SECTION 3. CAPITAL

EXPENDITURES (§ 263)

(a) Applicability . This change applies to a taxpayer that wants to change its method of accounting for package design costs that are within the scope of Rev. Proc. 97–35 (1997–2 C.B. 448) to one of the three alternative methods of accounting for package design costs described in section 5 of Rev. Proc. 97–35. The three alternative methods of accounting for package design costs described are: (1) the capitalization

(2) Scope .

(a) Applicability . This change applies to any taxpayer that is changing:

(i) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a) to treating such expenditures as deferred expenses under § 174(b), or vice versa;

(ii) to a different period of amortization for research and experimental expenditures for a particular project or projects that are being treated as deferred expenses under § 174(b); or

(iii) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a) or deferred expenses under § 174(b) to treating such expenditures as a capital expenditure under § 263(a), or vice versa.

(b) Scope limitations clarified . The scope limitation under section 4.02(6) of this revenue procedure is applied on a project by project basis.

(c) Inapplicability . This change does not apply to:

(i) a portion of the research and experimental expenditures paid or incurred for a particular project during the year of change or in subsequent taxable years (that is, the change must apply to all of such expenditures; see §§ 1.174–3(a) and 1.174–4(a)(5));

(ii) a change in the treatment of computer software costs under Rev. Proc. 2000–50 (2000–52 I.R.B. 601) (but see section 2B of this APPENDIX for making this change); or

(iii) a change in the treatment of Year 2000 costs under Rev. Proc. 97–50

(a) This change is made using a cutoff method and applies to all research and experimental expenditures paid or incurred for a particular project or projects during the year of change and in subsequent taxable years. See section 2.06 of this revenue procedure and §§ 174(b)(2), 1.174–3(a), 1.174–3(b)(2), and 1.174–4(a)(5).

(b) The requirement under §§ 1.174–3(b)(2), 1.174–3(b)(3), and 1.174–4(b)(2) to file an application no later than the end of the first taxable year in which the different method or different amortization period is to be used is waived for this change. However, see section 6 of this revenue procedure for filing requirements applicable under this revenue procedure.

(c) The consent granted under this revenue procedure satisfies the consent required under §§ 174(a)(2)(B), 174(a)(3), 174(b)(2), 1.174–3(b)(2), 1.174–3(b)(3), and 1.174–4(b)(2). (4) Additional requirement . A taxpayer must attach to the application a written statement providing:

(a) the information required in § 1.174–3(b)(2) if the taxpayer is changing to treating research and experimental expenditures as expenses under § 174(a);

(b) the information required in § 1.174–3(b)(3) if the taxpayer is changing from treating research and experimental expenditures as expenses under § 174(a); or

(c) the information required in § 1.174–4(b)(2) if the taxpayer is changing from treating research and experimental expenditures as deferred expenses method under § 174(b) or is changing to a different period of amortization for research and experimental expenditures being treated as deferred expenses under § 174(b).

(5) No audit protection . A taxpayer does not receive audit protection under section 7 of this revenue procedure in connection with this change.

SECTION 2B. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, AND 197)

.01 Package design costs .

(1) Description of change and scope .

.02 Reserved .

2002–3 I.R.B. 354 January 22, 2002

method, (2) the design-by-design capitalization and 60–month amortization method, and (3) the pool-of-cost capitalization and 48–month amortization method.

(b) Inapplicability . This change does not apply to a taxpayer that wants to change to the capitalization method for costs of developing (or modifying) any package design that has an ascertainable useful life.

(2) Additional requirements . If a taxpayer is changing its method of accounting for package design costs to the capitalization method or the design-by-design capitalization and 60–month amortization method, the taxpayer must attach a statement to its timely filed application. The statement must provide a description of each package design, the date on which each was placed in service, and the cost basis of each (as determined under sections 5.01(2) or 5.02(2) of Rev. Proc. 97–35). .02 Line pack gas; cushion gas .

(1) Description of change and scope . This change applies to a taxpayer that wants to change its method of accounting for line pack gas or cushion gas to a method consistent with the holding in Rev. Rul. 97–54 (1997–2 C.B. 23). Rev. Rul. 97–54 holds that the cost of line pack gas or cushion gas is a capital expenditure under § 263, the cost of recoverable line pack gas or recoverable cushion gas is not depreciable, and the cost of unrecoverable line pack gas or unrecoverable cushion gas is depreciable under §§ 167 and 168.

(2) Additional requirements . A taxpayer that changes its method of accounting for unrecoverable line pack gas or unrecoverable cushion gas under section 3.02 of this APPENDIX must change to a permissible method of accounting for depreciation for the cost of that gas.

new method of treating removal costs for assets accounted for in a multiple asset account must be consistent with the taxpayer’s method of treating salvage proceeds. See Rev. Rul. 74–455 (1974–2 C.B. 63). ( See section 2.02 of the APPENDIX of this revenue procedure for changing a taxpayer’s present method of treating salvage proceeds.)

(b) If this change involves assets that are public utility property within the meaning of § 168(i)(10) or former § 167(l)(3)(A), the taxpayer must comply with the terms and conditions in section 2.01(3)(b)(vi) of the APPENDIX of this revenue procedure.

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