SECTION 9. AUDIT PROTECTION

FOR TAXABLE YEARS PRIOR TO YEAR OF CHANGE

.01 In general . Except as provided in section 9.02 of this revenue procedure, when a taxpayer timely files a Form

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(1) Change not made or made im- properly . The Service may change a taxpayer’s method of accounting for prior taxable years if (a) the taxpayer withdraws or does not perfect its request, (b) the national office denies the request, (c) the taxpayer declines to implement the change in method of accounting pursuant to the terms and conditions of the Consent Agreement and this revenue procedure, (d) the taxpayer implements the change but does not comply with the terms and conditions contained in the Consent Agreement and this revenue procedure, or (e) the national office modifies or revokes the ruling retroactively because there has been a misstatement or an omission of material facts. See section 10.02(2) of this revenue procedure. (2) Change in sub-method . The Service may change a taxpayer’s method of accounting for prior taxable years if the taxpayer is changing a sub-method of accounting within the method. For example, an examining agent may propose to terminate the taxpayer’s use of the LIFO inventory method during a prior taxable year even though the taxpayer changes its method of valuing increments in the current year.

(3) Prior year Service-initiated change . The Service may make adjustments to the taxpayer’s returns for the same item for taxable years prior to the requested year of change to reflect a prior year Service-initiated change.

(4) Criminal investigation . The Service may change a taxpayer’s method of accounting for the same item for taxable years prior to the requested year of change if there is any pending or future criminal investigation or proceeding concerning (a) directly or indirectly, any issue relating to the taxpayer’s federal tax liability for any taxable year prior to the year of change, or (b) the possibility of false or fraudulent statements made by the taxpayer with respect to any issue relating to its federal tax liability for any taxable year prior to the year of change.