SECTION 7. RECORD — Internal Revenue Bulletin 2002-13

Section 6001 provides that every person liable for any tax imposed by the Code, or for the collection thereof, must keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. The books or records required by § 6001 must be kept at all times available for inspection by authorized internal revenue officers or employees, and must be retained so long as the contents thereof may become material in the administration of any internal revenue law. Section 1.6001–1(e). In order to satisfy the record keeping requirements of § 6001 and the regulations thereunder, a taxpayer that uses the replacement cost method should maintain records supporting all aspects of

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part 1, §§ 446, 481; 1.446–1, 1.481–1)

Rev. Proc. 2002–18

SECTION 1. PURPOSE.......................................................................................................................................................................680

.01 In General ................................................................................................................................................................................680 .02 Voluntary Compliance ..............................................................................................................................................................680 .03 Procedures for Examination, Appeals, and Counsel for the Government for Resolving Accounting Method Issues ..........680 SECTION 2. BACKGROUND ...........................................................................................................................................................681

.01 Change in Method of Accounting Defined ..............................................................................................................................681 .02 Method Changes Imposed by the Service ...............................................................................................................................681 .03 No Right to Retroactive Method Change ................................................................................................................................681 .04 Method Change With a § 481(a) Adjustment ..........................................................................................................................681

(1) Need for adjustment ...........................................................................................................................................................681 (2) Adjustments attributable to pre–1954 years ......................................................................................................................682 (3) Adjustment period ...............................................................................................................................................................682 .05 Method Change Using a Cut-off Method ................................................................................................................................682 .06 Previous Method Change Without Consent .............................................................................................................................682 .07 Penalties ...................................................................................................................................................................................682 SECTION 3. DEFINITIONS ..............................................................................................................................................................682

.01 Accounting Method Issue .........................................................................................................................................................682 .02 Year of Change .........................................................................................................................................................................682 .03 Section 481(a) Adjustment Period ...........................................................................................................................................682 .04 Taxpayer ...................................................................................................................................................................................682 SECTION 4. SCOPE ..........................................................................................................................................................................682 SECTION 5. EXAMINATION DISCRETION TO RESOLVE ACCOUNTING METHOD ISSUES ............................................682

2002-13 I.R.B. 678 April 1, 2002

.03 Selection of New Method of Accounting .................................................................................................................................683 .04 Terms and Conditions of Change ............................................................................................................................................683

(1) Year of change ....................................................................................................................................................................683 (2) Section 481(a) adjustment ..................................................................................................................................................683 (3) Spread of § 481(a) adjustment ...........................................................................................................................................683 SECTION 6. APPEALS AND COUNSEL FOR THE GOVERNMENT DISCRETION TO RESOLVE ACCOUNTING

METHOD ISSUES ........................................................................................................................................................683 .01 Authority to Resolve Accounting Method Issues ..................................................................................................................... 683 .02 Types of Resolutions .................................................................................................................................................................683

(a) Treating an accounting method issue as a method change ........................................................................................683 (b) Selection of new method of accounting .......................................................................................................................683 (c) Terms and conditions of change ...................................................................................................................................683

(i) Year of change ...........................................................................................................................................................683 (ii) Section 481(a) adjustment ........................................................................................................................................684 (iii) Spread of the § 481(a) adjustment ..........................................................................................................................684 (3) Alternative timing resolution ..............................................................................................................................................684 (4) Time-value of money resolution .........................................................................................................................................684

(i) In general ...................................................................................................................................................................684 (ii) Sample computation .................................................................................................................................................684

(A) Hypothetical underpayment (overpayment) ........................................................................................................684 (B) Applicable time-value rate ...................................................................................................................................684 (C) Applicable period .................................................................................................................................................684 (D) Processing of specified amount ...........................................................................................................................684 SECTION 7. PROCEDURES FOR A SERVICE-IMPOSED ACCOUNTING METHOD CHANGE ...........................................685

.01 Requirement to Provide Notice to Taxpayer ...........................................................................................................................685

(1) In general ............................................................................................................................................................................685 (2) Form of notice ....................................................................................................................................................................685 (3) Content of notice ................................................................................................................................................................685 (4) Method not established without notice ..............................................................................................................................685 .02 Finalizing a Service-imposed Method Change .......................................................................................................................685

(1) Years before the Service .....................................................................................................................................................685 (2) Succeeding years for which returns have been filed .........................................................................................................685 (3) Future years ........................................................................................................................................................................686 .04 Effect of Final Service-imposed Method Change ...................................................................................................................686

(1) New method established .....................................................................................................................................................686 (2) Subsequent examination .....................................................................................................................................................686 (3) Audit protection ..................................................................................................................................................................686

(a) In general ......................................................................................................................................................................686 (b) Limitations ....................................................................................................................................................................686 .05 Coordination with Examination ...............................................................................................................................................686 .06 Deemed Cut-off Method ...........................................................................................................................................................686 SECTION 8. PROCEDURES FOR RESOLVING ACCOUNTING METHOD ISSUES ON A

NONACCOUNTING-METHOD-CHANGE BASIS ...................................................................................................686 .01 Closing agreement required .....................................................................................................................................................686 .02 Content of Closing Agreement .................................................................................................................................................686 .03 Implementing Resolution of an Accounting Method Issue on a Nonaccounting-method-change Basis. ..............................686

(1) Resolution on an alternative-timing basis .........................................................................................................................686

(a) Years before the Service ...............................................................................................................................................687 (b) Succeeding years for which returns have been filed ...................................................................................................687 (c) Future years ..................................................................................................................................................................687 (2) Resolution on a time-value-of-money basis .......................................................................................................................687

April 1, 2002 679 2002-13 I.R.B.

.04 Effect of Resolving an Accounting Method Issue on a Nonaccounting-method-change Basis .............................................687

(1) No change in method .........................................................................................................................................................687 (2) Subsequent change .............................................................................................................................................................687

(a) Resolution on an alternative-timing basis ...................................................................................................................687 (b) Resolution on a time-value-of-money basis .................................................................................................................687 (3) Effect of subsequent change ...............................................................................................................................................687

(a) Resolution on an alternative-timing basis ...................................................................................................................687 (b) Resolution on a time-value-of-money basis .................................................................................................................687 SECTION 9. DEFAULT PROCEDURES ..........................................................................................................................................687

(1) No omission or duplication ................................................................................................................................................687 (2) No change in method .........................................................................................................................................................688 (3) Subsequent change .............................................................................................................................................................688 (4) Effect of subsequent change ...............................................................................................................................................688 SECTION 10. EXAMPLES ................................................................................................................................................................688

.01 Examination-imposed Change .................................................................................................................................................688

(1) Facts ....................................................................................................................................................................................688 (2) Effect ...................................................................................................................................................................................688 .02 Appeals Resolution of Accounting Method Issue as a Method Change With Compromise Terms and Conditions .............688

(1) Facts ....................................................................................................................................................................................688 (2) Effect ...................................................................................................................................................................................688 .03 Appeals Resolution of Accounting Method Issue on an Alternative-timing Basis .................................................................689

(1) Facts ....................................................................................................................................................................................689 (2) Effect ...................................................................................................................................................................................689 .04 Appeals Resolution of Accounting Method Issue on Time-value-of-money Basis .................................................................690

(1) Facts ....................................................................................................................................................................................690 (2) Computation of specified amount ......................................................................................................................................690 (3) Effect ...................................................................................................................................................................................690 .05 Default Procedures ...................................................................................................................................................................691

(1) Facts ....................................................................................................................................................................................691 (2) Effect ...................................................................................................................................................................................691 SECTION 11. EFFECTIVE DATE ....................................................................................................................................................691

as modified by Rev. Proc. 2002–19 (2002–13 I.R.B. 696) and Rev. Proc. 2002–9 (2002–3 I.R.B. 327) as modified by Ann. 2002–17 (2002–8 I.R.B. 561), and Rev. Proc. 2002–19 (2002–13 I.R.B.
which provide the procedures for voluntary requests to change an accounting method.

.03 Procedures for Examination, Appeals, and Counsel for the Government for Resolving Accounting Method Issues . This revenue procedure sets forth procedures for Examination, Appeals, and counsel for the government to resolve accounting method issues. It does not alter Examination’s authority to examine the returns of a taxpayer. It provides parameters for Examination to resolve accounting method issues, but does not limit or expand Examination’s authority to resolve any issues under any applicable

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