SECTION 4. APPLICATION

.01 Requirements for election to include § 481(a) adjustment in taxable year imme- diately preceding the year of change . For a taxable year beginning after December 31, 2006, a bank that changes its method of accounting for bad debts, under section 11.01 of the APPENDIX to Rev. Proc. 2002–9, from the § 585 reserve method to the § 166 specific charge-off method for the first taxable year for which the S corporation election is effective (year of change) may elect to take into account the amount of the resulting § 481(a) adjustment in determining taxable income for the taxable year immediately preceding the year of change. To make this election, a bank must (1) file an original and copy of Form 3115 under section 6.02(3) of Rev. Proc. 2002–9 for the year of change, (2) file an additional copy of the Form 3115 with its original (or amended) federal income tax return for the taxable year immediately preceding the year of change filed no later than the date the original Form 3115 is properly filed under section 6.02(3) of Rev. Proc. 2002–9, and (3) include the amount of the § 481(a) adjustment in gross income for the taxable year immediately preceding the year of change. The original (and each copy of) Form 3115 must state at the top of the document, “Section 1361(g) Election Filed Pursuant to Rev. Proc. 2008–18.”

.02 Example. X, a calendar year taxpayer, is a bank as defined in § 581 and is not a large bank as defined in § 585(c)(2). For taxable years before 2007, X accounted for its bad debts under the § 585 reserve method. By March 15, 2007, X properly filed

2008–10 I.R.B. 574 March 10, 2008

and Special Industries). For further information regarding this revenue procedure, contact Laura C. Fields at (202) 622–3050 (not a toll-free call).

an election made under this section 5 on an amended return for the 2006 taxable year filed on or before September 15, 2008.