SECTION 5. ADDITIONAL TIME TO

REQUEST A 4-YEAR § 481(a) ADJUSTMENT PERIOD FOR AUTOMATIC CONSENT.

The Service has determined that it is appropriate to allow taxpayers filing applications to change a method of accounting under Rev. Proc. 2002–9 (or any predecessor) additional time to request the application of a 4-year § 481(a) adjustment period for net negative § 481(a) adjustments for taxable years ending on or after December 31, 2001, and on or before April 30, 2002. Accordingly, taxpayers that qualify for, and comply with, the provisions of this section may request the application of the 4-year adjustment period for net negative § 481(a) adjustments for taxable years to which the 1-year § 481(a) adjustment period would otherwise be applicable under Rev. Proc. 2002–19.

A taxpayer requesting consent to change its method of accounting under Rev. Proc. 2002–9 (or any predecessor) for a taxable year ending on or after December 31, 2001, and on or before April 30, 2002, that desires a 4-year § 481(a) adjustment period for a net negative § 481(a) adjustment for the change may request such adjustment period by preparing an application (or amended application) in duplicate under Rev. Proc. 2002–9 that clearly indicates that the taxpayer elects the application of the 4-year § 481(a) adjustment period under this section 5.

“(1) Description of change and scope.

“(a) Applicability. This change applies to:

“(i) a small reseller of personal property changing from a permissible UNICAP method to a permissible nonUNICAP inventory capitalization method in any taxable year that it qualifies as a small reseller;

“(ii) a formerly small reseller changing from a permissible non-UNICAP inventory capitalization method to a permissible UNICAP method in the first taxable year that it does not qualify as a small reseller;

“(iii) a reseller-producer changing from a permissible UNICAP method for both its production and resale activities to a permissible simplified resale method de

2002–35 I.R.B. 433 September 3, 2002

over four taxable years. See section 5.04(3) of this revenue procedure for exceptions to this general rule.

“(4) Multiple changes. Taxpayers making both this change and another change in method of accounting in the same year of change must comply with the ordering rules of § 1.263A–7(b)(2).”

.03 Section 4.02 of the Appendix of Rev. Proc. 2002–9 is modified to read as follows:

“.02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers.

“(1) Applicability. This change applies to a producer (as defined in section 4.01(2)(d) of the APPENDIX of this revenue procedure) or a reseller-producer (as defined in section 4.01(2)(e) of the APPENDIX of this revenue procedure) that wants to change to a UNICAP method (or methods) specifically described in the regulations and includes any changes in the identification of costs subject to § 263A made in connection therewith. However, this does not include a change for purposes of recharacterizing “section 471 costs” as “additional § 263A costs” (or vice versa) under the simplified production method.

“(2) Inapplicability. This change does not apply to a producer or reseller-producer that wants to revoke an election to use the historic absorption ratio with the simplified production method ( see § 1.263A– 2(b)(4)(iii)(B)), including a taxpayer using the simplified production method with an historic absorption ratio changing to a UNICAP method specifically described in the regulations that does not include the historic absorption ratio.

“(3) Definition. A “UNICAP method specifically described in the regulations” includes the 90–10 de minimis rule to allocate a mixed service department’s costs to production or resale activities (§ 1.263A– 1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1.263A–3(c)(3)(ii)(A)), the 90

• 10 de minimis rule to allocate a dualfunction storage facility’s costs to property acquired for resale (§ 1.263A– 3(c)(5)(iii)(C)), the specific identification method (§ 1.263A–1(f)(2)), the burden rate method (§ 1.263A–1(f)(3)), the standard cost method (§ 1.263A–1(f)(3)), the direct reallocation method (§ 1.263A–1(g)(4) (iii)(A)), the step-allocation method (§ 1.263A–1(g)(4)(iii)(B)), the simplified service-cost method (with either a labor

scribed in § 1.263A–3(d)(3) in any taxable year that it qualifies to use a simplified resale method for both its production and resale activities under § 1.263A–3(a)(4) (resellers with de minimis production activities);

“(iv) a reseller-producer changing from a permissible simplified resale method described in § 1.263A–3(d)(3) for both its production and resale activities to a permissible UNICAP method for both its production and resale activities in the first taxable year that it does not qualify to use a simplified resale method for both its production and resale activities under § 1.263A–3(a)(4);

“(v) a reseller that wants to change its permissible UNICAP method to include a special reseller cost allocation rule; or

“(vi) a reseller changing to a UNICAP method (or methods) specifically described in the regulations (and making any attendant changes in the identification of costs subject to § 263A and including any special reseller cost allocation rules) in any taxable year, other than the first taxable year, that it does not qualify as a small reseller. However, this does not include a change for purposes of recharacterizing “section 471 costs” as “additional § 263A costs” (or vice versa) under the simplified resale method.

“(b) Scope limitations inappli- cable. A taxpayer that wants to make a change described in sections 4.01(1)(a)(i) through 4.01(1)(a)(v) of this APPENDIX is not subject to the scope limitations in section 4.02 of this revenue procedure.

“(c) Inapplicability. This change does not apply to a taxpayer making an historic absorption ratio election under §§ 1.263A–2(b)(4) or 1.263A–3(d)(4), or to a taxpayer that wants to revoke an election to use the historic absorption ratio with the simplified resale method (see § 1.263A– 3(d)(4)(iii)(B)), including a taxpayer using the simplified resale method with an historic absorption ratio changing to a UNICAP method specifically described in the regulations that does not include the historic absorption ratio.

“(2) Definitions.

“(a) “Reseller” means a taxpayer that acquires real or personal property described in § 1221(1) for resale.

“(b) “Small reseller” means a reseller whose average annual gross receipts

for the three immediately preceding taxable years (or fewer, if the taxpayer has not been in existence during the three preceding taxable years) do not exceed $10,000,000. See § 263A(b)(2)(B).

“(c) “Formerly small reseller” means a reseller that no longer qualifies as a small reseller.

“(d) “Producer” means a taxpayer that produces real or tangible personal property.

“(e) “Reseller-producer” means a taxpayer that is both a producer and a reseller.

“(f) “Permissible UNICAP method” means a method of capitalizing costs that is permissible under § 263A.

“(g) “UNICAP method specifically described in the regulations” includes the simplified service cost method using a labor-based allocation ratio (§ 1.263A– 1(h)) and the simplified resale method without an historic absorption ratio election (§ 1.263A–3(d)), but does not include any other reasonable allocation method within the meaning of § 1.263A–1(f)(4).

“(h) “Special reseller cost allocation rule” means the 90–10 de minimis rule to allocate a mixed service department’s costs to property acquired for resale (§ 1.263A–1(g)(4)(ii)), the 1/3 – 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1.263A–3(c)(3)(ii)(A)), and the 90–10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1.263A– 3(c)(5)(iii)(C)). “(i) “Permissible non-UNICAP inventory capitalization method” means a method of capitalizing inventory costs that is permissible under § 471.

“(3) Section 481(a) adjustment . Beginning with the year of change, a taxpayer changing its method of accounting for costs pursuant to sections 4.01(1)(a)(i), 4.01(1)(a)(iii), or 4.01(1)(a)(iv) of this APPENDIX generally must take any applicable net positive § 481(a) adjustment into account ratably over the same number of taxable years, not to exceed four, that the taxpayer used its former method of accounting. A taxpayer changing its method of accounting for costs pursuant to sections 4.01(1)(a)(ii), 4.01(1)(a)(v) or 4.01(1)(a)(vi) of this APPENDIX generally must take any applicable net positive § 481(a) adjustment into account ratably

September 3, 2002 434 2002–35 I.R.B.

gations covered by the QI Agreement. The external auditor must conduct its audit in accordance with the procedures described in section 10 of the QI Agreement. This Revenue Procedure is intended to assist the external auditor in understanding and applying those procedures. This Revenue Procedure does not amend, modify, or interpret the QI Agreement.