SECTION 9. EFFECTIVE DATE

This revenue procedure is effective for taxable years ending on or after December 31, 2001. However, the Service will not challenge a taxpayer’s use of the cash method under § 446 or a taxpayer’s failure to account for inventories under § 471 for a trade or business in an earlier year if the taxpayer, for that year, would have been a qualifying small business taxpayer as described in section 5.01 of this revenue procedure and would have been eligible to use the cash method in such year under section 4 of this revenue procedure if this revenue procedure had been applicable to that taxable year.

an eligible trade or business must follow the automatic change in accounting method provisions of Rev. Proc. 2002–9 (2002–3 I.R.B. 327) (or its successor), as modified by Rev. Proc. 2002–19 (2002–13 I.R.B. 696), and Announcement 2002–17 (2002–8 I.R.B. 561), with the following modifications:

(a) The scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply. However, if the taxpayer is under examination, before an appeals office, or before a federal court with respect to any income tax issue, see section 6.02(9) of Rev. Proc. 2002–9 for additional filing requirements.

(b) Taxpayers filing Form 3115, Application for Change in Accounting Method, for a change in method of accounting under this revenue procedure must complete all applicable parts of the form but need not complete Part II of Schedule A of Form 3115. Specifically, Part II of Form 3115, line 17 (regarding information on gross receipts in previous years) and Part III of Form 3115 (regarding the § 481(a) adjustment) must be completed. Taxpayers should write “Filed under Rev. Proc. 2002–28” at the top of their Form 3115.

(c) A taxpayer making a change under section 7.02 of this revenue procedure for its first taxable year ending on or after December 31, 2001, that, on or before May 6, 2002, files or filed its original federal income tax return for such year, is not required to comply with the filing requirement in section 6.02(3)(a) of Rev. Proc. 2002–9, provided the taxpayer complies with the following filing requirement. The taxpayer must complete and file a Form 3115 in duplicate. The original must be attached to the taxpayer’s amended federal income tax return for the taxpayer’s first taxable year ending on or after December 31, 2001. This amended return must be filed no later than September 16, 2002. A copy of the Form 3115 must be filed with the national office (see section 6.02(6) of Rev. Proc. 2002–9 for the address) no later than when the taxpayer’s amended return is filed.

(2) Automatic change to § 1.162–3 . A qualifying small business taxpayer that does not want to account for inventories under § 471 must make any necessary change from the taxpayer’s inventory

method (and, if applicable, from the method of capitalizing costs under § 263A) to treat inventoriable items in the same manner as materials and supplies that are not incidental under § 1.162–3. For purposes of such a change, the rules of section 7.02(1) of this revenue procedure apply.

(3) Other automatic changes . An automatic change in method under this revenue procedure would also include any other change in method of accounting that is eligible to be made under this revenue procedure in conjunction with either or both of the above changes in this section 7.02 (such as a change from a longterm contract method that is not required to be used by § 460). For purposes of such a change, the rules of section 7.02(1) of this revenue procedure apply.

(4) Single Form 3115 . Any combination of changes under this revenue procedure may be included in the same Form 3115 to be filed by the taxpayer. .03 Section 481(a) Adjustment .

(1) Determining the net amount . The net amount of the § 481(a) adjustment computed under this revenue procedure must take into account both increases and decreases in the applicable account balances such as accounts receivable, accounts payable, and inventory. For example, the § 481(a) adjustment may include the difference resulting from changing from taking inventory accounts under § 471 to treating the inventoriable items as materials and supplies that are not incidental under § 1.162–3.

(2) Multiple adjustments . In the event that a taxpayer is taking into account a § 481(a) adjustment from another accounting method change in addition to the § 481(a) adjustment required by this revenue procedure, the § 481(a) adjustments would be taken into account separately. For example, a taxpayer that changed from the cash method to an accrual method in 1999 and was required to take its § 481(a) adjustment into account over four years would continue to take into account that adjustment over the appropriate four years even though the taxpayer changes back to the cash method in 2001 and has an additional § 481(a) adjustment required by this revenue procedure.

(3) Section 481(a) adjustment period . As provided in section 2 of Rev. Proc.

2002–18 I.R.B. 823 May 6, 2002

DRAFTING INFORMATION

The principal author of this revenue procedure is W. Thomas McElroy, Jr., of

the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue proce

APPENDIX APPLICATION OF REV. PROC. 2002–28

dure, contact Mr. McElroy at (202) 622– 4970 (not a toll-free call).

May 6, 2002 824 2002–18 I.R.B.