SECTION 2. BACKGROUND

.01 Under §§ 446(e) and 1.446–1(e), a taxpayer generally must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. To obtain the Commissioner’s consent to a change in method,

§ 1.446–1(e)(3)(i) generally requires a taxpayer to file Form 3115, Application for Change in Accounting Method, during the taxable year in which the taxpayer desires to make the proposed change. Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures that provide the terms and conditions necessary for a taxpayer to obtain consent to change a method of accounting. The terms and conditions the Commissioner may prescribe include whether the change is to be made with a § 481(a) adjustment, and if so, the § 481(a) adjustment period, or on a cut-off basis.

.02 Section 481(c) and §§ 1.446– 1(e)(3)(ii) and 1.481–4 provide that the adjustment required by § 481(a) may be taken into account in determining taxable income in the manner and subject to the conditions agreed to by the Commissioner and the taxpayer.

.03 This revenue procedure applies only for a taxpayer’s first taxable year ending on or after August 2, 2005, for a change in method of accounting to comply with § 1.263A–1T or 1.263A–2T. A change in method of accounting under this revenue procedure requires a § 481(a) adjustment, and the § 481(a) adjustment period is two taxable years for a net positive adjustment. It is expected that this two-year adjustment period for a net positive § 481(a) adjustment will apply to changes in methods of accounting made in future years to comply with the rules in §§ 1.263A–1T and 1.263A–2T, and the successor final regulations.

.04 Rev. Proc. 97–27 provides the general procedures under §§ 446(e) and 1.446–1(e) for obtaining the consent of the Commissioner to change a method of accounting for federal income tax purposes. Except as specifically provided in section 4.02 of Rev. Proc. 97–27 or other published guidance, Rev. Proc. 97–27 applies to all taxpayers requesting the Commissioner’s consent to change a method of accounting for federal income tax purposes. See Rev. Proc. 97–27, sections 1.01 and 4.01. .05 Section 4.02(1) of Rev. Proc. 97–27 provides that Rev. Proc. 97–27 does not apply if the change in method of accounting is required to be made pursuant to a published automatic change procedure.

.06 Rev. Proc. 2002–9 provides procedures under §§ 446(e) and 1.446–1(e)

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under consideration (as defined in section 3.08 of Rev. Proc. 97–27) at the time the Form 3115 is filed with the National Office; and

(5) The change in method of accounting requires a § 481(a) adjustment. The § 481(a) adjustment period is two taxable years for a net positive adjustment.