SECTION 8. PROCEDURES FOR

RESOLVING ACCOUNTING METHOD ISSUES ON A NONACCOUNTING-METHODCHANGE BASIS

.01 Closing agreement required . To resolve an accounting method issue raised by the Service on a nonaccountingmethod-change basis, the Service and the taxpayer will execute a closing agreement under § 7121. For purposes of this revenue procedure, in the case of accounting method issues before a federal court, the term “closing agreement” includes any other appropriate settlement agreement. If the accounting method issue is being resolved on an alternative-timing basis as described in section 6.02(3) of this revenue procedure, the taxpayer must agree to pay the government any taxes and interest due as a result of the resolution. If the accounting method issue is being resolved on a time-value-of-money basis as described in section 6.02(4) of this revenue procedure, the taxpayer must agree to pay the government the specified amount as a result of the resolution.

.02 Content of Closing Agreement . A closing agreement finalizing the resolution of an accounting method issue on a nonaccounting-method-change basis must comply with the requirements of Rev. Proc. 68–16, and should include the information outlined in the Model Closing Agreement for Settlement on a Nonaccounting-method-change Basis attached as APPENDIX B of this revenue procedure. A closing agreement resolving an accounting method issue that is pending before a federal court on a nonaccounting-method-basis must conform to the rules and procedures of the court and should include the information outlined in the Model Closing Agreement for Settlement on a Nonaccountingmethod-change Basis attached as APPENDIX B of this revenue procedure.

.03 Implementing Resolution of an Accounting Method Issue on a Nonaccounting-method-change Basis .

(1) Resolution on an alternative- timing basis .

2002-13 I.R.B. 686 April 1, 2002

(a) Years before the Service . The Service should make the adjustments necessary to effect an alternative-timing resolution for the taxable years before appeals or before a federal court. These adjustments include the adjustments to taxable income necessary to reflect the resolution and any collateral adjustments to taxable income or tax liability resulting from the resolution.

(b) Succeeding years for which returns have been filed . The Service may require that the taxpayer file amended returns to reflect an alternative-timing resolution for any affected succeeding taxable years for which a federal income tax return has been filed as of the date of the closing agreement. The amended returns must include the adjustments to taxable income and any collateral adjustments to taxable income or tax liability resulting from the resolution necessary to reflect the resolution. The Service may require that the amended returns be filed prior to execution of the closing agreement finalizing the resolution. If the Service does not require the amended returns, the taxpayer should file such amended returns. If the Service does not require amended returns and the taxpayer does not file amended returns, the Service should make the adjustments necessary to reflect the resolution for affected succeeding taxable years if and when it examines the returns for those years. A taxpayer eligible to file a “qualified amended return” under Rev. Proc. 94–69 may satisfy any requirement to file an amended return by filing a “qualified amended return” in accordance with that revenue procedure.

(c) Future years . The taxpayer must reflect the alternative-timing resolution on the returns for any affected succeeding taxable years for which a return has not been filed as of the date of the closing agreement. The taxpayer must continue to file its returns on its current method of accounting for all items not covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

(2) Resolution on a time-value-of- money basis . The taxpayer must pay the specified amount required by the timevalue-of-money resolution. The Service

will not change or otherwise propose adjustments to taxable income with respect to the taxpayer’s method of accounting for the taxable years covered by a closing agreement. The taxpayer must continue to file its returns on its current method of accounting, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

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

(1) No change in method . If the Service resolves an accounting method issue on a nonaccounting-method-change basis, the resolution does not constitute a change in method of accounting. If the accounting method issue is resolved on an alternative-timing basis, the taxpayer is required to use its current method of accounting for all items not covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination. If the accounting method issue is resolved on a time-value-of-money basis, the taxpayer is required to continue to use its current method of accounting on all returns for taxable years subsequent to the years covered by the closing agreement, unless the taxpayer obtains the consent of the Commissioner to change from its current method or the Service changes the taxpayer from its current method on subsequent examination.

(2) Subsequent change .

(a) Resolution on an alternative- timing basis . If an accounting method issue is resolved on an alternative-timing basis, the Service is not precluded from changing the taxpayer’s method of accounting in any open taxable year for any item not covered by the closing agreement.

(b) Resolution on a time-value-of- money basis . If an accounting method issue is resolved on a time-value-ofmoney basis, the Service is not precluded from changing the taxpayer’s method of accounting in any open taxable year not covered by the closing agreement.

(a) Resolution on an alternative- timing basis . If an accounting method issue is resolved on an alternative-timing basis and the taxpayer’s method of accounting subsequently is changed (voluntarily or involuntarily) in any open taxable year, the § 481(a) adjustment (if any) will be determined by reference to all items arising prior to the year of change, except those items covered by the closing agreement (that is, those items for which the closing agreement specifically provides the manner in which the items are to be accounted for).

(b) Resolution on a time-value-of- money basis . If an accounting method issue is resolved on a time-value-ofmoney basis and the taxpayer’s method of accounting subsequently is changed (voluntarily or involuntarily) in any open taxable year not covered by the closing agreement, the § 481(a) adjustment (if any) will be determined by reference to all items arising prior to the year of change. If the Service subsequently changes the taxpayer’s method of accounting and imposes a § 481(a) adjustment, the interest that is assessed on any underpayment, or the interest that is due on any overpayment, for the year of change will be treated as paid to the extent necessary to prevent duplicate payment of the time-value-of-money benefit relating to the § 481(a) adjustment.