SECTION 8. GENERAL

APPLICATION PROCEDURES

.01 Application—Service discretion . The Service reserves the right to decline to process any Form 3115 filed under this revenue procedure in situations in which it would not be in the best interest of sound tax administration to permit the requested change. In this regard, the Service will consider whether the change in method of accounting would clearly and directly frustrate compliance efforts of the Service in administering the income tax laws.

.02 Terms and conditions—Service discretion . Except as specifically provided in other published guidance, a change in method of accounting filed under this revenue procedure, if granted, must be made pursuant to the terms and conditions provided in this revenue procedure. Notwithstanding this general rule, the Service may determine that, based on the unique facts of a particular case and in the interest of sound tax administration, terms and conditions that differ from those provided in this revenue procedure are more appropriate for a change made under this revenue procedure.

.03 Compliance with provisions . If a taxpayer changes its method of accounting without authorization or without complying with all the provisions of this revenue procedure, the taxpayer has initiated a change in method of accounting without obtaining the consent of the Commissioner required by § 446(e). Upon examination, a taxpayer that has initiated an unauthorized change in method of accounting may be required to effect the change in an earlier or later taxable year and may be denied the benefit of spreading the § 481(a) adjustment over the number of taxable years otherwise prescribed by this revenue procedure.

.04 Facts and circumstances consid- ered in processing applications . In processing an application for a change in method of accounting, the Service will consider all the facts and circumstances, including:

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(1) if the method of accounting requested is consistent with the Code, regulations, revenue rulings, revenue procedures, and decisions of the United States Supreme Court;

(2) if the use of the method of accounting requested will clearly reflect income;

(3) if the present method of accounting clearly reflects income;

(4) the need for consistency in the accounting area (see section 2.07 of this revenue procedure);

(5) the taxpayer’s reason(s) for the change;

(6) the tax effect of the § 481(a) adjustment;

(7) if the taxpayer’s books and records and financial statements will conform to the proposed method of accounting; and

(8) if the taxpayer previously requested to change its method of accounting for the same item but did not make the change.

.05 Specific rules in connection with prior applications .

(1) Method change made .

(a) In general . If the taxpayer changed its method of accounting for the same item within the four taxable years preceding the year of change (under either an automatic change procedure or a procedure requiring advance consent), a copy of the application for the previous change, the signed Consent Agreement (see section 8.11 of this revenue procedure) if applicable, and any other correspondence from the Service, must be attached to the Form 3115 filed for the subsequent taxable year. An explanation must be furnished stating why the taxpayer is again requesting to change its method of accounting for the same item. The Service will consider the explanation in determining whether the subsequent request for change in method of accounting will be granted.

(b) LIFO inventory method change . If a taxpayer previously received permission from the Commissioner to change from the LIFO inventory method, the Commissioner will not consent to the taxpayer’s readoption of the LIFO inventory method for five taxable years (beginning with the taxable year the taxpayer changed from the LIFO inventory method), in the absence of a showing of unusual and compelling circumstances.

(2) Method change not made . If a prior Form 3115 (filed under either an automatic change procedure or a procedure requiring advance consent) was

withdrawn, not perfected, or denied, or if a Consent Agreement (see section 8.11 of this revenue procedure) was sent to the taxpayer but was not signed and returned to the Service, or if the change was not made, and the taxpayer files another application to change the same item for a year of change within four taxable years of the prior application, a copy of the earlier application (that is, the first Form 3115), together with any correspondence from the Service, must be attached to the Form 3115 filed for the subsequent taxable year. An explanation must be furnished stating why the earlier application was withdrawn or not perfected, or why the change was not made. The Service will consider the explanation in determining whether the subsequent request for change in method of accounting will be granted.

.06 Where to file . A taxpayer, other than an exempt organization, applying for a change in accounting method pursuant to this revenue procedure must complete and file a current Form 3115, together with the appropriate user fee, with the Commissioner of Internal Revenue, Attention: CC:DOM:CORP:T, P.O. Box 7604, Benjamin Franklin Station, Washington, DC 20044. An exempt organization must complete and file a current Form 3115, together with the appropriate user fee, with the Assistant Commissioner (Employee Plans and Exempt Organizations), Attention: E:EO, P.O. Box 120, Benjamin Franklin Station, Washington, DC 20044.

.07 User fee . Taxpayers are required to pay user fees for requests for changes in accounting method made under this revenue procedure. Rev. Proc. 97–1 (or any successor) contains the schedule of user fees and provides guidance for administering the user fee requirements.

.08 Signature requirements . The Form 3115 must be signed by, or on behalf of, the taxpayer requesting the change by an individual with authority to bind the taxpayer in such matters. For example, an officer must sign on behalf of a corporation, a general partner on behalf of a state law partnership, a membermanager on behalf of a limited liability company, a trustee on behalf of a trust, or an individual taxpayer on behalf of a sole proprietorship. If the taxpayer is a member of a consolidated group, a Form 3115 submitted on behalf of the taxpayer must be signed by a duly authorized officer of the common parent. See the signature requirements set forth in the General Instructions attached to a current Form 3115 regarding those who

are to sign. If an agent is authorized to represent the taxpayer before the Service, receive the original or a copy of the correspondence concerning the request, or perform any other act(s) regarding the Form 3115 filed on behalf of the taxpayer, a power of attorney reflecting such authorization(s) must be attached to the Form 3115. A taxpayer’s representative without a power of attorney to represent the taxpayer as indicated in this section will not be given any information regarding the Form 3115. .09 Incomplete Form 3115—21 day rule . If the Service receives a Form 3115 that is not properly completed in accordance with the instructions on the Form 3115 and the provisions of this revenue procedure, or if supplemental information is needed, the Service will notify the taxpayer. The notification will specify the information that needs to be provided, and the taxpayer will be permitted 21 days from the date of the notification to furnish the necessary information. The Service reserves the right to impose shorter reply periods if subsequent requests for additional information are made. If the required information is not submitted to the Service within the reply period, the Form 3115 will not be processed. An additional period, not to exceed 15 days, to furnish information may be granted to a taxpayer. The request for an extension of time must be made in writing and submitted within the 21-day period. If the extension request is denied, there is no right of appeal.

.10 Conference in the national office . The taxpayer must complete the appropriate line on the Form 3115 to request a conference of right if an adverse response is contemplated by the Service. If the taxpayer does not complete the appropriate line on the Form 3115 or request a conference in a later written communication, the Service will presume that the taxpayer does not desire a conference. If requested, a conference will be arranged in the national office prior to the Service’s formal reply to the taxpayer’s Form 3115. For taxpayers other than exempt organizations, see section 11 of Rev. Proc. 97–1 (or any successor). For exempt organizations, see section 12 of Rev. Proc. 97–4, 1997–1 I.R.B. 96 (or any successor). .11 Consent Agreement .

(1) In general . Unless otherwise specifically provided, the Commissioner’s permission to change a taxpayer’s method of accounting for a specific

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taxable year will be set forth in a ruling letter (original and one copy) from the national office that identifies the item or items being changed, the § 481(a) adjustment (if any), and the terms and conditions under which the change is to be effected for the taxable year specified in the ruling letter. See §§ 1.446–1(e)(3) and 1.481–4. If the taxpayer agrees to the terms and conditions contained in the ruling letter, the taxpayer must sign and date the agreement copy of the ruling letter in the appropriate space. The signed copy of the ruling letter will constitute an agreement (Consent Agreement) within the meaning of § 481(c) and as required by § 1.481–4(b). The Consent Agreement must be returned to the address provided in the Consent Agreement within 45 days of the date of its issuance. In addition, a copy of the Consent Agreement must be attached to the taxpayer’s income tax return for the year of change. If a taxpayer signs and returns the Consent Agreement, the taxpayer must implement the change in accounting method in accordance with the terms and conditions provided in the Consent Agreement and this revenue procedure. See § 1.481–4(b).

(2) Signature requirements . The Consent Agreement must be signed by, or on behalf of, the taxpayer making the request. The individual signing the Consent Agreement must have the authority to bind the taxpayer in such matters (in general, it may not be signed by the taxpayer’s representative).

(3) 45-day requirement . If the taxpayer does not return the signed Consent Agreement within 45 days of the date of its issuance, the ruling letter granting permission for the change will be null and void.

(4) Change in method of account- ing not made by the taxpayer .

(a) If the taxpayer decides not to effect the change in accordance with the terms and conditions of the ruling letter, the taxpayer must so indicate by returning the ruling letter and the unsigned Consent Agreement to the national office addressed as follows: Commissioner of Internal Revenue, Attention: [Individual whose name and symbols appear at the top of the Consent Agreement], P.O. Box 14095, Benjamin Franklin Station, Washington, DC 20044, with an explanation of why the accounting method change will not be effected.

(b) If the taxpayer disagrees with the terms and conditions of the ruling letter, the taxpayer must express the disagreement together with an expla

nation of the reason(s) within the 45-day period set forth above. The Service will consider the reason(s) for disagreement and notify the taxpayer whether the original ruling letter will be modified. If the ruling letter is not modified, the taxpayer will be notified and given 15 days from the date of the notification either to accept the original ruling letter by signing and returning the Consent Agreement, or to reject the change by returning the ruling letter and the unsigned Consent Agreement to the address in section 8.11(4)(a) of this revenue procedure.

.12 Two or more trades or busi- nesses .

(1) In general . Sections 1.446– 1(d)(1) and (2) permit different methods of accounting to be used for each trade or business of a taxpayer. However, in considering whether to grant an accounting method change for one of the trades or businesses of a taxpayer, the Service will consider whether the change will result in the creation or shifting of profits or losses between the trades or businesses, and whether the proposed method will clearly reflect the taxpayer’s income as required under § 446 and the regulations thereunder.

(2) Information required . A taxpayer requesting a change in method of accounting for one of its trades or businesses must identify all other trades or businesses by name and the method of accounting used by each trade or business for the particular item that is the subject of the requested change in method of accounting.

(3) Separate Forms 3115 required . If a taxpayer operates two or more separate and distinct trades or businesses and has kept separable books and records (and employed different methods of accounting for the businesses), a Form 3115 and separate user fee is required for each separate trade or business should the taxpayer desire to change the methods of accounting of the separate trades or businesses.

.13 Consolidated groups .

(1) In general . Section 1.1502– 17(a) permits separate methods of accounting to be used by each member of a consolidated group, subject to the provisions of § 446 and the regulations thereunder. However, in considering whether to grant accounting method changes to group members, the Service will consider the effects of the changes on the income of the group. A common parent requesting a change in method of accounting on behalf of a member of

the consolidated group must submit any information necessary to permit the Service to evaluate the effect of the requested change on the income of the consolidated group. Except as provided in section 8.13(2) of this revenue procedure, a Form 3115 and separate user fee must be submitted for each member of the group for which a change in accounting method is requested pursuant to this revenue procedure.

(2) Separate Forms 3115 not re- quired . A common parent may request an identical accounting method change on a single Form 3115 on behalf of more than one member of a consolidated group at a reduced user fee. To qualify, the taxpayers in the consolidated group must be members of the same affiliated group under § 1504(a) that join in the filing of a consolidated tax return, and they must be requesting to change from the identical present method of accounting to the identical proposed method of accounting. All aspects of the requested accounting method change, including the present and proposed methods, the underlying facts, and the authority for the request, must be identical, except for the § 481(a) adjustment. See section 15.07(1) and (3) of Rev. Proc. 97–1 at 48–49 (or any successor) for the information required to be submitted with the Form 3115.

.14 Applicability of Rev. Proc. 97–1 and Rev Proc. 97–4 . Rev. Proc. 97–1 and Rev. Proc. 97–4 (or any successors), respectively, are applicable to a Form 3115 filed under this revenue procedure, unless specifically excluded or overridden by other published guidance (including the special procedures in this document).

.15 Effect on other offices of the Service . The provisions of this revenue procedure are not intended to preclude an appropriate representative of the Service (for example, an appeals official with delegated settlement authority) from settling a particular taxpayer’s case involving an accounting method issue by agreeing to terms and conditions that differ from those provided in this revenue procedure when it is in the best interest of the government to do so.