SECTION 9. INVENTORIES (§ 471)

.01 Cash discounts — Description of change and scope. This change applies to a taxpayer that wants to change its method of accounting for cash discounts (discounts granted for timely payment) when they approximate a fair interest rate,

.05 Cooperative advertising .

(1) Description of change and scope. This change applies to a taxpayer that wants to change its method of accounting for cooperative advertising costs to a method consistent with the holding in Rev. Rul. 98–39, 1998–33 I.R.B. 4. Rev. Rul. 98–39 generally provides that, under the all events test of § 461, an accrual method manufacturer’s liability to pay a retailer for cooperative advertising services is incurred in the year in which the services are performed, provided the manufacturer is able to reasonably estimate this liability, and even though the retailer does not submit the required claim form until the following year.

(2) Scope limitations inapplicable. A taxpayer that wants to make this change for its first or second taxable year ending on or after August 17, 1998, is not subject to the scope limitations in section 4.02 of this revenue procedure. However, if the taxpayer is under examination, before an appeals office, or before a federal court, the taxpayer

must provide a copy of the application to the examining agent(s), appeals officer, or counsel for the government, as appropriate, at the same time that it files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s), appeals officer, or counsel for the government, as appropriate.

SECTION 8A. CERTAIN PAYMENTS FOR THE USE OF PROPERTY OR SERVICES (§ 467)

.01 Change to constant rental accrual method.

(1) Description of change. This change applies to a taxpayer that wants to change to the constant rental accrual method, as described in § 1.467–3, for all of its section 467 rental agreements described in § 1.467–8(b). See § 1.467–8.

(2) Requirements . Taxpayers changing their method of accounting in accordance with this change must do so for all of their section 467 rental agreements described in § 1.467–8(b). This change must be made for the taxpayer’s first taxable year ending after May 18, 1999.

(3) Scope limitations inapplicable. The scope limitations in section 4.02 of this revenue procedure are not applicable to this change. However, if the taxpayer is under examination, before an appeals office, or before a federal court, the taxpayer must provide a copy of the application to the examining agent(s), appeals officer, or counsel for the government, as appropriate, at the same time that it files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s), appeals officer, or counsel for the government, as appropriate.

.02 Change to comply with §§ 1.467–1 through 1.467–7.

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for rental agreements described in § 1.467–9(a)(2) to comply with §§ 1.467–1 through 1.467–7. See § 1.467–9(e)(1). (2) Requirements. This change must be made for the taxpayer’s first taxable year ending after May 18, 1999.

(3) Scope limitations inapplicable. The scope limitations in section 4.02 of this revenue procedure are not applicable to this

1999–52 I.R.B. 751 December 27, 1999

from a method of consistently including the price of the goods before discount in the cost of the goods and including in gross income any discounts taken (the “gross invoice method”), to a method of reducing the cost of the goods by the cash discounts and deducting as an expense any discounts not taken (the “net invoice method”), or vice versa. See Rev. Rul. 73–65, 1973–1 C.B. 216. .02 Estimating inventory “shrinkage”.

(1) Description of change and scope. This change applies to a taxpayer that wants to change to a method of accounting for estimating inventory shrinkage in computing ending inventory, using:

(a) the “retail safe harbor method” described in section 4 of Rev. Proc. 98–29, 1998–15 I.R.B. 22; or (b) a method other than the retail safe harbor method, provided (i) the taxpayer’s present method of accounting does not estimate inventory shrinkage, and (ii) the taxpayer’s new method of accounting (that estimates inventory shrinkage) clearly reflects income under § 446(b). (2) Scope limitations inapplicable. A taxpayer that wants to make this change is not subject to the scope limitations in section 4.02 of this revenue procedure. However, if the taxpayer is under examination, before an appeals office, or before a federal court, the taxpayer must provide a copy of the application to the examining agent(s), appeals officer, or counsel for the government, as appropriate, at the same time that it files the copy of the application with the national office. The application must contain the name(s) and telephone number(s) of the examining agent(s), appeals officer, or counsel for the government, as appropriate.

(3) Additional requirements . If the taxpayer wants to change to a method of accounting for inventory shrinkage other than the retail safe harbor method, the taxpayer must attach to the application a statement setting forth a detailed description of all aspects of the new method of estimating inventory shrinkage (including, for LIFO taxpayers, the method of determining inventory shrinkage for, or allocating inventory shrinkage to, each LIFO pool).

(4) Audit protection . A taxpayer, whose present method of accounting estimates inventory shrinkage, does not re

ceive audit protection under section 7 of this revenue procedure in connection with a change to the retail safe harbor method if, on the date the taxpayer files a copy of the Form 3115 with the national office, the taxpayer’s present method of estimating inventory shrinkage is an issue under consideration within the meaning of section 3.09 of this revenue procedure.

(5) Future change . A taxpayer that changes to the retail safe harbor method described in this revenue procedure will not be precluded, solely by reason of such change, from changing to another safe harbor method for estimating inventory shrinkage in computing ending inventory in the first year that such other safe harbor method is available.