SECTION 1. PURPOSE

.01 In general . This revenue procedure provides the general procedures under § 446(e) of the Internal Revenue Code and § 1.446–1(e) of the Income Tax Regulations for obtaining the consent of the Commissioner of Internal Revenue to change a method of accounting for federal income tax purposes. This revenue procedure modifies

and supersedes Rev. Proc. 92–20, 1992–1 C.B. 685. .02 Voluntary compliance .

(1) This revenue procedure provides incentives to encourage prompt voluntary compliance with proper tax accounting principles. Under this approach, a taxpayer generally receives more favorable terms and conditions (for example, a later year of change and a longer § 481(a) adjustment period for a positive adjustment) if the taxpayer files its request for a change in accounting method before the Internal Revenue Service contacts the taxpayer for examination. A taxpayer that is contacted for examination and required to change its method of accounting by the Service generally receives less favorable terms and conditions and may also be subject to penalties.

(2) Although prompt voluntary compliance can generally be encouraged through incentives, the Service recognizes that this approach may not be appropriate or effective in all cases. For example, a number of taxpayers have deferred making changes required by amendments to the Internal Revenue Code or the Income Tax Regulations. Because it is generally not appropriate to permit changes on a basis more favorable than applicable under the governing statute or regulation, the Service may, in other published guidance, provide special terms and conditions that are designed to place the taxpayer in a position no more favorable than if the taxpayer had timely complied with the required change. See, for example, Rev. Proc. 93–48, 1993–2 C.B. 580 (regarding changes in method of accounting for notional principal contracts to comply with the requirements of § 1.446–3).

.03 Significant changes . Many of the complex rules and requirements of Rev. Proc. 92–20 have been simplified or eliminated. For example, the Category A, Category B, Designated A, and Designated B classifications have been eliminated, the 90–day window at the beginning of an examination has been eliminated, the 30-day window for taxpayers under continuous examination has been expanded to 90 days and the number of consecutive months the taxpayer is required to be under examination has been reduced from 18 to 12, the definition of ‘‘under examination’’ has been clarified, the consent requirement for taxpayers before an appeals office or a federal court has been replaced with a notification procedure, the various § 481(a) adjustment periods have been

11

replaced with a single 4-year § 481(a) adjustment period for both positive and negative adjustments, and several of the terms and conditions relating to the § 481(a) adjustment have been eliminated.