SECTION 1. COMMODITY CREDIT

LOANS (§ 77)

.01 Treating amounts received as loans .

(1) Description of change and scope . This change applies to a taxpayer that wants to change its method of accounting for loans received from the Commodity Credit Corporation from including the loan amount in gross income for the taxable year in which the loan is received to treating the loan amount as a loan.

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for costs incurred to perform work on aircraft airframes during heavy maintenance visits to conform with Rev. Rul. 2001–4 (2001–3 I.R.B. 295) and Notice 2001–23 (2001–12 I.R.B. 911).

(2) Year of change . This change applies only to the taxpayer’s first or second taxable year ending after December 21, 2000.

(1) Description of change and scope . This change applies to a taxpayer that wants to change its method of accounting for track structure expenditures (as defined by section 4.02 of Rev. Proc. 2001–46, 2001–37 I.R.B. 263) to the track maintenance allowance method described in Rev. Proc. 2001–46.

(2) Scope limitations inapplicable . A taxpayer that wants to make this change is not subject to the scope limitations of section 4.02 of this revenue procedure.

(3) Manner of making change . This change is made on a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

.02 Reserved

SECTION 1A. TRADE OR BUSINESS EXPENSES (§ 162)

.01 Advances made by a lawyer on behalf of clients — Description of change and scope . This change applies to a lawyer handling cases on a contingent fee basis that advances money to pay for costs of litigation or for other expenses on behalf of clients and that wants to change the method of accounting for such advances from treating them as deductible business expenses to treating them as loans. See Boccardo v. United States, 12 Cl. Ct. 184 (1987); Canelo v. Commis- sioner, 53 T.C. 217 (1969), aff’d per curiam, 447 F.2d 484 (9th Cir. 1971).

.02 Year 2000 costs — Description of change and scope . This change applies to a taxpayer that wants to change its method of accounting for Year 2000 costs (as defined in Rev. Proc. 97–50, 1997–2 C.B. 525) to conform to the method described in section 3 of Rev. Proc. 97–50. Section 3 of Rev. Proc. 97–50 provides that Year 2000 costs fall within the purview of Rev. Proc. 69–21 (1969–2 C.B. 303), superceded by Rev. Proc. 2000–50 (2000–52 I.R.B. 601), and that the Service will not disturb a taxpayer’s treatment of its Year 2000 costs as deductible expenses or capital expenditures if the taxpayer treats these costs in accordance with Rev. Proc. 2000–50.

(3) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure are not applicable to this change unless the taxpayer’s method of accounting for costs incurred to perform work on its aircraft airframes is an issue pending, within the meaning of section 6.01(6) of Rev. Proc. 2000–38 (2000–40 I.R.B. 310), at the time the copy of its application is filed with the national office.

(4) Transition rule . If a taxpayer filed an application to make this change under Rev. Proc. 97–27, and the application was pending with the national office on February 16, 2001, the taxpayer may change its method under Rev. Proc. 97–27 or this revenue procedure. However, the national office will process the application in accordance with the procedure under which it was filed, unless, prior to the later of April 1, 2001, or the issuance of the letter ruling granting or denying consent to the change, the taxpayer notifies the national office that it wants to change its method of accounting under this revenue procedure. If the taxpayer timely notifies the national office that it wants to change its method under this revenue procedure, the taxpayer must make appropriate modifications to comply with the applicable provisions of this revenue procedure. In addition, any application fee that was submitted with the application will be returned to the taxpayer.

.04 ISO 9000 costs .

.03 Aircraft maintenance costs .

(1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for costs incurred to obtain, maintain and renew ISO 9000 certification to conform with Rev. Rul. 2000–4 (2000–4 I.R.B. 331).

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

.05 Track structure expenditures .

January 22, 2002 347 2002–3 I.R.B.

(2) Year of change . This change may be made for the taxpayer’s first or second taxable year ending on or after December 31, 2000. (3) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

(4) Special filing requirements for certain taxpayers . A taxpayer that wants to make this change for its first taxable year ending on or after December 31, 2000, and that files its return for such taxable year on or before October 22, 2001, is not subject to the filing requirements in section 6.02(2)(a) of this revenue procedure, provided that it complies with the following filing requirements. The original application must be attached to the taxpayer’s amended federal income tax return for its first taxable year ending on or after December 31, 2000. This amended return must be filed no later than January 28, 2002. A copy of the application must be filed with the national office no later than when the taxpayer’s amended return is filed.

items arising before the year of change continue to be accounted for under the taxpayer’s former method of accounting. Because no items are duplicated or omitted from income when a cut-off method is used to effect a change in accounting method, no § 481(a) adjustment is necessary.

(6) Audit protection . If a taxpayer’s treatment of its track structure expenditures is an issue under consideration in examination, before an area appeals office, or before a federal court (within the meaning of section 3.08 of Rev. Proc. 97–27, 1997–1 C.B. 680) on August 21, 2001, the taxpayer does not receive audit protection under the provisions of section 7 of this revenue procedure. (7) Effect of consent . For purposes of section 8.01 of this revenue procedure, a change in the material fact on which the consent was based includes a material change in how a taxpayer reports amounts on the Form R–1 or a change in the taxpayer’s obligation to file a Form R–1.

procedures applicable to banks, see § 585 (c) (and the regulations thereunder) and section 11 of the APPENDIX of this revenue procedure.

.02 Reserved .

SECTION 1C. AMORTIZABLE BOND PREMIUM (§ 171)

.06 Restaurant smallwares packages .

.01 Revocation of § 171(c) election .

(1) Description of change and scope . This change applies to a taxpayer that wants to change its method of accounting for amortizable bond premium by revoking its § 171(c) election. Under § 171(c), a taxpayer that holds certain taxable bonds may elect to amortize any bond premium on the bonds in accordance with regulations prescribed by the Secretary. Sections 1.171–1 through 1.171–5 provide rules relating to the amortization of bond premium by a taxpayer. Section 1.171–4 provides the procedures to make a § 171(c) election to amortize bond premium.

(2) Revocation of election . The revocation of a § 171(c) election applies to all taxable bonds that are held by the taxpayer on the first day of the first taxable year for which the revocation is effective (year of change), and to all taxable bonds that are subsequently acquired by the taxpayer.

(3) Manner of making the change . This change is made using a cut-off method and applies only to taxable bonds held during or after the year of change. Consequently, for taxable bonds held at the beginning of the year of change, the taxpayer may not amortize any remaining bond premium on the bonds. Because cutoff treatment is prescribed for this change, the basis of any bond, adjusted for amounts previously amortized during the period of the election, is not affected by the revocation.

(4) Additional requirements . On a statement attached to the application, the taxpayer must provide:

(a) the reason(s) for revoking the election; and

(b) a description of the method by which, and the date on which, the taxpayer made the § 171(c) election that is proposed to be revoked.

(5) Audit protection . A taxpayer receives audit protection under section 7 of this revenue procedure in connection

(5) Manner of making change .

(a) Section 481(a) adjustment . If a taxpayer wants to make this change and the taxpayer’s treatment of its track structure expenditures is not an issue under consideration in examination, before an area appeals office, or before a federal court (within the meaning of section 3.08 of Rev. Proc. 97–27, 1997–1 C.B. 680) on August 21, 2001, the taxpayer must make the change using an adjustment under § 481(a). If the taxpayer did not file Form R–1 for one or more of the taxable years to which the § 481(a) adjustment relates, the taxpayer must compute the § 481(a) adjustment based on information equivalent to that required by Form R–1.

(b) Cut-off method . If a taxpayer wants to make this change and the taxpayer’s treatment of its track structure expenditures is an issue under consideration in examination, before an area appeals office, or before a federal court (within the meaning of section 3.08 of Rev. Proc. 97–27, 1997–1 C.B. 680) on August 21, 2001, the taxpayer must make the change using a cut-off method. Under a cut-off method, only the items arising on or after the beginning of the year of change are accounted for under the track maintenance allowance method. Any

(1) Description of change . This change applies to a taxpayer engaged in the trade or business of operating a restaurant or tavern (within the meaning of section 4.01 of Rev. Proc. 2002–12, 2002–3 I.R.B. 374) who wants to change its method of accounting for the cost of restaurant smallwares to the smallwares method described in Rev. Proc. 2002–12 (i.e ., as materials and supplies that are not incidental under § 1.162–3).

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

(3) Section 481(a) adjustment . A taxpayer changing its method of accounting for restaurant smallwares under this section must take the entire § 481(a) adjustment into account in computing taxable income in the year of change.

SECTION 1B. BAD DEBTS (§ 166)

.01 Change from reserve method to specific charge-off method — description of change and scope . This change applies to a taxpayer (other than a bank as defined in § 585(a)(2)) that wants to change its method of accounting for bad debts from a reserve method (or other improper method) to a specific charge-off method that complies with § 166. For

2002–3 I.R.B. 348 January 22, 2002

spectively ( see, for example, § 1.167(b)– 2(c)). (In contrast, section 2.01 of this APPENDIX generally applies to a change in the recovery period of property for which depreciation is determined under § 56(a)(1), 56(g)(4)(A), 168 or former § 168);

(viii) any depreciable property that changes use but continues to be owned by the same taxpayer ( see, for example, § 168(i)(5));

(ix) any property for which depreciation is determined in accordance with § 1.167(a)–11 (regarding the Class Life Asset Depreciation Range System (ADR));

(x) any change in method of accounting involving a change from deducting the cost or other basis of any property as an expense to capitalizing and depreciating the cost or other basis;

(xi) any change in method of accounting involving a change from one permissible method of accounting for the property to another permissible method of accounting for the property. For example:

(A) a change from the straight-line method of depreciation to the income forecast method of depreciation for videocassettes. See Rev. Rul. 89–62 (1989–1 C.B. 78); or

(B) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with salvage proceeds to deducting costs of removal as an expense (provided the costs of removal are not required to be capitalized under any provision of the Code, such as, § 263(a)) and including salvage proceeds in taxable income (see section 2.02 of this APPENDIX for making this change for property for which depreciation is determined under § 167);

(xii) any change in method of accounting involving both a change from treating the cost or other basis of the property as nondepreciable property to treating the cost or other basis of the property as depreciable property and the adoption of a method of accounting for depreciation requiring an election under § 167, 168, former § 168, or § 13261(g)(2) or (3) of the 1993 Act (for example, a change in the treatment of the space consumed in landfills placed in service in 1990 from nondepreciable to depreciable property (assuming section

with this change. However, the audit protection applicable to this change does not preclude the Commissioner from examining the method used by the taxpayer to determine the amount of amortizable bond premium under § 171(b) for a taxable year prior to the year of change.

.02 Reserved .