SECTION 1. PURPOSE

.01 In General . This revenue procedure provides the procedures under § 446(b) of the Internal Revenue Code and § 1.446–1(b) of the Income Tax Regulations for changes in method of accounting imposed by the Internal Revenue Service (Service). This revenue procedure also provides the procedures that the Service will use for accounting method issues resolved by the Service on a nonaccounting-method-change basis.

.02 Voluntary Compliance . This revenue procedure provides terms and conditions for Service-imposed changes in method of accounting that are intended to encourage taxpayers to voluntarily request a change from an impermissible

method of accounting prior to being contacted for examination. Under this approach, a taxpayer that is contacted for examination and required to change its method of accounting by the Service (“involuntary change”) generally receives less favorable terms and conditions when the change results in a positive § 481(a) adjustment than the taxpayer would have received if it had filed an application to change its method of accounting (“voluntary change”) before the taxpayer was contacted for examination. For example, an involuntary change generally is made with an earlier year of change and a shorter § 481(a) adjustment period for a positive adjustment, and a voluntary change generally is made with a current year of change and a longer § 481(a) adjustment period for a positive adjustment. See Rev. Proc. 97–27 (1997–1 C.B.

2002-13 I.R.B. 680 April 1, 2002

(4) The Commissioner has the discretion to change a taxpayer’s method of accounting even though the Commissioner previously changed the taxpayer to the method if the Commissioner determines that the method of accounting does not clearly reflect the taxpayer’s income. The Commissioner is not precluded from correcting mistakes of law in determining a taxpayer’s tax liability, including the power to retroactively correct rulings or other determinations on which the taxpayer may have relied. See Dixon v. United States, 381 U.S. 68 (1965); Auto- mobile Club of Michigan v. Commis- sioner, 353 U.S. 180 (1957); Massaglia v. Commissioner, 286 F.2d 258 (10th Cir. 1961). (5) The Commissioner does not have discretion, however, to require a taxpayer to change from a method of accounting that clearly reflects income to a method that, in the Commissioner’s view, more clearly reflects income. See Capitol Fed- eral Savings & Loan v. Commissioner, 96 T.C. 204 (1991); W.P. Garth v. Commis- sioner, 56 T.C. 610 (1971), acq ., 1975–1 C.B. 1.

(6) The Commissioner may change the accounting method of a taxpayer that is under examination, before an appeals office, or before a federal court, except as otherwise provided in published guidance. See, for example, section 9 of Rev. Proc. 97–27, which generally precludes the Service from changing a taxpayer’s method of accounting for an item for prior taxable years if the taxpayer timely files a Form 3115, Application to Change a Method of Accounting, pursuant to Rev. Proc. 97–27 requesting to change its method of accounting for the item.

.03 No Right to Retroactive Method Change . Although the Commissioner is authorized to consent to a retroactive accounting method change, a taxpayer does not have a right to a retroactive change, regardless of whether the change is from a permissible or impermissible method. See generally, Rev. Rul. 90–38.

.04 Method Change With a § 481(a) Adjustment .

(1) Need for adjustment . Section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted to be taken into account when the taxpayer’s taxable income is computed under a method of accounting

Delegation Order ( e.g., Delegation Order No. 236, Application of Appeals Settlement to Coordinated Examination Program Taxpayers, and Delegation Order No. 247, Authority of Examination Case Managers to Accept Settlement Offers and Execute Closing Agreements on Industry Specialization Program and International Field Assistance Program Issues). This revenue procedure also does not alter or limit the authority of Appeals or counsel for the government to resolve or settle any issues.