SECTION 6. CHANGE IN METHOD

OF ACCOUNTING

.01 Change to the Distribution Fee Pe- riod Method, the 5-year Method, or the Useful Life Method. A taxpayer that wants to change its method of accounting for distributor commissions for the taxable year that includes January 1, 2001, to any of the three methods described in this revenue procedure must follow the automatic change in method of accounting provisions in Rev. Proc. 99–49, 1999–52 I.R.B. 725, (or its successor) with the following modifications:

(1) A taxpayer that files a copy of the Form 3115, Application for Change in Accounting Method, to change its method of accounting for distributor commissions with the national office of the Internal Revenue Service on or before April 2, 2001, is not subject to the scope limitations in § 4.02 of Rev. Proc. 99–49, unless the taxpayer’s method of accounting for distributor commissions is an issue under consideration before a federal court within the meaning of § 3.09(3) of Rev. Proc. 99–49. If the taxpayer is under examination, before an appeals office, or before a federal court at the time that a copy of the Form 3115 is filed with the national office, the taxpayer must provide a duplicate copy of the Form 3115 to the examining agent, appeals officer, or counsel for the government, as appropriate, at the time the copy of the Form 3115 is filed. The Form 3115 must contain the name(s) and telephone number(s) of the examining agent, appeals officer, or counsel for the government, as appropriate. If the taxpayer’s method of accounting for distributor commissions is an issue pending within the meaning of § 6.01(6) of this revenue procedure at the time that a Form 3115 is filed with the national office, the taxpayer also must provide to the examining agent or appeals officer, as appropriate, an executed closing agreement substantially in the form set forth in APPENDIX A of this revenue procedure.

(2) The change must be made using a cut-off method and applies only to distributor commissions paid or incurred on or after January 1, 2001. Because no items are duplicated or omitted from income when a cut-off method is used, a § 481(a)

October 2, 2000 312 2000–40 I.R.B.

adjustment described in § 5.03 of Rev. Proc. 99–49 is not necessary. See § 2.06 of Rev. Proc. 99–49.

(3) The year of change is the taxable year that includes January 1, 2001.

(4) Section 6.02(2)(a) of Rev. Proc. 99–49 is modified to allow the required copy of the Form 3115 to be filed with the national office before the first day of the year of change if the taxpayer properly files a Form 3115 under this revenue procedure.

(5) In order to assist the Internal Revenue Service in processing changes in method of accounting under this revenue procedure, and to ensure proper handling, § 6.02(3)(a) of Rev. Proc. 99–49 is modified to require that a Form 3115 filed under this revenue procedure include the statement: “Automatic Change Filed Under [ insert section number ] of Rev. Proc. 2000–38.” This statement must be legibly printed or typed at the top of any Form 3115 filed under this revenue procedure.

(6) For purposes of this revenue procedure, the taxpayer’s method of accounting for distributor commissions is an issue pending if the Service has given the taxpayer written notification indicating an adjustment is being made or will be proposed with respect to the taxpayer’s method of accounting for distributor commissions. This will normally occur after the Service has gathered information suf

ficient to determine that a proposed adjustment is appropriate and justified, although the exact amount of the adjustment may not yet be determined.

.02 Audit Protection . If a taxpayer complies with the requirements of this revenue procedure for changing its method of accounting for distributor commissions to any of the three methods of accounting described in this revenue procedure, the treatment of distributor commissions will not be raised as an issue in any taxable year before the year of change and, if the treatment of distributor commissions has already been raised as an issue in a taxable year before the year of change, the treatment of distributor commissions will not be further pursued.

.03 Changes Not Made under this Rev- enue Procedure . A taxpayer that wants to change from a method of currently deducting distributor commissions to a method of capitalizing and amortizing distributor commissions under any of the three methods described in this revenue procedure for any taxable year other than the taxable year that includes January 1, 2001, must follow the automatic change in method of accounting provisions in Rev. Proc. 99–49. However, this change must be made on a cut-off basis as described in § 2.06 of Rev. Proc. 99–49. A change from one method of amortizing described in this revenue procedure to another method of amortizing described in

this revenue procedure, and a change from pooling to single asset, or vice versa, under the distribution fee period method or the useful life method, must be made in accordance with the automatic change in method of accounting provisions in § 2.02 of the APPENDIX of Rev. Proc. 99–49. A change in the useful life of distributor commissions under the distribution fee period method or the useful life method is not a change in method of accounting. See § 1.446–1(e)(2)(ii)( b ).