SECTION 7. AUDIT PROTECTION

If a taxpayer uses the Deferral Method described in section 5.02 of this revenue procedure for advance payments (as defined in section 4 of this revenue procedure), the taxpayer’s use of the Deferral Method will not be raised as an issue by the Service in a taxable year that ends before May 6, 2004. But see sections 9 and 10 of Rev. Proc. 2002–9, 2002–1 C.B. 327 (as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, and amplified, clarified, and modified by Rev. Proc. 2002–54, 2002–2 C.B. 432); section 11 of Rev. Proc. 97–27, 1997–1 C.B. 680 (as modified and amplified by Rev. Proc. 2002–19, as amplified and clarified by Rev. Proc. 2002–54). If the taxpayer uses the Deferral Method described in section 5.02 of this revenue procedure, and the treatment of advance payments (as defined in section 4 of this revenue procedure) under the Deferral Method is an issue under consideration (within the meaning of sec

2004-22 I.R.B. 995 June 1, 2004

based on objective criteria and a description of the criteria used for the allocation;

(e) if the taxpayer has advance payments to which the method under section 5.02(3)(b)(i) applies, describe the statistical basis used to determine when the advance payments are earned and describe the data and methodology used to develop the statistical basis; and

(f) if the taxpayer has advance payments to which the method under section 5.02(3)(b)(iii) applies, provide an explanation of how the basis used for deferral results in a clear reflection of income.

.04 Changes to an Overall Accrual Method and the Deferral Method .

(1) Automatic change .

(a) In general . This section 8.04(1) applies to a taxpayer that qualifies under section 8.02 of this revenue procedure to change automatically to the Deferral Method and that either —

(i) qualifies under Rev. Proc. 2002–9 to change automatically to an overall accrual method or to an overall accrual method in conjunction with the recurring item exception of § 461(h)(3) ( see section 5.01(1)(a)(i) or (ii) of the Appendix of Rev. Proc. 2002–9), or

(ii) is required to change to an overall accrual method under § 448 for the first taxable year it is subject to § 448 (“first § 448 year”) and otherwise would be required to make the change under the provisions of § 1.448–1(h)(3).

(b) Application . A taxpayer described in section 8.04(1)(a) of this revenue procedure must follow the automatic change in method of accounting provisions in Rev. Proc. 2002–9 (or its successor) (including all the requirements of section 5.01 of the Appendix of Rev. Proc. 2002–9), with the following modifications —

(i) The taxpayer must file a single Form 3115 for both changes;

(ii) The taxpayer must include both change number 30 and change number 84 on Line 1a of Form 3115;

(iii) The taxpayer must complete all parts of Form 3115 that are applicable to both the change to an overall accrual method and the change to the Deferral Method (see section 8.02(3) of this revenue procedure);

(iv) For changes under section 8.04(1)(a)(i) of this revenue procedure, the taxpayer must complete Schedule A (com

tion 3.09 of Rev. Proc. 2002–9) in examination, in appeals, or before the U.S. Tax Court in a taxable year that ends before May 6, 2004, that issue will not be further pursued by the Service.