SECTION 5. APPLICATION

.01 Taxpayers No Longer Qualified Un- der § 448 to Use a NAE Method. In the case of a taxpayer that is no longer qualified under § 448(d)(5), as amended by the Act, to use a NAE method for its first taxable year ending after March 9, 2002, the change from the taxpayer’s NAE method is treated as initiated by the taxpayer, made with the consent of the Commissioner, and the net amount of the required § 481(a) adjustment is to be taken into account over a period of 4 taxable years (or, if less, the number of taxable years that the taxpayer has used the NAE method). Such a taxpayer is not required to file Form 3115, Ap- plication for Change in Accounting Method, with the national office, or pay any associated user fee. However, to assist the Service in processing the taxpayer’s change in method of accounting, the taxpayer should attach Form 3115 to its income tax return for the year of change, and write “Change off of the nonaccrual experience method under Notice 2003–12” at the top of the form.

.02 Taxpayers Permitted to Use a NAE Method. A change to a NAE method, or a change from one NAE method to another NAE method, is a change in method of accounting to which the provisions of §§ 446 and 481, and the regulations thereunder, apply. Therefore, a taxpayer that wants to use one of the NAE methods provided in this notice, and that does not currently use that method, must follow the automatic change in method of accounting procedures in Rev. Proc. 2002–9, 2002–3 I.R.B. 327 (as modified and amplified by Rev. Proc. 2002– 19, 2002–13 I.R.B. 696, modified and clarified by Announcement 2002–17, 2002–8 I.R.B. 561, and amplified, clarified, and modified by Rev. Proc. 2002– 54, 2002–35 I.R.B. 432) (or successors), with the following modifications:

(1) The scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply to a taxpayer that wants to change to a NAE

February 10, 2003 426 2003–6 I.R.B.

Section 846(e) allows a taxpayer to make an election in each determination year to use its own historical payment pattern instead of the Secretary’s tables. This election does not apply to any international insurance or reinsurance line of business.

Section 846(f)(4) defines the term “line of business” as a category for the reporting of loss payment patterns on the annual statement for fire and casualty companies approved by the National Association of Insurance Commissioners (NAIC), except that the multiple peril lines shall be treated as a single line of business. Section 846(f)(5) states that the term “multiple peril lines” means the lines of business relating to farmowners multiple peril, homeowners multiple peril, commercial multiple peril, ocean marine, aircraft (all perils) and boiler and machinery.

.02 Pursuant to § 846(d), the Secretary has determined a loss payment pattern for each property and casualty line of business for the 2002 determination year that, pursuant to § 846(d)(1), must be applied through the 2006 accident year.

.03 The loss payment patterns for the 2002 determination year are based on the aggregate loss payment information reported on the 2000 annual statements of property and casualty insurance companies and compiled by A.M. Best and Co. The tables are arranged in alphabetical order. Following is an additional explanation of some of the tables and changes to the tables.

(1) Lines of Business . The lines of business for the 2002 determination year are the same as the lines of business for the 1997 determination year. See Rev. Proc. 98–11, section 2.03, 1998–1 C.B. 358.

(2) Format of the Tables. To simplify the tables, the columns entitled Tax Year provide the actual tax years, rather than AY+0, AY+1, and so on.

(3) Accident Years Not Separately Re- ported on the NAIC Annual Statement . Section V of Notice 88–100, 1988–2 C.B. 439, sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. The tables separately provide discount factors for taxpayers who elect to use the composite method of section V of Notice 88–100. See Rev. Proc. 2002– 74, 2002–51 I.R.B. 980.

of accounting procedures in Rev. Proc. 2002–9 (or successors) and the scope limitations of section 4.02 of Rev. Proc. 2002–9 will not apply.