SECTION 4. APPLICATION

.01 In general . A taxpayer within the scope of this revenue procedure and Rev. Proc. 2002–9, as modified by this revenue procedure, is, in accordance with section 6.01 of Rev. Proc. 2002–9, granted the consent of the Commissioner to change to a method of accounting provided in the final regulations provided the taxpayer follows the automatic change in method of accounting provisions in Rev. Proc. 2002–9, with the following modifications: (1) The taxpayer must prepare and file Form 3115, Application for Change in Ac- counting Method, in accordance with section 4.02 of this revenue procedure;

(2) The taxpayer must compute any applicable § 481(a) adjustment and take such adjustment into account in accordance with section 5 of this revenue procedure; and

(3) A taxpayer described in section 4.03(2) of this revenue procedure must file one or more amended federal income tax returns (amended returns) in accordance with section 4.03(3), (4), or (5), as applicable, and section 4.03(6), if applicable, of this revenue procedure.

.02 Form 3115 . In preparing the Form 3115 referred to in section 4.01 of this revenue procedure, a taxpayer must comply with the following procedures:

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ment of which is provided for in the final regulations; or

(ii) impermissibly changed the treatment of an item that is provided for in the final regulations for the taxable year preceding the taxable year for which the taxpayer is requesting to change to a method of accounting provided in the final regulations under this revenue procedure and used such treatment on only one federal income tax return; or

(b) made an unauthorized change in method of accounting to a method of accounting that is provided in the final regulations in a taxable year for which the due date of the federal income tax return (including extensions, regardless of whether such extension is automatic and whether or not actually requested) is on or before January 24, 2002, if the taxpayer wishes to use the automatic consent procedures to obtain the Commissioner’s consent to change to the same method of accounting to which the taxpayer previously made the unauthorized change.

(3) A taxpayer described in section 4.03(2)(a)(i) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to a method of accounting provided in the final regulations only if the taxpayer changes back to its prior method of accounting ( i.e., the method of accounting used for an item prior to making the unauthorized change for the item) for each item referred to in section 4.03(2)(a)(i) of this revenue procedure by amending its federal income tax returns for all of the preceding taxable years in which the unauthorized method (or methods) was used. See section 4.03(6) of this revenue procedure if the period of limitations has expired for the taxable year in which the taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year.

(4) A taxpayer described in section 4.03(2)(a)(ii) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to a method of accounting provided in the final regulations only if the taxpayer amends its federal income tax return for the preceding taxable year in which the unauthorized treatment was used to change the treatment of each item referred to in section 4.03(2)(a)(ii) of this revenue procedure to a treatment consis

(1) The taxpayer may use one Form 3115 for all changes in method of accounting made pursuant to the final regulations;

(2) The taxpayer is required to complete only the following information on Form 3115: (a) The identification section of Page 1 (above Part I);

(b) The signature section at the bottom of Page 1;

(c) Part I, Line 1(a). The designated automatic accounting method change number for changes in method of accounting made pursuant to this revenue procedure is No. “78”;

(d) Part II, all lines except lines 11, 13, 14, 15, and 17 (for purposes of completing line 12, see section 5.02(2) of this revenue procedure if the taxpayer is making more than one change in method of accounting);

(e) Part IV, in accordance with section 5 of this revenue procedure; and (f) Schedule E, if applicable; (3) In addition to the other information required on line 12 of Form 3115, the taxpayer must include the citation to the paragraph of the final regulations that provides for the proposed method of accounting for each item ( e.g., § 1.263(a)–4(d)(6) or § 1.263(a)–4(f));

(4) In addition to the other information required on Schedule E of Form 3115 (if applicable), the taxpayer must include a statement as to whether the useful life is the safe harbor useful life prescribed by § 1.167(a)–3(b)(1) or § 1.167(a)–3(b)(1)(iv) and, if the useful life is the safe harbor useful life prescribed by § 1.167(a)–3(b)(1), a statement explaining why the intangible asset does not have a useful life the length of which can be estimated with reasonable accuracy; and

(5) A taxpayer that must file one or more amended returns as provided in section 4.03 of this revenue procedure to be eligible to use the automatic consent procedures of this revenue procedure must attach to the Form 3115 a written statement signed under penalties of perjury confirming that the taxpayer has filed the amended returns pursuant to section 4.03 of this revenue procedure.

.03 Unauthorized change in a preced- ing year .

(1) A taxpayer may change a method of accounting only with the consent of the Commissioner. § 1.446–1(e)(2). A tax

payer that changes a method of accounting without the consent of the Commissioner has made an unauthorized change in method of accounting. If a taxpayer makes an unauthorized change in method of accounting, the Service may adjust the taxpayer’s taxable income during the examination of the taxpayer’s income tax return for the taxable year the unauthorized change was made and for all affected subsequent taxable years. In the notice of proposed rulemaking that preceded the publication of the final regulations (REG–125638–01, 2003–1 C.B. 373 [67 FR 77701]), the Service and Treasury Department advised taxpayers not to seek to change a method of accounting in reliance on rules contained in the notice of proposed rulemaking until the rules were published as final regulations. The Service and Treasury Department are aware that some taxpayers have made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations. The Service and Treasury Department have determined that it is not appropriate for taxpayers that have made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations to obtain automatic consent under this revenue procedure without correcting such unauthorized change. Therefore, a taxpayer that made an unauthorized change in method of accounting for an item the treatment of which is provided for in the final regulations is eligible to use the automatic consent procedures provided in this revenue procedure only if the taxpayer amends prior federal income tax returns to correct the unauthorized change in method of accounting. However, as a matter of administrative grace, the Service and Treasury Department have limited the application of this section 4.03 to certain taxpayers described in section 4.03(2) of this revenue procedure. (2) This section 4.03 applies to a taxpayer that —

(a) in a taxable year for which the due date of the federal income tax return (including extensions, regardless of whether such extension is automatic and whether or not actually requested) is after January 24, 2002 (i) made any unauthorized change in method of accounting for an item the treat

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tent with the taxpayer’s historic method of accounting ( i.e., the method of accounting used for an item prior to changing the treatment of the item).

(5) A taxpayer described in section 4.03(2)(b) of this revenue procedure is eligible to use the automatic consent procedures to obtain the Commissioner’s consent to change to the same method of accounting provided in the final regulations to which the taxpayer previously made the unauthorized change only if the taxpayer changes back to its prior method of accounting for the item ( i.e., the method of accounting used for the item prior to making the unauthorized change for the item) by amending its federal income tax returns for all of the preceding taxable years in which the unauthorized method was used. See section 4.03(6) of this revenue procedure if the period of limitations has expired for the taxable year in which the taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year.

(6) For purposes of section 4.03(3) or (5) of this revenue procedure, if the period of limitations has expired for the taxable year in which a taxpayer made the unauthorized change in method of accounting or for any subsequent taxable year, the taxpayer is eligible to use the automatic consent procedures to change to a method of accounting provided in the final regulations only if the taxpayer changes back to the prior method of accounting for the earliest taxable year for which the statute of limitation has not expired and that does not precede a taxable year for which the statute of limitations has expired (retroactive year of change) by amending its federal income tax returns for the retroactive year of change and all subsequent taxable years in which the unauthorized method (or methods) was used. The taxpayer must take the entire amount of the § 481(a) adjustment attributable to the change back to the prior method of accounting into account in the retroactive year of change. The taxpayer must identify that § 481(a) adjustment on its federal income tax return for the retroactive year of change as resulting from a retroactive change in method of accounting under section 4.03(6) of Rev. Proc. 2006–12.

Example . X, a calendar year taxpayer, made an unauthorized change to a method of accounting provided in the final regulations in 2001. X continued to

use its new method in all subsequent taxable years. In February 2009, X decides to properly change to that method under this revenue procedure for 2008. At that time, the statute of limitations has expired for X’s 2001, 2002, and 2004 federal income tax returns. However, the statute of limitations on X’s 2003 tax federal income tax return has not expired. Because 2005 is the earliest taxable year that does not precede a taxable year for which the statute of limitations has expired, pursuant to section 4.03(6) of this revenue procedure, 2005 is the retroactive year of change. X must file amended federal income tax returns for taxable years 2005, 2006 and 2007 to change back to the method of accounting X used before its unauthorized change in method of accounting in 2001. Further, X must take the entire amount of the section 481(a) adjustment attributable to the change in method of accounting back to X’s prior method into account in 2005. (7) A taxpayer filing one or more amended returns pursuant to section 4.03 of this revenue procedure must file the amended returns on or before the date the taxpayer files a Form 3115 under this revenue procedure (including the copy of Form 3115 filed with the national office). For this purpose, a taxpayer under examination will be considered to have filed an amended return by providing the amended return to the examining agent.

(8) In accordance with § 1.446– 1(e)(3)(ii) and Rev. Rul. 90–38, consent is hereby granted for a taxpayer changing to a method of accounting provided in the final regulations under this revenue procedure that is described in section 4.03(2)(a)(i) or (b) of this revenue procedure to file the amended returns referred to in section 4.03(3) or (5), and section 4.03(6) of this revenue procedure, as applicable, to retroactively change its method of accounting. This consent is granted for the taxable year for which the taxpayer made the unauthorized change or, if applicable, the retroactive year of change pursuant to section 4.03(6) of this revenue procedure, and for all subsequent taxable years affected by the unauthorized change.

.04 Prior change . For purposes of this revenue procedure, the 5-year prior change scope limitation contained in section 4.02(6) of Rev. Proc. 2002–9 is modified. In applying the 5-year prior change scope limitation contained in section 4.02(6) of Rev. Proc. 2002–9, the taxpayer does not take into account a change in method of accounting provided in the final regulations requested or made for a taxable year ending on or before December 31, 2005. For example, a taxpayer

that applied for a change in method of accounting provided in the final regulations for its taxable year ended December 31, 2002, and withdrew its request or had its request denied is not prohibited under section 4.02(6) of Rev. Proc. 2002–9 from obtaining automatic consent to change to a method of accounting provided in the final regulations under this revenue procedure for its taxable year ended December 31, 2005.