SECTION 8. PROCEDURES FOR

RESOLVING TIMING ISSUES ON A NONACCOUNTING-METHODCHANGE BASIS

.01 Closing agreement required. To resolve a timing issue raised by the Service on a nonaccounting-method-change basis, the Service and the taxpayer will execute a closing agreement under § 7121. If the timing issue is being resolved on an alternative- timing basis as described in section 6.02(3) of this revenue procedure, the taxpayer must agree to pay the government any taxes and interest due as a result

1998–22 I.R.B. 17 June 1, 1998

of the resolution. If the timing issue is being resolved on a time-value-of-money basis as described in section 6.02(4) of this revenue procedure, the taxpayer must agree to pay the government the specified amount as a result of the resolution. See section 9 of this revenue procedure for the procedures applicable if a closing agreement is not executed as required by section 8.01 of this revenue procedure.

.02 Content of closing agreement. A closing agreement finalizing the resolution of a timing issue on a nonaccountingmethod-change basis must comply with the requirements of Rev. Proc. 68-16, and must include a statement setting forth:

(1) the name, address, telephone number, and taxpayer identification number of any taxpayer included in the agreement;

(2) the timing issue(s) covered by the agreement;

(3) the facts and representations upon which the taxpayer and the Service relied in reaching the agreement;

(4) that the Service is not changing the taxpayer’s method of accounting;

(5) if the timing issue is being resolved on an alternative- timing basis as described in section 6.02(3) of this revenue procedure:

(a) the items covered by the closing agreement and the manner in which the items are to be accounted for in any affected taxable year;

(b) that any items not covered by the closing agreement are not affected by the closing agreement;

(c) that the Service is not precluded from changing the taxpayer’s method of accounting in any open taxable year for the items not covered by the closing agreement;

(d) that if the taxpayer’s method of accounting is changed (voluntarily or involuntarily) in a subsequent taxable year, the § 481(a) adjustment (if any) will be determined by reference to all items arising prior to the year of change, except those items covered by the closing agreement (that is, those items for which the closing agreement specifically provides the manner in which the items are to be accounted for); and

(e) if appropriate, a condition requiring the taxpayer to file amended returns to reflect the alternative-timing resolution for any affected succeeding

taxable years for which a federal income tax return has been filed as of the date of the closing agreement;

(6) if the timing issue is being resolved on a time-value-of-money basis as described in section 6.02(4) of this revenue procedure:

(a) the taxable years covered by the agreement;

(b) the computation of the specified amount as provided in section 6.02(4)(b) of this revenue procedure; (c) that the specified amount is not interest under § 163(a) and may not be deducted or capitalized under any provision of the Code;

(d) that the Service is not precluded from changing the taxpayer’s method of accounting in any open taxable year not covered by the closing agreement;

(e) that if the taxpayer’s method of accounting is changed (voluntarily or involuntarily) in a subsequent taxable year, the § 481(a) adjustment (if any) will be determined by reference to all items arising prior to the year of change; and

(f) that if the Service changes the taxpayer’s method of accounting in a subsequent taxable year and imposes a § 481(a) adjustment, the interest that is assessed on any underpayment or the interest that is due on any overpayment for the year of change will be treated as paid to the extent necessary to prevent the duplicate payment of the time-value-of-money benefit relating to the § 481(a) adjustment; and

(7) any other appropriate conditions for implementing the closing agreement, including any requirements for waiving restrictions on assessment and collection, paying any tax, abating any overassessment, or refunding or crediting any tax overpayment.

.03 Implementing resolution of a timing issue on a nonaccounting-method-change basis.

(1) Resolution on an alternative-tim- ing basis.

(a) Years before the Service. The Service will make the adjustments necessary to effect an alternative-timing resolution for the taxable years before appeals or before a federal court. These adjustments include the adjustments to taxable income necessary to reflect the resolution and any collateral adjustments to taxable

income or tax liability resulting from the resolution.

(b) Succeeding years for which returns have been filed. The Service may require the taxpayer to file amended returns to reflect an alternative-timing resolution for any affected succeeding taxable years for which a federal income tax return has been filed as of the date of the closing agreement. The amended returns must include the adjustments to taxable income and any collateral adjustments to taxable income or tax liability resulting from the resolution necessary to reflect the resolution. The Service may require that the amended returns be filed prior to execution of the closing agreement finalizing the resolution. If the Service does not require the amended returns, the taxpayer should file such amended returns. If the Service does not require amended returns and the taxpayer does not file amended returns, the Service will make the adjustments necessary to reflect the resolution for affected succeeding taxable years when it examines the returns for those years.

(c) Future years. The taxpayer must reflect the alternative-timing resolution on the returns for any affected succeeding taxable years for which a return has not been filed as of the date of the closing agreement. The taxpayer must continue to file its returns on its current method of accounting for all items not covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

(2) Resolution on a time-value-of- money basis. The taxpayer must pay the specified amount required by the timevalue-of-money resolution. The Service will not change or otherwise propose adjustments to taxable income with respect to the taxpayer’s method of accounting for the taxable years covered by the closing agreement. The taxpayer must continue to file its returns on its current method of accounting, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

.04 Effect of resolving a timing issue on a nonaccounting-method-change basis.

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(1) No change in method. If the Service resolves a timing issue on a nonaccounting-method-change basis, the resolution does not constitute a change in method of accounting. If the timing issue is resolved on an alternative-timing basis, the taxpayer is required to use its current method of accounting for all items not covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination. If the timing issue is resolved on a time-value-of-money basis, the taxpayer is required to continue to use its current method of accounting on all returns for taxable years subsequent to the years covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

fected by the adjustment made by the Service).