SECTION 5. OPTION ONE:

ALTERNATIVE-TIMING SETTLEMENT

.01 In General. The Service offers to settle the issue with taxpayers subject to this revenue procedure by allowing taxpayers to deduct 50 percent of the accelerated deduction for a taxable year in the taxable year the benefits accrue and 50 percent in the taxable year the benefits are actually received by the employee (if vacation pay) or in the taxable year in which or with which ends the employee’s taxable year in which the benefits were actually received (if benefits other than vacation pay). For taxpayers choosing this settlement option, the § 481(a) adjustment

resulting from the change in method of accounting to comply with § 404(a)(11) would be reduced accordingly.

.02 Terms of alternative-timing settle- ment.

(1) The settlement will cover the taxpayer’s earliest open taxable year after which there is no closed taxable year and all subsequent taxable years ending on or before July 22, 1998.

(2) The Service will allow 50 percent of the excess accelerated deduction for each of the taxable years covered by the settlement.

(3) The taxpayer’s method of accounting for the unpaid portion of accrued employee benefits that the taxpayer secured during the first 2 ¹ ⁄2 months of the following taxable year by purchasing a letter of credit or other similar financial instrument is not changed for the taxable years covered by the settlement;.

(4) The taxpayer must change its method of accounting for its first taxable year ending after July 22, 1998, to comply with § 404(a)(11).

(a) The § 481(a) adjustment resulting from the change will equal the aggregate of the excess accelerated deductions for all taxable years ending on or before July 22, 1998 (determined without regard to the special rule in section 3.02 of this revenue procedure for computing the excess accelerated deduction for the first taxable year covered by the settlement), and will be reduced by 50 percent of the aggregate of the excess accelerated deductions for the taxable years covered by the settlement.

(b) The § 481(a) adjustment will be taken into account ratably over a 3-taxable-year period beginning with the first taxable year ending after July 22, 1998.

(5) The Service will not require the taxpayer to change its method of accounting for the unpaid portion of accrued employee benefits that the taxpayer secured during the first 2 ¹ ⁄2 months of the following taxable year by purchasing a letter of credit or other similar financial instrument, for taxable years ending on or before July 22, 1998.