SECTION 1. PURPOSE

.01 This revenue procedure allows a taxpayer to use the principal-reduction method of accounting — an aggregate method of accounting for de minimis original issue discount on certain loans originated by the taxpayer. The principalreduction method is based on the rule that, if a taxpayer holds a debt instrument with de minimis original issue discount, the taxpayer must include that discount in income as stated principal payments are made. See § 1.1273–1(d)(5) of the In

come Tax Regulations. A taxpayer may change to or adopt the principal-reduction method. The procedures for a taxpayer to change to the principal-reduction method are provided in Rev. Proc. 97–37, page 18, which provides simplified and uniform procedures to obtain automatic consent to make this and other changes in methods of accounting. This revenue procedure modifies and supersedes Rev. Proc. 94–29, 1994–1 C.B. 616.

.02 The principal-reduction method described in this revenue procedure is the same method of accounting that was described in Rev. Proc. 94–29. Accordingly, a taxpayer that properly changed to or adopted this method pursuant to Rev. Proc. 94–29 is not required to change its method of accounting to comply with this revenue procedure.