SECTION 7. PREPAID

SUBSCRIPTION INCOME (§ 455)

PREPAID SUBSCRIPTION INCOME UNDER SECTION 7.01 OF THE APPENDIX OF REV. PROC. 2002–9.” The statement must set forth the information required under § 1.455–6(b).

(c) The consent granted under this revenue procedure satisfies the consent required under §§ 455(c)(3) and 1.455– 6(b). .02 Reserved .

SECTION 7A. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460)

.01 Change to comply with final regu- lations under § 460 .

(1) Description of change and scope .

.01 Prepaid subscription income .

.01 Series E, EE or I U.S. savings bonds .

(1) Description of change and scope . This change applies to a cash method taxpayer that wants to change its method of accounting for interest income on Series E, EE, or I U.S. savings bonds. However, this change only applies to a taxpayer that has previously made an election under § 454 to report as interest income the increase in redemption price on a bond occurring in a taxable year, and that now wants to report this income in the taxable year in which the bond is redeemed, disposed of, or finally matures, whichever is earliest.

(1) Description of change and scope . This change applies to an accrual method taxpayer that wants to change its method of accounting for prepaid subscription income to the method described in § 455 and the regulations thereunder, including an eligible taxpayer that wants to make the “within 12 months” election under § 1.455–2.

(2) Manner of making the change .

(a) Applicability . This change applies to taxpayers that must change their methods of accounting to comply with the provisions of §§ 1.460–1 through 1.460–5 for long-term contracts entered into on or after January 11, 2001. See § 1.460–1(c)(2) for a description of when a contract is viewed as “entered into.”

(b) Inapplicability . This change does not apply to a taxpayer that wishes to change its exempt-contract method of accounting (as defined in § 1.460–4(c)). A taxpayer desiring to change its exemptcontract method of accounting must obtain consent for such change by filing an application under Rev. Proc. 97–27 (or successor).

(2) Year of change . The year of change for this change is the taxpayer’s taxable year that includes January 11, 2001. (3) Manner of making change . This change is made on a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(4) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

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

.02 Change from exempt-contract method to percentage-of-completion method .

(1) Description of change and scope . This change applies to a taxpayer that

(a) is not required by § 460 and regulations thereunder to use the percentage-of-completion method to account for its long-term contracts, and

(2) Manner of making the change .

(a) This change is made using a cutoff method and is effective for any increase in redemption price occurring after the beginning of the year of change for all Series E, EE and I U.S. savings bonds held by the taxpayer on or after the beginning of the year of change. See section 2.06 of this revenue procedure.

(a) This change is made using a cutoff method and does not apply to any prepaid subscription income received before the first taxable year to which the change applies. Any prepaid subscription income arising prior to the year of change is accounted for under the taxpayer’s former method of accounting. See section 2.06 of this revenue procedure.

(b) In accordance with § 1.446– 1(e)(3)(ii), the requirement of § 1.446– 1(e)(3)(i) to file an application on Form 3115 is waived and a statement in lieu of the Form 3115 is authorized for this change. The statement must be identified at the top as follows: “CHANGE IN METHOD OF ACCOUNTING FOR

2002–3 I.R.B. 364 January 22, 2002

not rely on the provisions of section 8.02 of this APPENDIX to take a current year deduction.

.03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or violation of law .

(b) wants to change its method of accounting for long-term contracts from an exempt-contract method ( see § 1.460– 4(c)) to the percentage of completion method ( see § 1.460–4(b)).

(2) Manner of making change . This change is made on a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required. This change does not apply to any long-term contract entered into before the year of change. See § 1.460–1(c)(2) for a description of when a contract is viewed as “entered into.”

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