SECTION 3. EFFECTIVE DATE FOR

THE LIST MAINTENANCE REGULATIONS UNDER § 6112

In order to provide necessary clarification to the October 2002 temporary list maintenance regulations, Treasury and the Service will change the effective date of the October 2002 temporary list maintenance regulations under § 6112 to the date the revised regulations under § 6112 are filed. Except as provided below, the list maintenance requirements under § 6112 will not apply to transactions entered into on or after January 1, 2003, and before the filing date of the revised regulations under § 6112. The

February 10, 2003 422 2003–6 I.R.B.

STEP 5. To determine the taxpayer’s adjusted NAE amount, multiply the actual NAE amount from STEP 4 by 1.05. See Example 1 in section 3.04 of this notice.

(ii) Option B: Up to three-year mov- ing average. Alternatively, in computing its adjusted NAE amount, a taxpayer may use: its current year NAE percentage for the first year this method is used; a two-year moving average NAE percentage for the second year this method is used; and a threeyear moving average NAE percentage for the third, and each succeeding, taxable year this method is used. See Examples 2, 3 and 4 in section 3.04 of this notice. (iii) A taxpayer that excludes an amount from income during a taxable year as a result of the taxpayer’s use of the actual experience method cannot deduct in any subsequent taxable year the amount excluded from income. Thus, the taxpayer cannot deduct the excluded amount in the next taxable year, which is the taxable year in which the taxpayer actually determines that the amount is uncollectible and charges the amount off. If a taxpayer recovers an amount excluded from income, the taxpayer must include the recovered amount in income. If a calendar year taxpayer using the actual experience method determines that an amount that was not excluded from income is uncollectible and should be charged off ( e.g., the taxpayer determines on November 1, 2002, that an account receivable that was originated on May 1, 2002, is uncollectible and should be charged off) the taxpayer may deduct the amount charged off when it is charged off, but must include any subsequent recoveries in income. The reasonableness of a taxpayer’s determinations that amounts are uncollectible and should be charged off may be considered on examination. See §§ 1.448– 2T(e)(3) and (e)(4) regarding the mechanics of the NAE method and related examples.

.03 Alternative NAE Methods. A taxpayer may use any alternative NAE method that clearly reflects the taxpayer’s actual NAE, provided the taxpayer’s alternative NAE method meets the self-test requirements as described in this section 3.03.

(1) Self-testing. A taxpayer using (or desiring to use) an alternative NAE method must “self-test” its alternative NAE method for its first taxable year ending after March 9, 2002, and every third taxable year thereafter by comparing the NAE amount under the taxpayer’s alternative NAE method

NAE methods or to an alternative NAE method that clearly reflects their experience.