SECTION 4. CHANGE IN

ACCOUNTING METHOD

.01 In general . Any change in a Company’s method of accounting pursuant to this revenue procedure is a change in method of accounting to which the provisions of §§446 and 481 and the regulations thereunder apply.

.02 Automatic change for taxpayers within the scope of this revenue proce- dure . A Company changing its method of accounting for cash advances meeting the requirements of Section 3 for the first or second taxable year beginning after December 31, 1999 (“year of change”) pursuant to the provisions of this revenue procedure must follow the automatic change in accounting method provisions of Rev. Proc. 99–49 (or its successor) with the following modifications:

(1) To both copies of its Form 3115, the Company must attach a statement that complies with the provisions of Section 4.03 of this revenue procedure. (2) The scope limitations in section 4.02 of Rev. Proc. 99–49 do not apply. However, if the Company is under examination, before an appeals office, or before a federal court regarding any income tax issue, the Company must provide a copy of the Form 3115 to the examining agent, appeals officer, or counsel for the govern

ment, as appropriate, at the same time that it files the copy of the Form 3115 with the National Office.

(3) This change is effected on a “cutoff” basis in the year of change, as specified in section 2.06 of Rev. Proc. 99–49. Thus, a §481(a) adjustment is neither required nor permitted. If the Company previously changed its method of accounting for cash advances from “loans” to “earned cash advances” and that change resulted in a §481(a) adjustment that has not been fully included in the Company’s taxable income, the Company must include the remaining §481(a) adjustment in taxable income in the year of change. Similarly, if the Company previously changed its method of accounting for cash advances from “loans” to “earned cash advances” and that change resulted in a §481(a) adjustment that has not been fully included in the agent’s reported income, the Company must include the remaining §481(a) adjustment on the agent’s applicable Form 1099–MISC, Miscellaneous Income, or Form W-2, Wage and Tax Statement, for the year of change.

.03 Statement. The statement referred to in section 4.02 of this revenue procedure should be identified at the top as follows: “CHANGE IN METHOD OF ACCOUNTING UNDER REV. PROC. 2001–24” The statement must include: (1) a paragraph stating that the Company is changing its method of accounting for cash advances that meet the requirements of section 3 of this Rev. Proc. 2001–24, effective for the year of change and all subsequent tax years, from deducting the cash advances in the taxable year paid to an agent to deducting the cash advances in the taxable year earned by the agent.

(2) a paragraph stating that for the year of change and all subsequent years, the Company will treat cash advances as earned cash advances when the Company incurs a liability to the agent arising from the underlying transaction (e.g., when the Company receives a premium payment from the policy holder who purchased the policy from the agent).

(3) a paragraph stating that for the year of change and all subsequent years, the Company will treat earned cash advances as wages subject to federal employment taxes in the case of an employee agent or as compensation in the case of an independent contractor agent. For this purpose, earned cash advances do

2001–10 I.R.B. 789 March 5, 2001