SECTION 2. BACKGROUND

.01 Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided, gross income means all income from whatever source derived.

.02 Section 451(a) and § 1.451–1(a) of the Income Tax Regulations provide that the amount of any item of gross income should be included in a taxpayer’s gross income for the taxable year in which actually or constructively received by the taxpayer, unless, under the taxpayer’s method of accounting, such amount is properly includible for a different year.

.03 Section 1012 provides that the basis of property is the cost of the property. In general, section 1.1012–1(a) provides that the cost is the amount paid for the property in cash or other property.

.04 Under § 446(e) and § 1.446– 1(e)(2)(i), a taxpayer generally must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Section 1.446–1(e)(3)(ii) authorizes the Commis

sioner to prescribe administrative procedures setting forth the terms and conditions necessary to obtain consent to change a method of accounting.

.05 The Treasury Department and the Internal Revenue Service are aware that the proper tax treatment of CCR payments by purchasers of leased vehicles has become a source of significant controversy. For reasons of administrative convenience and to avoid further controversy in this area, Treasury and the Service have determined that it is appropriate to provide purchasers with a safe harbor method of accounting for CCR payments, under which a CCR payment is excluded from the purchaser’s basis in the purchased vehicle (and is excluded from the purchaser’s gross income). Treasury and the Service believe the scope of the safe harbor method provided in this revenue procedure is appropriate given the current vehicle lease market and lease financing market. However, Treasury and the Service may modify the scope of this safe harbor method as necessary to respond to changes in leasing market conditions.