SECTION 4. APPLICATION

.01 The provisions of section 4.02(1) of Rev. Proc. 97–27 and section 4.01 of Rev. Proc. 2002–9 that preclude a taxpayer from requesting the Commissioner’s advance consent to change a method of accounting that is required to be made pursuant to a published automatic change procedure shall not apply to changes in method of accounting to comply with § 1.263A–1T or 1.263A–2T for a taxpayer’s first taxable year ending on or after August 2, 2005. Accordingly, a taxpayer within the scope of this revenue procedure may utilize either the advance consent procedures of Rev. Proc. 97–27 or the automatic consent procedures of Rev. Proc. 2002–9 to obtain the consent of the Commissioner to make such changes.

.02 The following provisions shall apply to a taxpayer within the scope of this revenue procedure that requests the consent of the Commissioner under Rev. Proc. 97–27 to change its method of accounting to comply with § 1.263A–1T or 1.263A–2T for its first taxable year ending on or after August 2, 2005:

(1) Notwithstanding the provisions of § 1.446–1(e)(3)(i) and section 5.01(1)(a) of Rev. Proc. 97–27, a taxpayer may submit a Form 3115 on or before January 31, 2006, or the date that is 30 days after the end of the taxpayer’s taxable year for which the change is requested, whichever is later;

(2) The provisions of section 4.02 of Rev. Proc. 97–27 that otherwise would prevent certain taxpayers under examination, before appeals or before a federal court from requesting the Commissioner’s advance consent to change a method of accounting shall not apply;

(3) A taxpayer that changes its method of accounting for mixed service costs to comply with § 1.263A–1T will not receive audit protection under section 9 of Rev. Proc. 97–27 if its method of accounting for mixed service costs is an issue 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; (4) A taxpayer that changes its method of accounting for additional § 263A costs to comply with § 1.263A–2T will not receive audit protection under section 9 of Rev. Proc. 97–27 if its method of accounting for additional § 263A costs is an issue

2006–3 I.R.B. 310 January 17, 2006

capitalize amounts paid or incurred to acquire or create (or to facilitate the acquisition or creation of) intangibles. Section 1.263(a)–5 prescribes the extent to which taxpayers must capitalize amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Section 1.167(a)–3(b) provides a safe harbor useful life for certain intangible assets. The final regulations under §§ 1.263(a)–4 and 1.263(a)–5 are effective for amounts paid or incurred on or after December 31, 2003. The final regulations under § 1.167(a)–3(b) are effective for intangible assets created on or after December 31, 2003.

.02 Sections 1.263(a)–4(p) and 1.263(a)–5(n) provide that a taxpayer seeking to change to a method of accounting provided in the final regulations must secure the consent of the Commissioner in accordance with the requirements of § 1.446–1(e). In addition, §§ 1.263(a)–4(p) and 1.263(a)–5(n) provide that, for the taxpayer’s first taxable year ending on or after December 31, 2003, the taxpayer is granted the consent of the Commissioner to change to a method of accounting provided in the final regulations, provided the taxpayer follows the administrative procedures issued under § 1.446–1(e)(3)(ii) for obtaining the Commissioner’s automatic consent to a change in accounting method (for further guidance, for example, see 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). The final regulations further provide that any applicable § 481(a) adjustment for a change to a method of accounting provided in the final regulations for a taxpayer’s first taxable year ending on or after December 31, 2003, is determined by taking into account only amounts paid or incurred in taxable years ending on or after January 24, 2002. The preamble to the final regulations states that the Service may issue additional guidance for utilizing the automatic consent procedures to change to a method of accounting provided in the regulations.

.03 Section 1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe adminis

trative procedures setting forth the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting.

.04 Rev. Proc. 2002–9 provides procedures by which a taxpayer may obtain automatic consent to change to a method of accounting described in the Appendix of Rev. Proc. 2002–9.

.05 Rev. Rul. 90–38, 1990–1 C.B. 57, provides that, if a taxpayer uses an erroneous method of accounting for two or more consecutive taxable years, the taxpayer has adopted a method of accounting. The ruling further provides that a taxpayer may not, without the Commissioner’s consent, retroactively change from an erroneous to a permissible method of accounting by filing an amended return.

.06 Rev. Proc. 2004–23, 2004–1 C.B. 785, and Rev. Proc. 2005–9, 2005–2 I.R.B. 303, as modified by Rev. Proc. 2005–17, 2005–13 I.R.B. 797, provide the exclusive administrative procedures under which a taxpayer may obtain automatic consent for the taxpayer’s first and second taxable years, respectively, ending on or after December 31, 2003, to change to a method of accounting provided in the final regulations and, if desired, to change to a method of utilizing the 3 ¹ /2 month rule authorized by § 1.461–4(d)(6)(ii) or the recurring item exception authorized by § 1.461–5 in conjunction with a change to a method of accounting provided in the final regulations. Rev. Proc. 2004–23 and Rev. Proc. 2005–9 provide, as a term and condition of obtaining the Commissioner’s consent, that any applicable § 481(a) adjustment take into account only amounts paid or incurred in taxable years ending on or after January 24, 2002.

.07 This revenue procedure constitutes the exclusive guidance for utilizing the automatic consent procedures to change to a method of accounting provided in the final regulations for taxable years subsequent to those covered by Rev. Proc. 2004–23 and Rev. Proc. 2005–9 - specifically, a taxable year ending on or after December 31, 2005, and any earlier taxable year that is after the taxpayer’s second taxable year ending on or after December 31, 2003. As in Rev. Proc. 2004–23 and Rev. Proc. 2005–9, a term and condition of obtaining the Commissioner’s consent is that any applicable § 481(a) adjustment take into account only amounts paid or incurred in

taxable years ending on or after January 24, 2002. For any change in method of accounting to which this revenue procedure applies, a taxpayer may not file an application for a change in method of accounting under Rev. Proc. 97–27, 1997–1 C.B. 680, as modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, as amplified and clarified by Rev. Proc. 2002–54, 2002–2 C.B. 432. See section 4.02(1) of Rev. Proc. 97–27.