SECTION 3. INTERNAL REVENUE

SERVICE INITIATED CHANGE IN ACCOUNTING METHOD EARLY REFERRAL PROCEDURES

.01 In general. The IRS published a proposed revenue procedure, Notice 98– 31, 1998–22 I.R.B. 10, that outlines procedures under § 446(b) for changes in accounting methods initiated by the IRS. Although the early referral procedures in section 2 of this revenue procedure generally apply to all examination issues, section 3.02 of this revenue procedure provides accounting method issues that are appropriate for early referral.

.02 Appropriate issues for early re- ferral. Examples of appropriate issues for early referral include whether :

(1) the taxpayer’s practice is a method of accounting;

(2) the IRS is precluded from changing the taxpayer’s method of accounting because, for example, the taxpayer obtained audit protection by initiating a voluntary accounting method change;

(3) the taxpayer’s present method of accounting clearly reflects income under § 446;

(4) the method of accounting proposed by the IRS clearly reflects income under § 446;

(5) the methodology used by the IRS to compute the § 481(a) adjustment is appropriate; or

(6) the methodology used by the IRS to compute the § 481(b) adjustment is appropriate.