SECTION 1. GROSS INCOME (§ 61)

.01 Up-front Payments for Network Up- grades received by Utilities .

(1) Description of change . This change applies to a Utility that wants to change its method of accounting for Up-front Payments to the “safe harbor method” described in Rev. Proc. 2005–35, 2005–2 C.B. 76. In general, this change applies to a Utility that receives an Up-front Payment from a Generator to finance Network Upgrades to the Utility’s Transmission System. For federal income tax purposes, if an Up-front Payment is made pursuant to an Interconnection Agreement that satisfies all of the conditions of section 5.02 of Rev. Proc. 2005–35, a Utility may treat that Up-front Payment as not being taxable income under § 61 when received (the “safe harbor method”). In addition, a Utility that uses the safe harbor method

LIFO inventory method, is modified to include changes to the specific identification method;

(24) Section 22.05 of the APPENDIX of this revenue procedure, relating to determining the cost of used vehicles purchased or taken as a trade-in for a taxpayer using the LIFO inventory method, is modified to include changes to a different official used vehicle guide;

(25) Section 22.06 of the APPENDIX of this revenue procedure, relating to changes to the IPIC method, is modified to include additional types of method changes;

(26) Section 22.07 of the APPENDIX of this revenue procedure, relating to changes within the IPIC method, is modified to include additional types of method changes;

(27) Section 23.01 of the APPENDIX of this revenue procedure, relating to commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f), is modified by requiring a taxpayer to include on the Form 3115 for the year of change a statement that the taxpayer has complied with the election requirements under Rev. Proc. 99–17, 1999–1 C.B. 503, for purposes of section 475(e) or (f); (28) Section 24.01 of the APPENDIX of this revenue procedure, relating to banks changing from the § 585 reserve method for bad debts to the § 166 specific charge-off method, is modified to allow a bank for which a QSub election is filed to make a § 1361(g) election for the resulting § 481(a) adjustment, as provided in section 24.01(4)(b) of the APPENDIX of this revenue procedure;

(29) Section 29.01 of the APPENDIX of this revenue procedure, relating to changes for functional currency, is modified to state that the change does not apply to a QBU of a taxpayer described in § 1.985–1(b)(1)(iii); and

(30) The following sections are added to the APPENDIX of this revenue procedure to provide additional changes in method of accounting;

(a) Section 6.19 of the APPENDIX, relating to changes for lessor improvements abandoned at termination of lease;

(b) Section 6.20 of the APPENDIX, relating to changes for accounting for,

or identifying disposed, depreciable repairable and reusable spare parts;

(c) Section 6.21 of the APPENDIX, relating to changes from depreciating land (or nondepreciable land improvement) to not depreciating land (or nondepreciable land improvement);

(d) Section 10.07 of the APPENDIX, relating to changes to capitalize and depreciate repairable and reusable spare parts;

(e) Section 14.09 of the APPENDIX, relating to changes from the cash method to an accrual method for specific items;

(f) Section 14.11 of the APPENDIX, relating to changes to the overall cash method for specified transportation industry taxpayers;

(g) Section 14.12 of the APPENDIX, relating to changes to overall cash/hybrid method for certain banks;

(h) Section 14.13 of the APPENDIX, relating to changes to overall cash method for farmers;

(i) Section 14.14 of the APPENDIX, relating to changes for nonshareholder contributions to capital under section 118;

(j) Section 15.10 of the APPENDIX, relating to changes for retainages under § 451;

(k) Sections 19.01(2) and (3) of the APPENDIX, relating to timing of incurring liabilities for employee bonuses and vacation pay under § 461;

(l) Section 19.07 of the APPENDIX, relating to changes for rebates and allowances under § 461;

(m) Section 20.01 of the APPENDIX, relating to changes from a ratable inclusion of rental income or expense to inclusion in accordance with the rent allocation;

(n) Section 21.11 of the APPENDIX, relating to changes from permissible methods of identifying and valuing inventories;

(o) Section 21.12 of the APPENDIX, relating to changes in the official used vehicle guide utilized in valuing used vehicles;

(p) Section 21.13 of the APPENDIX, relating to invoiced advertising association costs for new vehicle retail dealerships;

(q) Section 22.10 of the APPENDIX, relating to changes to dollar-value pools of manufacturers; and

(r) Section 30.01 of the APPENDIX, relating to changes to comply with § 1.1012–1(c)(1)–(4).

2008–36 I.R.B. 621 September 8, 2008

is not entitled to any deduction for its reimbursements of the Up-front Payment. To the extent that Federal Energy Regulatory Commission (FERC) interest is deductible, it must be properly allocated to the periods in which it accrues. A Utility using the safe harbor method must comply with all other applicable provisions of Rev. Proc. 2005–35. See Rev. Proc. 2005–35 for the definitions of certain terms for purposes of this change.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 1.01 of this APPENDIX is “91.” See section 6.02(4) of this revenue procedure.

(3) Contact information . For further information regarding a change under this section, contact David Silber at 202–622–3930 (not a toll-free call).

.02 Reserved .