (see section

2011–4 I.R.B. 406 January 24, 2011

15.07 of this APPENDIX) for the sametaxable year of change must file a singleForm 3115 for both changes and enter thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115.

(4) Concurrent non-automatic change.A taxpayer that wants to make boththis change and change to a permissiblemethod of accounting under § 1.451–5for the same taxable year of change mustrequest this change in method of account-ing using the non-automatic procedures inRev. Proc. 97–27 (or any successor).

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 19.10of this APPENDIX is “156.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Sean M. Dwyer at202–622–5020 (not a toll-free call).

SECTION 20. RENT (§ 467)

.01 Change from an improper methodof inclusion of rental income or expenseto inclusion in accordance with the rentallocation.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that:(i) is a party to § 467 rental agreements

(within the meaning of § 1.467–1(c)(1)for rental agreements entered into afterMay 18, 1999, and § 467(d) for all otheragreements); and

(ii) wants to change its method of ac-counting for its fixed rent (as defined in§ 1.467–1(d)(2)) to the rent allocationmethod provided in § 1.467–1(d)(2)(iii).

(b) Inapplicability. This change doesnot apply to taxpayers required to use theconstant rental accrual method describedin § 1.467–(3)(a) or the proportional rentalaccrual method described in § 1.467–(2)(a)for their fixed rent.

(2) Additional requirements. The tax-payer must attach to its Form 3115 a copyof one of its § 467 rental agreements tobe covered by this automatic change (or atleast the pages of the agreement relating tothe manner in which rent is allocated).

(3) Audit protection limited. Auditprotection under section 7 of this revenueprocedure does not apply to this change

for any § 467 rental agreement determinedby the Commissioner to be a disquali-fied leaseback or long-term agreementdescribed in § 1.467–(3)(b).

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 20.01of this APPENDIX is “136.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact William Ruane at202–622–4920 (not a toll-free call).

.02 Reserved.

SECTION 21. INVENTORIES (§ 471)

.01 Cash discounts.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for cash dis-counts (discounts granted for timely pay-ment) when they approximate a fair in-terest rate, from a method of consistentlyincluding the price of the goods beforediscount in the cost of the goods and in-cluding in gross income any discountstaken (the “gross invoice method”), to amethod of reducing the cost of the goodsby the cash discounts and deducting as anexpense any discounts not taken (the “netinvoice method”), or vice versa. See Rev.Rul. 73–65, 1973–1 C.B. 216.

(2) Computation of § 481(a) adjustmentfor changes to net invoice method. In thecase of a taxpayer changing from the grossinvoice method to the net invoice method,a negative adjustment is required to pre-vent duplications arising from the fact thatthe gross invoice method reported incomeupon timely payment for some or all ofthe goods that remain in inventory, and apositive adjustment is required to preventomissions arising from the fact that thegross invoice method included the invoiceprice, unadjusted for the cash discounts, ofsome or all goods in cost of goods soldand the discount will be earned by pay-ment in a subsequent taxable year. Thenet § 481(a) adjustment can be computedby deducting the “Applicable Discount”at the beginning of the year of changefrom the “Available Discount” at the be-ginning of the year of change. The Avail-able Discount is equal to the difference be-tween the accounts payable balance underthe gross invoice method and the net in-

voice method. The Applicable Discountis equal to the difference between the be-ginning inventory value under the gross in-voice method and the net invoice method.

Example. Taxpayer’s accounts payable bal-ance at the beginning of the year of change was$1,000 under the gross invoice method and $980under the net invoice method. Taxpayer’s inven-tory value was $3,000 under the gross invoicemethod and $2,955 under the net invoice method.The Available Discount is $20 ($1,000 - $980)and the Applicable Discount is $45 ($3,000 -$2,955). Thus, Taxpayer’s net § 481(a) adjust-ment is a negative $25 ($20 - $45).

(3) Computation of § 481(a) adjustmentfor changes to gross invoice method. Inthe case of a taxpayer changing from thenet invoice method to the gross invoicemethod, a positive adjustment is requiredto prevent omissions arising from the factthat the net invoice method did not re-port income upon timely payment for someor all of the goods that remain in inven-tory, and a negative adjustment is requiredto prevent duplications arising from thefact that the net invoice method includedthe invoice price, adjusted for the cashdiscounts, of some or all goods in costof goods sold and the discount will beearned by payment in a subsequent tax-able year. The net § 481(a) adjustment canbe computed by deducting the “AvailableDiscount” at the beginning of the year ofchange from the “Applicable Discount” atthe beginning of the year of change. TheAvailable Discount is equal to the differ-ence between the accounts payable bal-ance under the gross invoice method andthe net invoice method. The ApplicableDiscount is equal to the difference betweenthe beginning inventory value under thegross invoice method and the net invoicemethod.

Example. Taxpayer’s accounts payable bal-ance at the beginning of the year of change was$980 under the net invoice method and $1,000under the gross invoice method. Taxpayer’sinventory value was $2,955 under the net in-voice method and $3,000 under the gross invoicemethod. 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 accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.01of this APPENDIX is “48.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-

January 24, 2011 407 2011–4 I.R.B.

der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

.02 Estimating inventory “shrinkage”.(1) Description of change. This change

applies to a taxpayer that wants to changeto a method of accounting for estimatinginventory shrinkage in computing endinginventory, using:

(a) the “retail safe harbor method” de-scribed in section 4 of Rev. Proc. 98–29,1998–1 C.B. 857; or

(b) a method other than the retail safeharbor method, provided (i) the taxpayer’spresent method of accounting does not es-timate inventory shrinkage, and (ii) thetaxpayer’s new method of accounting (thatestimates inventory shrinkage) clearly re-flects income under § 446(b).

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Additional requirements. If thetaxpayer wants to change to a method ofaccounting for inventory shrinkage otherthan the retail safe harbor method, thetaxpayer must attach to its Form 3115 astatement setting forth a detailed descrip-tion of all aspects of the new method ofestimating inventory shrinkage (including,for last-in, first-out (LIFO) taxpayers, themethod of determining inventory shrink-age for, or allocating inventory shrinkageto, each LIFO pool).

(4) Audit protection. A taxpayer doesnot receive audit protection under section7 of this revenue procedure in connec-tion with a change to the retail safe harbormethod if, on the date the taxpayer files acopy of the Form 3115 with the nationaloffice, the taxpayer’s present method ofestimating inventory shrinkage is an issueunder consideration within the meaning ofsection 3.09 of this revenue procedure.

(5) Future change. A taxpayer thatchanges to the retail safe harbor methoddescribed in Rev. Proc. 98–29 will notbe precluded, solely by reason of suchchange, from changing to another safeharbor method for estimating inventoryshrinkage in computing ending inventoryin the first year such other safe harbormethod is available.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.02

of this APPENDIX is “49.” See section6.02(4) of this revenue procedure.

(7) Contact information. For fur-ther information regarding a change un-der this section, contact Steven Gee at202–622–4970 (not a toll-free call).

.03 Small taxpayer exception fromrequirement to account for inventoriesunder § 471.

(1) Description of change. This changeapplies to either a taxpayer (other than ataxpayer described § 448(a)(3)) with “av-erage annual gross receipts” (as defined insection 5.01 of Rev. Proc. 2001–10, asmodified by Announcement 2004–16 andRev. Proc. 2011–14) of $1,000,000 orless or a qualifying taxpayer (other than ataxpayer described in § 448) with “aver-age annual gross receipts” (as defined insection 5.02 of Rev. Proc. 2002–28, asmodified by Announcement 2004–16 andRev. Proc. 2011–14) of $10,000,000 orless that wants to change from a method ofaccounting for inventoriable items (includ-ing, if applicable, from the method of capi-talizing costs under § 263A) to the methoddescribed in Rev. Proc. 2001–10 andRev. Proc. 2002–28, for treating inven-toriable items in the same manner as ma-terials and supplies that are not incidentalunder § 1.162–3.

(2) Scope limitations applicable. Thescope limitations in section 4.02 of thisrevenue procedure (including the limita-tion regarding a prior change within fivetaxable years of section 4.02(6)) and the re-quirements in sections 6.03 (regarding tax-payers under examination), 6.04 (regard-ing taxpayers before an appeals office) and6.05 (regarding taxpayers before a federalcourt) of this revenue procedure apply to achange in method of accounting made un-der this section 21.03 of the APPENDIX.See sections 14.05 and 14.06 of Rev. Proc.2011–14.

(3) Manner of making change. See Rev.Proc. 2001–10 or Rev. Proc. 2002–28(as applicable) for additional guidance onthe computation of the § 481(a) adjustmentand the completion of the Form 3115.

(4) Concurrent automatic change tothe overall cash method under Rev. Proc.2001–10 or Rev. Proc. 2002–28. A tax-payer that wants to make both this changeand a change to the overall cash methodunder Rev. Proc. 2001–10 or Rev. Proc.2002–28 (see section 14.03 of this AP-PENDIX) for the same year of change

may file a single Form 3115 for bothchanges, provided the taxpayer enters thedesignated automatic accounting methodchange numbers for both changes on theappropriate line on that Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.03of this APPENDIX for the small taxpayer($1 million) inventory exception con-tained in Rev. Proc. 2001–10 is “50.” Thedesignated automatic accounting methodchange number for a change under section21.03 of this APPENDIX for the smalltaxpayer ($10 million) inventory excep-tion contained in Rev. Proc. 2002–28 is“51.” See section 6.02(4) of this revenueprocedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact Kari Fisher, at202–622–4970 (not a toll-free call).

.04 Qualifying volume-related tradediscounts.

(1) Description of change. This changeapplies to a taxpayer that wants to changeits method of accounting to treat qualifyingvolume-related trade discounts as a reduc-tion in the cost of merchandise purchasedat the time the discount is recognized in ac-cordance with § 1.471–3(b). A “qualify-ing volume-related trade discount” meansa discount satisfying the following criteria:

(a) the taxpayer receives or earns thediscount based solely upon the purchase ofa particular volume of the merchandise towhich the discount relates;

(b) the taxpayer is neither obligated norexpected to perform or provide any ser-vices in exchange for the discount; and

(c) the discount is not a reimbursementof any expenditure incurred or to be in-curred by the taxpayer.

(2) Section 481(a) adjustment. Thenet § 481(a) adjustment attributable to thechange is computed in a manner similarto the computation of a net § 481(a) ad-justment in the case of a change to thenet invoice method of accounting for cashdiscounts. See section 21.01(2) of thisAPPENDIX.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.04of this APPENDIX is “53.” See section6.02(4) of this revenue procedure.

2011–4 I.R.B. 408 January 24, 2011

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

.05 Impermissible methods ofidentification and valuation.

(1) Description of change. This changeapplies to a taxpayer:

(a) changing from an impermissi-ble method of accounting described in§§ 1.471–2(f)(1) through (5), includinga LIFO taxpayer restoring a write downof inventory below cost or discontinuingmaintaining an inventory reserve;

(b) changing from a gross profit methodor from a method of determining marketthat is not in accordance with § 1.471–4;or

(c) changing from a method that is notin accordance with § 1.471–2(c) for deter-mining the value of “subnormal” goods.

(i) Gross profit method. A gross profitmethod is a method in which the taxpayerestimates the cost of goods sold by reduc-ing its gross sales by a percentage “mark-up” from cost. The estimated cost of goodssold is subtracted from the sum of the be-ginning inventory and purchases and theresult is used as the ending inventory.

(ii) Method of determining market. Anexample of a method of determining mar-ket that is not in accordance with § 1.471–4is where a taxpayer, under ordinary cir-cumstances, determines the market valueof purchased merchandise using judgmentfactors, and not using the prevailing cur-rent bid price on the inventory date for theparticular merchandise in the volume inwhich it is usually purchased by the tax-payer.

(2) Applicability. For purposes of thischange, a taxpayer must be changing to aninventory method (identification or valua-tion, or both) specifically permitted by theCode, the regulations, or a decision of theUnited States Supreme Court, a revenueruling, a revenue procedure, or other guid-ance published in the IRB for the inventorygoods, and the taxpayer is neither prohib-ited from using that method nor required touse a different inventory method for thoseinventory goods. This change does not ap-ply to a change described in another sec-tion of this revenue procedure or in otherguidance published in the IRB.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method change

number for a change under section 21.05of this APPENDIX is “54.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (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 motorvehicle parts and a reseller of remanu-factured and rebuilt motor vehicle partsthat use the cost or market, whichever islower, (LCM) inventory valuation methodto value their inventory of cores held forremanufacturing or sale and wants to usethe Core Alternative Valuation (CAV)method specified in Rev. Proc. 2003–20,2003–1 C.B. 445.

(b) Inapplicability. This change doesnot apply to a taxpayer that values itsinventory of cores at cost (includinga taxpayer using the LIFO inventorymethod) unless the taxpayer concurrentlychanges (under section 6.02 of Rev. Proc.2003–20) from cost to the LCM methodfor its cores (including labor and over-head related to the cores in raw materials,work-in-process and finished goods).

(2) Concurrent automatic change. Ataxpayer that wants to make both thischange and (i) a change from the costmethod to the LCM method under section21.11 of this APPENDIX, or (ii) a changefrom the LIFO inventory method to apermitted method for identification under(and as determined and defined in) section22.01(1)(b) of this APPENDIX for thesame year of change, should file a singleForm 3115 for both changes, provided thetaxpayer enters the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.06of this APPENDIX is “55.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Eric D. Brauer at202–622–4970 (not a toll-free call).

.07 Replacement cost for automobiledealers’ parts inventory.

(1) Description of change. This changeapplies to a taxpayer that is engaged in thetrade or business of selling vehicle partsat 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-dutytrucks, and that wants to use the replace-ment cost method described in section 4 ofRev. Proc. 2002–17, 2002–1 C.B. 676, forits vehicle parts inventory. See Rev. Proc.2002–17 for further information regardingthis change.

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to the computation of ending in-ventories on or after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.07of this APPENDIX is “63.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Eric D. Brauer at202–622–4970 (not a toll-free call).

.08 Replacement cost for heavyequipment dealers’ parts inventory.

(1) Description of change. This changeapplies to a heavy equipment dealer thatis engaged in the trade or business of sell-ing heavy equipment parts at retail, that isauthorized under an agreement with oneor more heavy equipment manufacturersor distributors to sell new heavy equip-ment, and that wants to use the replace-ment cost method described in section 4 ofRev. Proc. 2006–14, 2006–1 C.B. 350, forits heavy equipment parts inventory.

(2) Manner of making the change. Thischange is made on a cut-off basis and ap-plies only to the computation of ending in-ventories after the beginning of the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-justment is neither permitted nor required.

(3) Concurrent automatic change. Ataxpayer that wants to make both thischange and another automatic change in

January 24, 2011 409 2011–4 I.R.B.

method of accounting under § 263A (seesection 11 of this APPENDIX) for thesame year of change may file a singleForm 3115 for both changes, provided thetaxpayer enters the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115, and complies with theordering rules of § 1.263A–7(b)(2).

(4) Designated automatic accountingmethod change number. The taxpayermust prepare and file a Form 3115 inaccordance with section 6 of Rev. Proc.2006–14. The designated automatic ac-counting method change number for achange under section 21.08 of this AP-PENDIX is “96.” See section 6.02(4) ofthis revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Eric D. Brauer at202–622–4970 (not a toll-free call).

.09 Rotable spare parts.(1) Description of change. This change

applies to a taxpayer that is using the safeharbor method of accounting to treat itsrotable spare parts as depreciable assetsin accordance with Rev. Proc. 2007–48,2007–2 C.B. 110, and wants to change itsmethod of accounting to treat its rotablespare parts as inventoriable items. Thischange also applies to a taxpayer who istreating its rotable spare parts as deprecia-ble assets in a manner similar to the safeharbor method described in Rev. Proc.2007–48, and wants to change its methodof accounting to treat its rotable spare partsas inventoriable items. A taxpayer chang-ing its method of accounting for rotablespare parts under this section 21.09 of theAPPENDIX, must use a proper inventorymethod to identify and value its rotablespare parts.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to a tax-payer that is required to make the changein method of accounting pursuant to sec-tion 5.06 of Rev. Proc. 2007–48.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.09of this APPENDIX is “110.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change under

this section, contact Gwen Turner at202–622–5020 (not a toll-free call).

.10 Advance Trade Discount Method.(1) Description of change. This change

applies to a taxpayer that wants to usethe Advance Trade Discount Method de-scribed in Rev. Proc. 2007–53, 2007–2C.B. 233.

(2) Scope. This change in method ofaccounting applies to an accrual methodtaxpayer required to use an inventorymethod of accounting and maintaininginventories, as provided in § 471 and theregulations thereunder, that receives ad-vance trade discounts as defined in § 4.03of Rev. Proc. 2007–53.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.10of this APPENDIX is “111.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Eric D. Brauer, at202–622–4970 (not a toll-free call).

.11 Permissible methods ofidentification and valuation.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer that wants to change fromone permissible method of identifying andvaluing inventories to another permissi-ble method of identifying and valuing in-ventories. For example, a taxpayer us-ing first-in, first-out (FIFO) as its inven-tory-identification method may change itsinventory-valuation method from cost tocost or market, whichever is lower (LCM).(Note, however, a real estate developermay not value real property or improve-ments to the real property at LCM becausereal property is not inventoriable propertyunder § 1.471–1. Also, a taxpayer whomeets the definition of a “dealer in secu-rities” under both § 1.471–5 and § 475 isrequired to account for securities, as de-fined in § 475, under § 475 and may not usethe rules described in § 1.471–5 for thosesecurities.) Furthermore, a taxpayer maychange to a permissible method of valuing“subnormal” goods under § 1.471–2(c).

However, this change does not apply toany change described in another sectionof the APPENDIX of this revenue proce-dure or in other guidance published in theIRB, or to any changes within the last-in,first-out (LIFO) inventory method. For ex-

ample, this change does not apply to a tax-payer that wants to change to a rolling-av-erage method (see section 21.14 of thisAPPENDIX).

(b) Permissible method defined. Forpurposes of this change, a permissiblemethod is an inventory method (identifi-cation or valuation, or both) specificallypermitted by the Code, the regulations,a decision of the United States SupremeCourt, a revenue ruling, a revenue proce-dure, or other guidance published in theIRB for inventories. However, an other-wise permissible inventory method is notpermissible under this section 21.11 ofthe APPENDIX of this revenue procedurefor a specific taxpayer if that taxpayer isprohibited from using that method or ifthat taxpayer is required to use a differentmethod.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.11of this APPENDIX is “137.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

.12 Change in the official used vehicleguide utilized in valuing used vehicles.

(1) Description of change. Used vehi-cles taken in trade as part payment on thesale of vehicles by a dealer may be val-ued for inventory purposes at valuationscomparable to those listed in an officialused vehicle guide as the average whole-sale prices for comparable vehicles. SeeRev. Rul. 67–107, 1967–1 C.B. 115. Thischange applies to: (a) a taxpayer that wantsto change from not using an official usedvehicle guide to using an official used ve-hicle guide for valuing used vehicles; or(b) a taxpayer that wants to change to a dif-ferent official used vehicle guide for valu-ing used vehicles.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.12of this APPENDIX is “138.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

2011–4 I.R.B. 410 January 24, 2011

.13 Invoiced advertising associationcosts for new vehicle retail dealerships.

(1) Description of change. This changeapplies to a taxpayer that is engaged in thetrade or business of retail sales of new au-tomobiles or new light-duty trucks (“deal-ership”) that wants to discontinue capital-izing certain advertising costs as acquisi-tion costs under § 1.471–3(b). The changeapplies to advertising costs that meet thefollowing criteria: (a) the dealership mustpay this advertising fee when acquiring ve-hicles from the manufacturer; (b) the ad-vertising costs are separately coded and in-cluded in the manufacturer’s invoice costof the new vehicle; (c) the advertising costis a flat fee per vehicle or a fixed percent-age of the invoice price; and (d) the feescollected by the manufacturer are paid tolocal advertising associations that promoteand advertise the manufacturer’s productsin the dealership’s market area. Under thenew method, the dealership will excludeadvertising costs that meet the above cri-teria from the cost of new vehicles anddeduct the advertising costs under § 162 asthe advertising services are provided to thedealership. See § 1.461–4(d)(2)(i).

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.13of this APPENDIX is “139.” See section6.02(4) of this revenue procedure.

(3) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

.14 Rolling-average method ofaccounting for inventories.

(1) Description of change. This changeapplies to a taxpayer that uses a rolling-average method to value inventories forfinancial accounting purposes and wantsto use the same rolling-average method tovalue inventories for federal income taxpurposes in accordance with Rev. Proc.2008–43, 2008–30 I.R.B. 186, as modifiedby Rev. Proc. 2008–52 (see section 13).

(2) Certain scope limitation temporar-ily inapplicable. The scope limitation insection 4.02(7) of this revenue proceduredoes not apply to the change to a rolling-average method in the taxpayer’s first orsecond taxable year ending on or after De-cember 31, 2007.

(3) Manner of making change. Thischange is made on a cut-off basis unless

the taxpayer’s books and records con-tain sufficient information to compute a§ 481(a) adjustment, in which case the tax-payer may choose to implement the changewith a § 481(a) adjustment as providedin section 5.04 of this revenue procedure.See section 2.06 of this revenue procedurefor more information regarding a cut-offbasis.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 21.14of this APPENDIX is “114.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

SECTION 22. LAST-IN, FIRST-OUT(LIFO) INVENTORIES (§ 472)

.01 Change from the LIFO inventorymethod.

(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 theentire content of one or more dollar-valuepools; and

(ii) change to a permitted methodor methods as determined in section22.01(1)(b) of this APPENDIX.

(b) Method to be used.(i) Determining the permitted method

to be used. A taxpayer may change toone or more non-LIFO inventory methodsfor the LIFO inventories that are the sub-ject of this accounting method change, butonly if the selected non-LIFO method is apermitted method for the inventory goodsto which it will be applied. For exam-ple, a heavy equipment dealer may changeto the specific identification method fornew heavy equipment inventories and thereplacement cost method, as described inRev. Proc. 2006–14, 2006–1 C.B. 350, forheavy equipment parts inventories.

(ii) Permitted method defined. For pur-poses of section 22.01 of this APPENDIX,an inventory method (identification or val-uation, or both) is a permitted method ifit is specifically permitted by the Code,the regulations, a decision of the UnitedStates Supreme Court, a revenue ruling, arevenue procedure, or other guidance pub-

lished in the IRB for the inventory goodsand if the taxpayer is neither prohibitedfrom using that method nor required to usea different inventory method for those in-ventory goods.

(iii) Determining permitted method.Whether an inventory method is a permit-ted method is determined without regardto the types and amounts of costs cap-italized under the taxpayer’s method ofcomputing inventory cost. See § 263A andthe regulations thereunder, which governthe types and amounts of costs required tobe included in inventory cost for taxpayerssubject to those provisions.

(2) Certain scope limitation inapplica-ble. The scope limitation in section 4.02(7)of this revenue procedure does not apply inthe first taxable year that the taxpayer doesnot or will not comply with the require-ments of § 472(e)(2) because the taxpayerhas applied or will apply International Fi-nancial Reporting Standards in its finan-cial statements or because the taxpayer hasbeen acquired by an entity that has not orwill not use the LIFO method in its finan-cial statements.

(3) Limitation on LIFO election. Thetaxpayer may not re-elect the LIFO in-ventory method for a period of at leastfive taxable years beginning with the yearof change unless, based on a showing ofunusual and compelling circumstances,consent is specifically granted by theCommissioner to change the method ofaccounting at an earlier time. A taxpayerthat wants to re-elect the LIFO inventorymethod within a period of five taxableyears (beginning with the year of change)must file a Form 3115 in accordance withRev. Proc. 97–27 (or any successor). Ataxpayer that wants to re-elect the LIFOinventory method after a period of fivetaxable years (beginning with the year ofchange) is not required to file a Form 3115in accordance with Rev. Proc. 97–27, butmust file a Form 970, Application to UseLIFO Inventory Method, in accordancewith § 1.472–3.

(4) Effect of subchapter S election bycorporation.

(a) S election effective for year of LIFOdiscontinuance. If a C corporation electsto be treated as an S corporation for thetaxable year in which it discontinues useof the LIFO inventory method, § 1363(d)requires an increase in the taxpayer’s grossincome for the LIFO recapture amount (as

January 24, 2011 411 2011–4 I.R.B.

defined in § 1363(d)(3)) for the taxableyear preceding the year of change (the tax-payer’s last taxable year as a C corpora-tion) and a corresponding adjustment tothe basis of the taxpayer’s inventory asof the end of the taxable year precedingthe year of change. Any increase in in-come tax as a result of the inclusion of theLIFO recapture amount is payable in fourequal installments, beginning with the tax-payer’s last taxable year as a C corpora-tion as provided in § 1363(d)(2). Any cor-responding basis adjustment is taken intoaccount in computing the § 481(a) adjust-ment (if any) that results upon the discon-tinuance of the LIFO inventory method bythe corporation.

(b) S election effective for a year af-ter LIFO discontinuance. If a C corpora-tion elects to be treated as an S corpora-tion for a taxable year after the taxable yearin which it discontinued use of the LIFOinventory method, the remaining balanceof any positive § 481(a) adjustment mustbe included in its gross income in its lasttaxable year as a C corporation. If this in-clusion results in an increase in tax for itslast taxable year as a C corporation, thisincrease in tax is payable in four equal in-stallments, beginning with the taxpayer’slast taxable year as a C corporation as pro-vided in § 1363(d)(2), unless the taxpayeris required to take the remaining balanceof the § 481(a) adjustment into account inthe last taxable year as a C corporation un-der another acceleration provision in sec-tion 5.04(3)(c) of this revenue procedure.

(5) Additional requirements. The tax-payer must complete the following state-ments and attach them to its Form 3115.If the taxpayer will use different methodsfor different inventory goods to which thechange applies, the taxpayer must com-plete the statements for each of those dif-ferent types of inventory goods.

(a) “The new method of identifying [In-sert description of inventory goods] is the[Insert method, as appropriate; that is,specific identification; FIFO; retail; etc.]method.”

(b) “The new method of valuing [In-sert description of inventory goods] is [In-sert method, as appropriate; that is, cost;LCM; etc.].”

(6) Pool split and partial termination.If a taxpayer must remove goods from apool because those goods are not withinthe scope of that pool (for example, re-

moving resale goods from a manufacturingpool), and if the taxpayer wants to changefrom the LIFO inventory method for thoseremoved goods, the taxpayer may split thepool pursuant to section 22.10 of this AP-PENDIX and then may change from theLIFO method pursuant to section 22.01 ofthis APPENDIX. See section 22.10(2) ofthis APPENDIX. The taxpayer must file aseparate Form 3115 for each such change.

(7) Section 481(a) adjustment required.(a) General rule. A taxpayer chang-

ing from a LIFO method must compute asection 481(a) adjustment for the year ofchange. See section 5.03 of this revenueprocedure.

(b) Special rule for changes that wouldotherwise be implemented with a cutoff.If a taxpayer is changing from the LIFOmethod to a method that is implementedon a cut-off basis under another section ofthis revenue procedure (see, e.g., sections21.07, 21.08, and 21.14 of this APPEN-DIX), the taxpayer’s § 481(a) adjustmentis “the LIFO recapture amount” as definedin § 312(n)(4)(B) and (C). A taxpayer com-puting the § 481(a) adjustment under thisspecial rule must then compute its endinginventory value for the year of change us-ing the new method (i.e., treat the deemedchange from the FIFO method to the newmethod on a cut-off basis).

(8) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.01of this APPENDIX is “56.” See section6.02(4) of this revenue procedure.

(9) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.02 Determining current-year costunder the LIFO inventory method.

(1) Description of change.(a) Applicability. This change applies

to a taxpayer using the LIFO inventorymethod that wants to change its method ofdetermining current-year cost to:

(i) the actual cost of the goods mostrecently purchased or produced (most-re-cent-acquisitions method);

(ii) the actual cost of the goods pur-chased or produced during the taxable yearin the order of acquisition (earliest-acqui-sitions method);

(iii) the average unit cost equal to theaggregate actual cost of all the goods

purchased or produced throughout thetaxable year divided by the total numberof 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 inaccordance with Rev. Proc. 2008–43,2008–30 I.R.B. 186, as modified by Rev.Proc. 2008–52 (see section 13).

(b) Inapplicability. This change doesnot apply to a taxpayer using the lower ofcost or market method to determine cur-rent-year cost. A taxpayer using the lowerof cost or market method that valued in-ventory below cost may not change to aproper cost valuation under this section22.02 of the APPENDIX.

(2) Certain scope limitation temporar-ily inapplicable. The scope limitation insection 4.02(7) of this revenue proceduredoes not apply to the change to a rolling-average method in the taxpayer’s first orsecond taxable year ending on or after De-cember 31, 2007.

(3) Manner of making change. Thischange is made using a cut-off basis andapplies only to the computations of cur-rent-year cost after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(4) Concurrent change to a rolling-av-erage method. A taxpayer that wants tomake both a change to a rolling-averagemethod of determining current-year costfor its LIFO inventory under this section22.02 of the APPENDIX and a change to arolling-average method of accounting fornon-LIFO inventories under Rev. Proc.2008–43 (see section 21.14 of this AP-PENDIX) should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.02of this APPENDIX is “57.” See section6.02(4) of this revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-

2011–4 I.R.B. 412 January 24, 2011

der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.03 Alternative LIFO inventory methodfor 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 automobilesor new light-duty trucks (“automobiledealer”) that wants to change to the “Alter-native LIFO method” described in section4 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 inventoriesof new automobiles and new light-dutytrucks. Light-duty trucks are trucks with agross vehicle weight of 14,000 pounds orless, which also are referred to as class 1,2, or 3 trucks.

(b) Inapplicability. This change doesnot apply to an automobile dealer that usesthe inventory price index computation(IPIC) method for goods other than newautomobiles, new light-duty trucks, partsand accessories, used automobiles, andused trucks.

(2) Manner of making change.(a) Cut-off basis. This change is made

using a cut-off basis and applies only tothe computation of ending inventories af-ter the beginning of the year of change.See section 2.06 of this revenue procedureand section 5.03(6) of Rev. Proc. 97–36for more information regarding a cut-offbasis. Accordingly, a § 481(a) adjustmentis neither permitted nor required.

(b) Concurrent change from IPICmethod. An automobile dealer usingthe IPIC method that also has parts andaccessories, used automobiles, or usedlight-duty trucks (other goods) inventorymay incorporate a change, using a cut-offbasis, from IPIC to another acceptableLIFO method for those other goods intothis change. When changing from IPICto a dollar-value LIFO method for itsother goods, the automobile dealer mustestablish separate inventory pools for newautomobiles and new light-duty trucks,unless the automobile dealer also concur-rently changes to the Vehicle-Pool Method(see section 22.08 of this APPENDIX).Further, the automobile dealer must estab-lish a separate inventory pool for the partsand accessories.

(c) Additional requirements. An auto-mobile dealer also must comply with thefollowing:

(i) the conditions in section 5.03 of Rev.Proc. 97–36; and

(ii) for an automobile dealer changingfrom the IPIC method, the automobiledealer also must attach to the applicationa schedule setting forth the classes ofgoods for which the automobile dealer haselected to use the LIFO method and theaccounting method changes being madeunder section 22.03 of this APPENDIXfor each class of goods.

(3) Concurrent change to the Vehi-cle-Pool Method. A taxpayer that wantsto make both a change to the AlternativeLIFO Method under this section 22.03of the APPENDIX and a change to theVehicle-Pool Method under Rev. Proc.2008–23 (see section 22.08 of this AP-PENDIX) should file a single Form 3115for both changes, in which case the tax-payer must enter the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.03of this APPENDIX is “58.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.04 Used vehicle alternative LIFOmethod.

(1) Description of change. This changeapplies to a taxpayer that sells used auto-mobiles and used light-duty trucks (“usedvehicle dealers”) that wants to changeto the “Used Vehicle Alternative LIFOMethod” as described in Rev. Proc.2001–23, 2001–1 C.B. 784, as modifiedby Announcement 2004–16, 2004–1 C.B.668, and Rev. Proc. 2008–23, 2008–1C.B. 664.

(2) Additional requirements. A tax-payer making this change must complywith the additional conditions set forth insection 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 thevalue of the taxpayer’s used automobileand used light-duty truck inventory at thebeginning of the year of change must bethe same as the value of that inventory atthe end of the preceding taxable year, plus

cost restorations, if any, required by sec-tion 5.04(5) of Rev. Proc. 2001–23. Seesection 2.06 of this revenue procedure formore information regarding a cut-off basis.Accordingly, a § 481(a) adjustment is nei-ther permitted nor required.

(b) Bargain purchase. If the taxpayerhas previously improperly accounted fora bulk bargain purchase, the taxpayermust, as part of this change, first changeits method of accounting to comply withHamilton Industries, Inc. v. Commis-sioner, 97 T.C. 120 (1991), and computea § 481(a) adjustment for that part ofthe change. See Announcement 91–173,1991–47 I.R.B. 29. Upon examination,if a taxpayer has properly changed undersection 22.04 of this APPENDIX exceptfor complying with section 22.04(3)(b) ofthis APPENDIX, an examining agent maynot deny the taxpayer the change. How-ever, the taxpayer does not receive auditprotection under section 7 of this revenueprocedure with respect to the impropermethod of accounting for the bargain pur-chase. Accordingly, the examining agentmay make any necessary adjustments inany open year to effect compliance withHamilton Industries, Inc.

(c) New base year. In effecting achange to the Used Vehicle AlternativeLIFO Method under this revenue proce-dure, any LIFO inventory cost incrementspreviously determined and the value ofthose increments must be retained. Insteadof using the earliest taxable year for whichthe taxpayer adopted LIFO as the baseyear, the year of change must be used asthe new base year in determining the valueof all existing LIFO cost increments forthe year of change and later taxable years.(The cumulative index at the beginningof the year of change will be 1.00). Thebase-year cost of all LIFO cost incrementsat the beginning of the year of changemust be restated in terms of new base-yearcosts, using the year of change as the newbase year, and the indexes for previouslydetermined inventory increments mustbe recomputed accordingly. The newbase-year cost of a pool is equal to thetotal current-year cost of all the vehiclesin the pool.

(d) Application. Taxpayers are re-minded to complete all applicable parts ofthe Form 3115, including Part I of Sched-ule C.

January 24, 2011 413 2011–4 I.R.B.

(4) Concurrent change from IPICmethod. A used vehicle dealer using theIPIC method that also has parts and acces-sories, new automobiles, or new light-dutytrucks (other goods) inventory may in-corporate a change, using a cut-off basis,from IPIC to another acceptable LIFOmethod for those other goods into thischange. When changing from IPIC to adollar-value LIFO method for its othergoods, the used vehicle dealer must es-tablish separate inventory pools for newautomobiles and new light-duty trucks,unless the used vehicle dealer also concur-rently changes to the Vehicle-Pool Method(see section 22.08 of this APPENDIX).Further, the used vehicle dealer must es-tablish a separate inventory pool for theparts and accessories.

(5) Concurrent change to the Vehicle-Pool Method. A taxpayer that wants tomake both a change to the Used Vehi-cle Alternative LIFO Method under thissection 22.04 of the APPENDIX and achange to the Vehicle-Pool Method underRev. Proc. 2008–23 (see section 22.08 ofthis APPENDIX) should file a single Form3115 for both changes, in which case thetaxpayer must enter the designated auto-matic accounting method change numbersfor both changes on the appropriate line onthat Form 3115.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.04of this APPENDIX is “59.” See section6.02(4) of this revenue procedure.

(7) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

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

(1) Description of change and scope.(a) Applicability. This change applies

to a taxpayer using the LIFO inventorymethod that wants to:

(i) determine the cost of used vehiclesacquired by trade-in using the averagewholesale price listed by an official usedvehicle guide on the date of the trade-in.See Rev. Rul. 67–107, 1967–1 C.B.115. The official used vehicle guide se-lected must be consistently used unlessthe taxpayer receives permission to use adifferent guide;

(ii) use a different official used vehicleguide for determining the cost of used ve-hicles acquired by trade-in;

(iii) determine the cost of used vehiclespurchased for cash using the actual pur-chase price of the vehicle; or

(iv) reconstruct the beginning-of-the-year cost of used vehicles purchased forcash using values computed by nationalauto auction companies based on vehiclespurchased for cash. The national autoauction company selected must be consis-tently used.

(b) Inapplicability. This change doesnot apply to a taxpayer that adopted orchanged to the Used Vehicle AlternativeLIFO Method (see section 22.04 of the AP-PENDIX of this revenue procedure).

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to used vehicles acquired on orafter the beginning of the year of change.See section 2.06 of this revenue procedurefor more information regarding a cut-offbasis. Accordingly, a § 481(a) adjustmentis neither permitted nor required.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.05of this APPENDIX is “60.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Patty Ward at202–622–4970 (not a toll-free call).

.06 Change to the inventory price indexcomputation (IPIC) method.

(1) Description of change. This changeapplies to a taxpayer that wants to change:

(a) from a non-IPIC LIFO inventorymethod to the IPIC method in accor-dance with all relevant provisions of§ 1.472–8(e)(3); or

(b) from the IPIC method as describedin T.D. 7814, 1982–1 C.B. 84, (March 15,1982) (the old IPIC method) to the IPICmethod as described in T.D. 8976, 2002–1C.B. 421, (January 8, 2002) (the new IPICmethod), which includes the following re-quired changes (if applicable):

(i) from using 80% of the inventoryprice index (IPI) to using 100% of the IPIto determine the base-year cost and dol-lar-value of a LIFO pool(s);

(ii) from using a weighted arithmeticmean to using a weighted harmonic mean

to compute an IPI for a dollar-valuepool(s); and

(iii) from using a components-of-costmethod to define inventory items to using atotal-product-cost method to define inven-tory items.

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to the computation of ending in-ventories after the beginning of the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-justment is neither permitted nor required.

(3) Bargain purchase. If the taxpayerhas previously improperly accounted fora bulk bargain purchase, the taxpayermust, as part of this change, first changeits method of accounting to comply withHamilton Industries, Inc. v. Commis-sioner, 97 T.C. 120 (1991), and computea § 481(a) adjustment for that part ofthe change. See Announcement 91–173,1991–47 I.R.B. 29. Upon examination,if a taxpayer has properly changed undersection 22.06 of this APPENDIX exceptfor complying with section 22.06(3) ofthis APPENDIX, an examining agent maynot deny the taxpayer the change. How-ever, the taxpayer does not receive auditprotection under section 7 of this revenueprocedure with respect to the impropermethod of accounting for the bargain pur-chase. Accordingly, the examining agentmay make any necessary adjustments inany open year to effect compliance withHamilton Industries, Inc.

(4) Concurrent automatic changes.(a) A taxpayer that wants to make this

change and to change its method of de-termining current-year cost under section22.02 of this APPENDIX for the same yearof change may file a single Form 3115 forboth changes, provided the taxpayer en-ters the designated automatic accountingmethod change numbers for both changeson the appropriate line on that Form 3115.

(b) A taxpayer that wants to make thischange and to change its method of pool-ing to IPIC-method pools described in§ 1.472–8(b)(4) or § 1.472–8(c)(2) undersection 22.07 of this APPENDIX for thesame year of change may file a singleForm 3115, provided the taxpayer en-ters the designated automatic accountingmethod change numbers for both changeson the appropriate line on that Form 3115.

2011–4 I.R.B. 414 January 24, 2011

(c) A taxpayer that wants to make thischange and to change its method of pool-ing under section 22.10 of this APPENDIXfor the same year of change may file a sin-gle Form 3115, provided the taxpayer en-ters the designated automatic accountingmethod change numbers for both changeson the appropriate line on that Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.06of this APPENDIX is “61.” See section6.02(4) of this revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.07 Changes within the inventory priceindex computation (IPIC) method.

(1) Description of change. This changeapplies to a taxpayer using the IPICmethod described in § 1.472–8(e)(3) asrevised by T.D. 8976, 2002–1 C.B. 421,(new IPIC method) that wants to make oneor more of the following changes:

(a) change from the double-exten-sion IPIC method to the link-chainIPIC method, or vice versa. See§ 1.472–8(e)(3)(iii)(E) for principles con-cerning the computation of the inventoryprice index under the double-extensionIPIC method and the link-chain IPICmethod;

(b) change to or from the 10 percentmethod. See § 1.472–8(e)(3)(iii)(C) forprinciples concerning the assignment ofinventory items to BLS categories underthe IPIC method;

(c) change to IPIC-method poolsdescribed in § 1.472–8(b)(4) or§ 1.472–8(c)(2), including a change tobegin or discontinue applying one or bothof the 5 percent pooling rules;

(d) change to combine or separate poolsas a result of the application of a 5 percentpooling rule described in § 1.472–8(b)(4)or § 1.472–8(c)(2);

(e) change its selection of BLS tablefrom Table 3 (Consumer Price Index forAll Urban Consumers (CPI-U): U.S. cityaverage, detailed expenditure categories)of the monthly CPI Detailed Report toTable 6 (Producer price indexes percentchanges for commodity groupings and in-dividual items, not seasonally adjusted) ofthe monthly PPI Detailed Report, or viceversa. See § 1.472–8(e)(3)(iii)(B)(2) for

principles concerning the selection of aBLS table under the IPIC method;

(f) change the assignment of one ormore inventory items to BLS categoriesunder either Table 3 (Consumer Price In-dex for All Urban Consumers (CPI-U):U.S. City average, detailed expenditurecategories) of the monthly CPI DetailedReport or Table 6 (Producer price indexesand percent changes for commodity group-ings and individual items, not seasonallyadjusted) of the monthly PPI DetailedReport. See § 1.472–8(e)(3)(iii)(C) forprinciples concerning the assignment ofinventory items to BLS categories underthe IPIC method. As part of this change,a taxpayer may separate a reassigned itemfrom an inappropriate pool and combinethe reassigned item with items in an ap-propriate pool. See § 1.472–8(g)(2) forprinciples concerning the manner of com-bining and separating dollar-value pools;

(g) change the representative monthwhen necessitated because of a changein taxable year or a change in methodof determining current-year cost madepursuant to section 22.02 of this AP-PENDIX. See § 1.472–8(e)(3)(iii)(B) forprinciples concerning the determinationof a representative month under the IPICmethod. A change in method of deter-mining current-year cost and a change ofthe representative month may be madeusing a single Form 3115, provided thetaxpayer enters the designated automaticaccounting method change numbers forboth changes on the appropriate line onthat Form 3115. See section 6.02(4) of thisrevenue procedure; and

(h) change from using preliminaryBLS price indexes to using final BLSprice indexes to compute an inven-tory price index, or vice versa. See§ 1.472–8(e)(3)(iii)(D)(2) for principlesconcerning the selection of BLS price in-dexes under the IPIC method.

(2) Certain scope limitation inapplica-ble. The scope limitation in section 4.02(7)of this revenue procedure does not ap-ply to the changes described in sections22.07(1)(d) and (g) of this APPENDIX.

(3) Manner of making change. Thesechanges are made on a cut-off basis and ap-ply only to the computation of ending in-ventories after the beginning of the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-

justment is neither permitted nor required.A taxpayer that changes pursuant to sec-tions 22.07(1)(a), (b) and (e) of this AP-PENDIX must establish a new base yearin the year of change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.07of this APPENDIX is “62.” See section6.02(4) of this revenue procedure.

(5) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.08 Changes to the Vehicle-PoolMethod.

(1) Description of change. This changeapplies to a retail dealer or wholesale dis-tributor (“reseller”) of cars and light-dutytrucks that wants to change to the “Ve-hicle-Pool Method” as described in Rev.Proc. 2008–23, 2008–1 C.B. 664.

(2) Manner of making change. Thischange is made on a cut-off basis andapplies only to the computation of endinginventories after the beginning of the yearof change. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a)adjustment is neither permitted nor re-quired. A reseller that changes its methodof pooling under Rev. Proc. 2008–23and this section 22.08 of the APPENDIXmust comply with § 1.472–8(g). Insteadof using the earliest taxable year for whichthe reseller adopted the LIFO method forany items in a pool, the reseller must usethe year of change as the base year whendetermining the LIFO value of that poolfor the year of change and subsequenttaxable years (i.e., the cumulative index atthe beginning of the year of change willbe 1.00). The reseller must restate thebase-year cost of all layers of incrementin a pool at the beginning of the year ofchange in terms of new base-year cost.For an example of establishing a new baseyear, see § 1.472–8(e)(3)(iv)(B)(1)(ii).

(3) Scope limitations temporarily inap-plicable. The scope limitation in section4.02(7) of this revenue procedure does notapply for the reseller’s first taxable yearending on or after December 31, 2007.

(4) Concurrent change to the Alter-native LIFO Method or the Used VehicleAlternative LIFO Method. A resellerthat wants to make both a change to the

January 24, 2011 415 2011–4 I.R.B.

Vehicle-Pool Method under this section22.08 of the APPENDIX and a change tothe Alternative LIFO Method under Rev.Proc. 97–36 (see section 22.03 of this AP-PENDIX) or the Used Vehicle AlternativeLIFO Method under Rev. Proc. 2001–23(see section 22.04 of this APPENDIX)should file a single Form 3115 for bothchanges, in which case the taxpayer mustenter the designated automatic accountingmethod change numbers for both changeson the appropriate line on that Form 3115.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.08of this APPENDIX is “112.” See section6.02(4) of this revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.09 Changes within the used vehiclealternative LIFO method.

(1) Description of change. This changeapplies to a taxpayer using the “Used Ve-hicle Alternative LIFO Method” as de-scribed in Rev. Proc. 2001–23, 2001–1C.B. 784, as modified by Announcement2004–16, 2004–1 C.B. 668, and Rev. Proc.2008–23, 2008–1 C.B. 664, that wants tochange the particular “official used vehi-cle guide” utilized by the taxpayer in con-nection with the Used Vehicle AlternativeLIFO Method or any change in the precisemanner of its utilization (e.g., a change inthe specific guide category that a taxpayeruses to represent vehicles of average con-dition for purposes of section 4.02(5)(a) ofRev. Proc. 2001–23).

(2) Manner of making change. Thischange is made on a cut-off basis and ap-plies only to the computation of ending in-ventories after the beginning of the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-justment is neither permitted nor required.A taxpayer that changes its method pur-suant to section 22.09 of this APPENDIXmust establish a new base year in the yearof change.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.09of this APPENDIX is “140.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

.10 Changes to dollar-value pools ofmanufacturers.

(1) Description of change. This changeapplies to a manufacturer that:

(a) purchases goods for resale (resalegoods) and, thus, must reassign resalegoods from the pool(s) it maintains forthe goods it manufactures to one or moreresale pools;

(b) wants to change from using multiplepools described in § 1.472–8(b)(3) to us-ing natural business unit (NBU) pools de-scribed in § 1.472–8(b)(1), or vice versa;or

(c) wants to reassign items in NBUpools described in § 1.472–8(b)(1) into thesame number or a greater number of NBUpools.

(2) Manner of making change. Thischange is made on a cut-off basis andapplies only to the computation of end-ing inventories after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required. A taxpayer that changesits method of pooling pursuant to section22.10 of this APPENDIX must combine orseparate pools as required by § 1.472–8(g).If a taxpayer splits a pool into two ormore permissible pools pursuant to section22.10 of this APPENDIX, which mustbe implemented on a cut-off basis, thetaxpayer then may file a separate Form3115 to change from the LIFO inventorymethod for one or more of the resultingpools pursuant to section 22.01 of thisAPPENDIX, which must be implementedwith a § 481(a) adjustment.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 22.10of this APPENDIX is “141.” See section6.02(4) of this revenue procedure.

(4) Contact information. For fur-ther information regarding a change un-der this section, contact Leo Nolan at202–622–4970 (not a toll-free call).

SECTION 23. MARK-TO-MARKETACCOUNTING METHOD FORDEALERS IN SECURITIES (§ 475)

.01 Commodities dealers, securitiestraders, and commodities traders electingto use the mark-to-market method ofaccounting under § 475(e) or (f).

(1) Description of change. This changeapplies to certain taxpayers that haveelected to use the mark-to-market methodof 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 anelection under § 475(e) or (f), then begin-ning with the first taxable year for whichthe election is effective (election year),mark to market is the only permissiblemethod of accounting for securities orcommodities subject to the election. Thus,if the electing taxpayer’s method of ac-counting for its taxable year immediatelypreceding the election year is inconsis-tent with § 475, the taxpayer is requiredto change its method of accounting tocomply with the election. A taxpayerthat makes a § 475(e) or (f) election butfails to change its method of accountingto comply with that election is using animpermissible method. See section 4 ofRev. Proc. 99–17.

(2) Scope. This change applies to ataxpayer if all of the following conditionsare satisfied:

(a) the taxpayer is a commoditiesdealer, securities trader, or commoditiestrader 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 changeits method of accounting to comply withthe election;

(b) the method of accounting to whichthe taxpayer changes is in accordance withits election under § 475(e) or (f); and

(c) the year of change is the electionyear.

(3) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(4) Election under Rev. Proc. 99–17.In accordance with section 5.03(1) of Rev.Proc. 99–17, in order to make a section475(e) or (f) election, a taxpayer must filea statement satisfying the requirements insection 5.04 of Rev. Proc. 99–17. Thestatement must be filed not later than thedue date (without regard to extensions) of

2011–4 I.R.B. 416 January 24, 2011

the original federal income tax return forthe taxable year immediately preceding theelection year and must be attached eitherto that return or, if applicable, to a requestfor an extension of time to file that re-turn. For example, if a calendar year in-dividual taxpayer wants to make a section475(e) or (f) election for 2009 (the elec-tion year), the taxpayer must file the state-ment on or before April 15, 2009, with thetaxpayer’s timely filed (without regard toextensions) federal income tax return for2008 or the taxpayer’s timely filed requestfor an extension of time to file the 2008federal income tax return. On the Form3115 filed for the year of change, a tax-payer should indicate that the taxpayer hasfiled the statement in compliance with sec-tion 5.03(1) of Rev. Proc. 99–17.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 23.01of this APPENDIX is “64.” See section6.02(4) of this revenue procedure.

(6) Contact information. For furtherinformation regarding a change underthis section, contact Eric E. Boody at202–622–3950 (not a toll-free call).

.02 Reserved.

SECTION 24. BANK RESERVES FORBAD DEBTS (§ 585)

.01 Changing from the § 585 reservemethod to the § 166 specific charge-offmethod.

(1) Description of change.(a) Applicability. This change applies

to a bank (as defined in § 581, includinga bank for which a qualified subchapterS subsidiary (Qsub) election is filed) thatwants to change its method of account-ing for bad debts from the § 585 reservemethod to the § 166 specific charge-offmethod.

(b) Inapplicability. This change doesnot apply to a large bank as defined in§ 585(c)(2).

(2) Certain scope limitations inapplica-ble. A bank that changed from the § 593reserve method under § 593(g) to the § 585reserve method will not be prohibited un-der section 4.02(7) of this revenue pro-cedure from changing its method of ac-counting for bad debts under this section24.01 of the APPENDIX solely because ofthe § 593(g) change. A bank for which a

Qsub election is filed will not be prohib-ited under section 4.02(7) of this revenueprocedure from changing its method of ac-counting for bad debts under this section24.01 of the APPENDIX solely because ofthe deemed liquidation of the bank arisingfrom a Qsub election.

(3) Section 481(a) adjustment. Gener-ally, the amount of the § 481(a) adjust-ment for a change in method of account-ing under this section 24.01 of the AP-PENDIX is the amount of the bank’s re-serve for bad debts as of the close of thetaxable year immediately before the yearof change. However, the amount of the§ 481(a) adjustment does not include theamount of a bank’s pre–1988 reserves (asdescribed in § 593(g)(2)(A)(ii), withouttaking into account § 593(g)(2)(B)) if thebank changed in a prior year from the§ 593 reserve method to the § 585 re-serve method and § 593(g) applied to thatchange. The deemed liquidation of a bankoccurring solely because its parent makesa Qsub election does not accelerate the§ 481(a) adjustment. In accordance withsection 5.04(3)(c) of this revenue proce-dure, a bank that ceases to be a bank under§ 581 must accelerate its § 481(a) adjust-ment.

(4) Change from § 585 required whenelecting S corporation status.

(a) General rule. A bank electing Scorporation status (or a bank for which aQsub election is filed) cannot use the § 585reserve method. The filing by a bank ofa Form 2553, Election by a Small Busi-ness Corporation, or the filing by a bank’sparent of Form 8869, Qualified Subchap-ter S Subsidiary Election, with respect tothe bank will constitute an agreement bythe bank to change its method of account-ing for bad debts from the § 585 reservemethod to the § 166 specific charge-offmethod effective as of the taxable year forwhich the S corporation election or Qsubelection is effective (year of change) in ac-cordance with all of the applicable provi-sions of this revenue procedure (includingsection 6 of this revenue procedure, whichrequires filing a Form 3115 in duplicate).The resulting § 481(a) adjustment is rec-ognized built-in gain under § 1374, unlessthe bank elects under § 1361(g) and section24.01(4)(b) of this APPENDIX to take the§ 481(a) adjustment into account in deter-mining taxable income for the taxable year

immediately preceding the year of change.See § 1.1374–4 (d).

(b) Election to include § 481(a) adjust-ment in taxable year immediately preced-ing the year of change.

(i) Election requirements. A bank thatchanges its method of accounting for baddebts under this section 24.01 of the AP-PENDIX, from the § 585 reserve methodto the § 166 specific charge-off method forthe first taxable year for which the bank’sS corporation election is effective (year ofchange) may elect under § 1361(g) to takeinto account the amount of the resulting§ 481(a) adjustment in determining tax-able income for the taxable year immedi-ately preceding the year of change. Tomake this election, a bank must (1) filean original and copy of Form 3115 undersection 6.02(3) of this revenue procedurefor the year of change, (2) file an addi-tional copy of the Form 3115 with its origi-nal (or amended) federal income tax returnfor the taxable year immediately preced-ing the year of change filed no later thanthe date the original Form 3115 is properlyfiled under section 6.02(3) of this revenueprocedure, and (3) include the amount ofthe § 481(a) adjustment in gross incomefor the taxable year immediately precedingthe year of change. The bank must attacha statement to the original and both copiesof Form 3115 stating that the bank electsunder § 1361(g) to take the § 481(a) ad-justment into account in determining tax-able income for the taxable year immedi-ately preceding the year of change.

(ii) Special rule for Qsub banks. Inthe case of a Qsub bank, the S corpora-tion parent must file an original and copyof Form 3115 under section 6.02(3) of thisrevenue procedure for the year of change.The Qsub bank must file an additionalcopy of the Form 3115 with its original(or amended) federal income tax returnfor the taxable year immediately preced-ing the year of change filed no later thanthe date the original Form 3115 is prop-erly filed under section 6.02(3) of this rev-enue procedure, and include the amount ofthe § 481(a) adjustment in gross incomefor the taxable year immediately precedingthe year of change. In the case of a Qsubbank, the Form 3115 should indicate thatthe “filer” is the S corporation parent andthe “applicant” is the Qsub bank.

January 24, 2011 417 2011–4 I.R.B.

(iii) The following example illustratesthe principles of section 24.01(4)(b) of thisAPPENDIX.

Example. X, a calendar year taxpayer, is abank as defined in § 581 and is not a large bankas defined in § 585(c)(2). For taxable years be-fore 2010, X accounted for its bad debts underthe § 585 reserve method. By March 15, 2010,X properly filed a Form 2553 electing to be an Scorporation effective January 1, 2010. Pursuantto section 24.01(4)(a) of this APPENDIX, the fil-ing of the Form 2553 constituted an agreementby X to change from the § 585 reserve method tothe § 166 specific charge-off method in 2010 inaccordance with all of the applicable provisionsof this revenue procedure. Thus, for example, Xmust file a Form 3115 for this 2010 change induplicate, in accordance with section 6.02(3) ofthis revenue procedure, by attaching the originalForm 3115 to X’s timely filed (including exten-sions) original federal income tax return for 2010and filing a copy of the Form 3115 with the na-tional office. The amount of X’s § 481(a) ad-justment for the change is the amount of X’s baddebt reserve as of the close of December 31, 2009.X wishes to elect under § 1361(g) to include the§ 481(a) adjustment in income in the taxable yearending December 31, 2009, the taxable year im-mediately preceding the year of change. To makethis election, X must (1) file an original and copyof Form 3115 for the 2010 change under section6.02(3) of this revenue procedure, (2) file an ad-ditional copy of that Form 3115 with its original(or amended) federal income tax return for 2009filed no later than the date the original Form 3115is properly filed under section 6.02(3) of this rev-enue procedure, and (3) include the amount of its§ 481(a) adjustment in gross income in its returnfor 2009. X must attach a statement to the orig-inal and both copies of Form 3115 stating that Xelects under § 1361(g) to take the § 481(a) adjust-ment into account in determining taxable incomefor 2009, the taxable year immediately precedingthe year of change.

(5) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 24.01of this APPENDIX is “66.” See section6.02(4) of this revenue procedure.

(6) Contact information. For fur-ther information regarding a change un-der this section, contact David B. Sil-ber at 202–622–3930 or Laura Fields at202–622–3050 (not a toll-free call).

.02 Reserved.

SECTION 25. INSURANCECOMPANIES (§§ 832, 833)

.01 Safe harbor method of accountingfor premium acquisition expenses.

(1) Description of change. Rev. Proc.2002–46, 2002–2 C.B. 105, sets fortha safe harbor method of accounting for

premium acquisition expenses of certainnon-life insurance companies. Under thismethod, an insurance company is per-mitted to treat as premium acquisitionexpenses incurred for the taxable year anamount equal to the sum of (a) the amountof premium acquisition expenses paidduring the taxable year; (b) the differencebetween the unpaid premium acquisitionexpenses shown on the company’s annualstatement for the taxable year and the un-paid premium acquisition expenses shownon the company annual statement for thepreceding taxable year; and (c) the differ-ence between the amount of the insurancecompany’s pro forma premium acquisitionexpenses at the end of the taxable year andthe company’s pro forma premium acqui-sition expenses at the end of the precedingtaxable year. The amount taken into ac-count as a net increase in the pro formapremium acquisition expenses, however,cannot exceed the insurance company’sunearned premium reserve offset amountfor that year. A special rule applies to pre-mium acquisition expenses with respect tocertain contracts with installment premi-ums. See Rev. Proc. 2002–46.

(2) Scope. This automatic change inaccounting method applies to any insur-ance company that is subject to tax un-der § 831(a) and determines its premiumsearned for insurance contracts during thetaxable year under § 832(b)(4) in accor-dance with the provisions of § 1.832–4.The automatic change does not apply to anexisting Blue Cross or Blue Shield organ-ization or any other organization to which§ 833 applies.

(3) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 25.01of this APPENDIX is “67.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change underthis section, contact Kay Hossofsky at202–622–3970 (not a toll-free call).

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

(1) Description of change. This changeapplies to an existing Blue Cross or Blue

Shield organization within the meaning of§ 833(c)(2), or an organization describedin § 833(c)(3), that is required to changeits method of accounting for unearned pre-miums by reason of failing to meet theMLR requirements of § 833(c)(5), or byreason of meeting the MLR requirementsof § 833(c)(5) after failing to meet thoserequirements in a prior year. See Notice2011–4, 2011–2 I.R.B. 282.

(2) Scope limitations inapplicable. Thescope limitations of section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Accelerated § 481(a) adjustmentperiod in certain situations. In additionto the circumstances set forth in section5.04(3) of this revenue procedure, the§ 481 adjustment period provided in sec-tion 5.04(1) will be accelerated in theevent a taxpayer with a remaining balanceof a § 481(a) adjustment that arose byreason of a change in method of account-ing described in this APPENDIX section25.02 is required to effect another changein method of accounting described in thisAPPENDIX section 25.02. Thus, for ex-ample, a taxpayer that fails to satisfy therequirements of § 833(c)(5) and as a resulthas a positive § 481(a) adjustment is re-quired to accelerate the remaining balance,if any, of that adjustment in a subsequenttaxable year in which the taxpayer meetsthe requirements of § 833(c)(5).

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 25.02of this APPENDIX is “155.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding this section, contactRebecca L. Baxter at (202) 622–7117 (nota toll-free call).

SECTION 26. DISCOUNTED UNPAIDLOSSES (§ 846)

.01 Composite method for discountingunpaid losses.

(1) Description of change. Section846 defines “discounted unpaid losses”for purposes of computing the insurancecompany taxable income of certain insur-ance companies. Notice 88–100, 1988–2C.B. 439, section V, sets forth a compositemethod for computing unpaid losses withrespect to accident years not separately

2011–4 I.R.B. 418 January 24, 2011

stated on the NAIC annual statement. Rev.Proc. 2002–74, 2002–2 C.B. 980, section3.01, clarifies that the composite methodof Notice 88–100, section V, is permitted,but not required; section 3.02 sets forthan alternative method for those taxpayersthat do not use the composite method ofsection 3.01. An insurance company us-ing a method provided in section 3.01 or3.02 of Rev. Proc. 2002–74 to computediscounted unpaid losses, must use thesame method to compute discounted esti-mated salvage recoverable. An insurancecompany that currently uses a permissi-ble method of accounting for discountedunpaid losses may change its methodof accounting to or from the compositemethod of Notice 88–100, section V, with-out the consent of the Commissioner. Thischange applies to insurance companiesthat are required to discount unpaid lossesunder § 846. See Rev. Proc. 2002–74.

(2) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 26.01of this APPENDIX is “68.” See section6.02(4) of this revenue procedure.

(3) Contact information. For furtherinformation regarding a change underthis section, contact Kay Hossofsky at202–622–3970 (not a toll-free call).

.02 Reserved.

SECTION 27. REAL ESTATEMORTGAGE 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 noneco-nomic residual interest in a REMIC musttake that fee into account over the remain-ing expected life of the applicable REMICin accordance with § 1.446–6. This changeapplies to a taxpayer that seeks to changefrom any method of accounting for suchinducement fees to one of the safe harbormethods provided under § 1.446–6(e)(1)-(2). See Rev. Proc. 2004–30, 2004–1 C.B.950, for additional guidance relating to thischange.

(2) Manner of making change. A tax-payer making this change must identifythe specific safe harbor method under§ 1.446–(6)(e) to which the taxpayer ischanging.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 27.01of this APPENDIX is “79.” See section6.02(4) of this revenue procedure.

(4) Contact information. For further in-formation regarding a change under thissection, contact John W. Rogers, III at202–622–4695 (not a toll-free call).

.02 Reserved.

SECTION 28. RESERVED

SECTION 29. FUNCTIONALCURRENCY (§ 985)

.01 Change in functional currency.(1) Description of change. This change

applies to a taxpayer that wants to changeits functional currency or the functionalcurrency of a qualified business unit(QBU) of the taxpayer. The precedingsentence does not apply to a QBU of ataxpayer described in § 1.985–1(b)(1)(iii).

(2) Manner of making change. A tax-payer making this change must make allnecessary adjustments required by suchchange. See §§ 1.985–5, 1.985–8(c). Ataxpayer must attach a statement to theForm 3115 representing that it has madethe adjustments set forth in § 1.985–5 or§ 1.985–8(c). The statement must alsoprovide the amount of any unrealized ex-change gain or loss required to be takeninto account pursuant to § 1.985–5 or§ 1.985–8(c) and the date on which ataxpayer took such amount into account.Finally, the statement must provide a de-tailed and complete description of anyother adjustments required pursuant to§ 1.985–5 or § 1.985–8(c).

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 29.01of this APPENDIX is “70.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change underthis section, contact Peter Merkel at202–622–3870 (not a toll-free call).

.02 Reserved.

SECTION 30. RESERVED

SECTION 31. ORIGINAL ISSUEDISCOUNT (§§ 1272, 1273)

.01 De minimis original issue discount(OID).

(1) Description of change. This changeapplies to a taxpayer that wants to changeto the principal-reduction method of ac-counting described in section 5 of Rev.Proc. 97–39, 1997–2 C.B. 485. The prin-cipal-reduction method of accounting isan aggregate method of accounting for deminimis OID (discount) on certain loansoriginated by the taxpayer.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure do not apply to thischange.

(3) Description. The principal-reduc-tion method of accounting is a permissi-ble method for use by taxpayers to accountfor discount on one or more categories ofloans described in section 4.02 or 4.03 ofRev. Proc. 97–39. If the principal-re-duction method is used to account for anyloans in a category of loans, the methodmust be used for the entire category ofloans. The principal-reduction method ap-plies only to loans described in section 3 ofRev. Proc. 97–39.

(4) Manner of making change.(a) This change is made on a cut-off

basis and applies only to loans describedin section 3 of Rev. Proc. 97–39 that wereacquired on or after the beginning of theyear of change. See section 2.06 of thisrevenue procedure for more informationregarding a cut-off basis. Accordingly, a§ 481(a) adjustment is neither permittednor required.

(b) The taxpayer must maintain booksand records sufficient to satisfy the direc-tor that old and new loans have been ade-quately segregated.

(5) Additional requirements. On a state-ment attached to the Form 3115, the tax-payer must:

(a) identify the categories of loans towhich the new method will apply; and

(b) describe any “additional categories”permitted under section 4.03 of Rev. Proc.97–39.

(6) No audit protection. A taxpayerdoes not receive audit protection undersection 7 of this revenue procedure in con-nection with this change.

January 24, 2011 419 2011–4 I.R.B.

(7) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 31.01of this APPENDIX is “72.” See section6.02(4) of this revenue procedure.

(8) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.02 Reserved.

SECTION 32. MARKET DISCOUNTBONDS (§ 1278)

.01 Revocation of § 1278(b) election.(1) Description of change. This change

applies to a taxpayer that wants to changeits method of accounting for market dis-count bonds by revoking its § 1278(b)election. Under § 1278(b), a taxpayermay elect a method of accounting underwhich market discount is currently in-cluded in gross income for the taxableyears to which the discount is attributable.See Rev. Proc. 92–67, 1992–2 C.B. 429,for the procedures to make a § 1278(b)election (including a deemed § 1278(b)election). The procedures for revoking a§ 1278 election were formerly provided insection 7 of Rev. Proc. 92–67.

(2) Revocation of election. The revoca-tion of a § 1278(b) election applies to allmarket discount bonds that are held by thetaxpayer on the first day of the first tax-able year for which the revocation is effec-tive (year of change), and to all market dis-count bonds that are subsequently acquiredby the taxpayer. If a § 1278(b) election isrevoked, then for purposes of § 1278(a),accrued market discount with respect toany bond previously subject to the electionmeans accrued market discount as definedin § 1276(b) less any market discount in-cluded in income while the bond was sub-ject to the § 1278(b) election.

(3) Manner of making change. Thischange is made on a cut-off basis andapplies only to market discount accruingon or after the beginning of the year ofchange. See section 2.06 of this revenueprocedure for more information regardinga cut-off basis. Accordingly, a § 481(a) ad-justment is neither permitted nor required.Market discount accruing on a bond priorto the year of change was currently in-cluded in income and market discountaccruing on the bond on and after the first

day of the year of change is included inincome generally upon disposition of thebond. See § 1276(a). Because a cut-offbasis is prescribed for this change, thebasis of any bond, adjusted for amountspreviously included in income during theperiod of the election, is not affected bythe revocation.

(4) Additional requirements. On a state-ment attached to the Form 3115, the tax-payer must provide:

(a) the reason(s) for revoking the§ 1278(b) election (or deemed § 1278(b)election);

(b) a description of the method bywhich, and the date on which, the taxpayermade 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 constantinterest rate election for any bond that hasbeen subject to the § 1278(b) election (ordeemed § 1278(b) election) being revokedand for which a constant interest rate elec-tion was not effective in the year of acqui-sition.

(5) Audit protection. A taxpayer re-ceives audit protection under section 7 ofthis revenue procedure in connection withthis change. However, the audit protec-tion applicable to this change does not pre-clude the Commissioner from examiningthe method used by the taxpayer to deter-mine the amount of accrued market dis-count under § 1276(b) for a taxable yearprior to the year of change.

(6) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 32.01of this APPENDIX is “73.” See section6.02(4) of this revenue procedure.

(7) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.02 Reserved.

SECTION 33. SHORT-TERMOBLIGATIONS (§ 1281)

.01 Interest income on shortobligations.

(1) Description of change.(a) This change applies to a taxpayer

that wants to change its method of account-

ing to comply with § 1281 for interest in-come on short-term obligations.

(b) Under § 1281, a holder of certainshort-term obligations, including a bank asdefined in § 581, must include in grossincome any accrued interest income onsuch obligations, regardless of the holder’soverall method of accounting. Section1281 applies to all types of interest in-come, including acquisition discount, orig-inal issue discount (OID), and stated inter-est. 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 oneyear or less from its issue date.

(d) Under §§ 1281(a) and 1283(c), aholder of a short-term obligation subjectto § 1281 must include in gross income anamount equal to the sum of the daily por-tions of the acquisition discount or OID,whichever is applicable, on the obligationfor each day during the taxable year thatthe obligation is held by the holder. See§ 1283(b), as modified by § 1283(c), todetermine the daily portions of acquisitiondiscount or OID. In addition, § 1281(a) re-quires the holder to include in gross in-come any stated interest that is payable onthe short-term obligation (other than statedinterest taken into account to determine theamount of the acquisition discount or OID)as it accrues.

(2) Section 481(a) adjustment period.A taxpayer must take the entire § 481(a)adjustment into account in computing tax-able income for the year of change.

(3) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 33.01of this APPENDIX is “74.” See section6.02(4) of this revenue procedure.

(4) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

.02 Stated interest on short-term loansof cash method banks.

(1) Description of change. This changeapplies to a bank that uses the cash receiptsand disbursements (cash) method of ac-counting as its overall accounting methodand that wants to change its method ofaccounting from accruing stated interest

2011–4 I.R.B. 420 January 24, 2011

on short-term loans made in the ordi-nary course of business to using the cashmethod for that interest. For example,see Security State Bank v. Commissioner,214 F.3d 1254 (10th Cir. 2000), aff’g 111T.C. 210 (1998), acq., 2001–1 C.B. xix;and Security Bank Minnesota v. Commis-sioner, 994 F.2d 432 (8th Cir. 1993), aff’g98 T.C. 33 (1992), in which the courts heldthat § 1281 does not apply to short-term

loans made by a cash method bank in theordinary course of its business.

(2) Scope limitations inapplicable. Thescope limitations in section 4.02 of thisrevenue procedure are not applicable tothis change.

(3) Section 481(a) adjustment period.A taxpayer making this change must takethe entire § 481(a) adjustment into accountin computing taxable income for the yearof change.

(4) Designated automatic accountingmethod change number. The designatedautomatic accounting method changenumber for a change under section 33.02of this APPENDIX is “75.” See section6.02(4) of this revenue procedure.

(5) Contact information. For furtherinformation regarding a change under thissection, contact William E. Blanchard at202–622–3950 (not a toll-free call).

APPENDIX CONTACT LIST

APPENDIXSectionNumber

DesignatedAutomaticAccounting

Change Number Contact Name Telephone Number Office

1.01 91 David B. Silber 202–622–3930 FI&P2.01 1 William Ruane 202–622–4920 IT&A3.01 2 Martin Osborne 202–622–7900 IT&A3.02 3 Martin Osborne 202–622–7900 IT&A3.03 4 Martin Osborne 202–622–7900 IT&A3.04 86 Martin Osborne 202–622–7900 IT&A3.05 143 Justin G. Meeks 202–622–5020 IT&A3.06 144 Alan Williams 202–622–4950 IT&A4.01 5 Justin G. Meeks 202–622–5020 IT&A5.01 16 William E. Blanchard 202–622–3950 FI&P6.01 7 Douglas Kim 202–622–4930 IT&A6.02 8 Douglas Kim 202–622–4930 IT&A6.03 10 Edward Schwartz 202–622–4960 IT&A6.04 11 Douglas Kim 202–622–4930 IT&A6.05 12 Douglas Kim 202–622–4930 IT&A6.06 13 Douglas Kim 202–622–4930 IT&A6.07 14 Douglas Kim 202–622–4930 IT&A6.08 15 Douglas Kim 202–622–4930 IT&A6.09 87 Douglas Kim 202–622–4930 IT&A6.10 88 Douglas Kim 202–622–4930 IT&A6.11 89 Bernard Harvey 202–622–4930 IT&A6.12 97 Douglas Kim 202–622–4930 IT&A6.13 98 Mark Weiss 202–622–7750 CORP6.14 Reserved Reserved Reserved6.15 Reserved Reserved Reserved6.16 Reserved Reserved Reserved6.17 107 Douglas Kim 202–622–4930 IT&A6.18 116 Douglas Kim 202–622–4930 IT&A6.19 117 Douglas Kim 202–622–4930 IT&A6.20 118 Douglas Kim 202–622–4930 IT&A6.21 119 Douglas Kim 202–622–4930 IT&A6.22 115 Douglas Kim 202–622–4930 IT&A6.23 145 Ruba Nasrallah 202–622–4930 IT&A6.24 146 Charles Magee 202–622–4930 IT&A6.25 147 Charles Magee 202–622–4930 IT&A7.01 17 Grant D. Anderson 202–622–4930 IT&A8.01 Reserved Reserved Reserved8.02 Reserved Reserved Reserved8.03 Reserved Reserved Reserved8.04 152 Jennifer Bernardini 202–622–3110 P&SI9.01 18 Douglas Kim 202–622–4930 IT&A9.02 Reserved Reserved Reserved10.01 19 Gwen Turner 202–622–5020 IT&A

January 24, 2011 421 2011–4 I.R.B.

APPENDIX CONTACT LIST

APPENDIXSectionNumber

DesignatedAutomaticAccounting

Change Number Contact Name Telephone Number Office

10.02 20 Gwen Turner 202–622–5020 IT&A10.03 21 Gwen Turner 202–622–5020 IT&A10.04 47 Gwen Turner 202–622–5020 IT&A10.05 78 Gwen Turner 202–622–5020 IT&A10.06 109 Gwen Turner 202–622–5020 IT&A10.07 121 Gwen Turner 202–622–5020 IT&A11.01 22 Alexander R. Roche 202–622–4970 IT&A

Kari Fisher 202–622–4970 IT&A11.02 23 Alexander R. Roche 202–622–4970 IT&A

Kari Fisher 202–622–4970 IT&A11.03 24 Alexander R. Roche 202–622–4970 IT&A

Kari Fisher 202–622–4970 IT&A11.04 25 Cheryl Oseekey 202–622–4970 IT&A11.05 77 John Faron 202–622–4930 IT&A11.06 92 John Faron 202–622–4930 IT&A11.07 150, 151 Kari Fisher 202–622–4970 IT&A12.01 26 Steven Gee 202–622–4970 IT&A13.01 27 Maryellen Furr 202–622–6030 TEGE13.02 28 Maryellen Furr 202–622–6030 TEGE13.03 29 James Holland 202–283–9699 EP

Carlton Watkins 202–283–9625 EP14.01 122, 123 Karen Myrick 202–622–4970 IT&A

Kari Fisher 202–622–4970 IT&A14.02 31 Erika Reigle 202–622–4950 IT&A14.03 32,33 Karen Myrick 202–622–4970 IT&A

Kari Fisher 202–622–4970 IT&A14.04 34, 35 Karla M. Meola 202–622–4930 IT&A14.05 71 William E. Blanchard 202–622–3950 FI&P14.06 85 Bernard Harvey 202–622–4930 IT&A14.07 90 Kay Hossofsky 202–622–3970 FI&P14.08 108 Timothy Sebastian 202–622–3920 FI&P14.09 124 Gwen Turner 202–622–5020 IT&A14.10 125 Erika Reigle 202–622–4950 IT&A14.11 126 Kari Fisher 202–622–4970 IT&A14.12 127 David B. Silber 202–622–3930 FI&P14.13 128 Robert Basso 202–622–4950 IT&A

Renay France 202–622–5020 IT&A14.14 129 David H. McDonnell 202–622–3040 P&SI14.15 148 Sonja Kotlica 202–622–3950 FI&P15.01 36 Timothy Sebastian 202–622–3920 FI&P15.02 37 R. Matthew Kelley 202–622–7900 IT&A15.03 38 R. Matthew Kelley 202–622–7900 IT&A15.04 39 R. Matthew Kelley 202–622–7900 IT&A15.05 80, 81 Jon Silver 202–622–3930 FI&P15.06 82 Jon Silver 202–622–3930 FI&P15.07 83, 84 R. Matthew Kelley 202–622–7900 IT&A15.08 94 Jon Silver 202–622–3930 FI&P15.09 Reserved Reserved Reserved15.10 130 R. Matthew Kelley 202–622–7900 IT&A15.11 153 Nancy Lee 202–622–5020 IT&A16.01 131 William E. Blanchard 202–622–3950 FI&P17.01 132 Patrick M. Clinton 202–622–4970 IT&A18.01 41 Lore Cavanaugh 202–622–4960 IT&A19.01 42, 133, 134 Sandra Cheston 202–622–7900 IT&A19.02 43 Jamie Kim 202–622–4950 IT&A19.03 44 Jamie Kim 202–622–4950 IT&A19.04 45, 113 Jamie Kim 202–622–4950 IT&A

2011–4 I.R.B. 422 January 24, 2011

APPENDIX CONTACT LIST

APPENDIXSectionNumber

DesignatedAutomaticAccounting

Change Number Contact Name Telephone Number Office

19.05 46 Jamie Kim 202–622–4950 IT&A19.06 106 Charles Kim 202–622–5020 IT&A19.07 135 Jamie Kim 202–622–4950 IT&A19.08 149 Daniel Cassano 202–622–7900 IT&A19.09 154 Charles Kim 202–622–5020 IT&A19.10 156 Sean M. Dwyer 202–622–5020 IT&A20.01 136 William Ruane 202–622–4920 IT&A21.01 48 Patty Ward 202–622–4970 IT&A21.02 49 Steven Gee 202–622–4970 IT&A21.03 50, 51 Kari Fisher 202–622–4970 IT&A21.04 53 Patty Ward 202–622–4970 IT&A21.05 54 Patty Ward 202–622–4970 IT&A21.06 55 Eric D. Brauer 202–622–4970 IT&A21.07 63 Eric D. Brauer 202–622–4970 IT&A21.08 96 Eric D. Brauer 202–622–4970 IT&A21.09 110 Gwen Turner 202–622–5020 IT&A21.10 111 Eric D. Brauer 202–622–4970 IT&A21.11 137 Patty Ward 202–622–4970 IT&A21.12 138 Patty Ward 202–622–4970 IT&A21.13 139 Patty Ward 202–622–4970 IT&A21.14 114 Leo Nolan 202–622–4970 IT&A22.01 56 Leo Nolan 202–622–4970 IT&A22.02 57 Leo Nolan 202–622–4970 IT&A22.03 58 Leo Nolan 202–622–4970 IT&A22.04 59 Leo Nolan 202–622–4970 IT&A22.05 60 Patty Ward 202–622–4970 IT&A22.06 61 Leo Nolan 202–622–4970 IT&A22.07 62 Leo Nolan 202–622–4970 IT&A22.08 112 Leo Nolan 202–622–4970 IT&A22.09 140 Leo Nolan 202–622–4970 IT&A22.10 141 Leo Nolan 202–622–4970 IT&A23.01 64 Eric E. Boody 202–622–3950 FI&P24.01 66 David B. Silber 202–622–3930 FI&P

Laura Fields 202–622–3050 P&SI25.01 67 Kay Hossofsky 202–622–3970 FI&P25.02 155 Rebecca L. Baxter 202–622–7117 FI&P26.01 68 Kay Hossofsky 202–622–3970 FI&P27.01 79 John W. Rogers, III 202–622–4695 FI&P

28 Reserved Reserved Reserved29.01 70 Peter Merkel 202–622–3870 INTL30.01 Reserved Reserved Reserved31.01 72 William E. Blanchard 202–622–3950 FI&P32.01 73 William E. Blanchard 202–622–3950 FI&P33.01 74 William E. Blanchard 202–622–3950 FI&P33.02 75 William E. Blanchard 202–622–3950 FI&P

January 24, 2011 423 2011–4 I.R.B.