SECTION 10. CAPITAL

EXPENDITURES (§ 263)

.01 Package design costs .

(1) Description of change .

(a) Applicability . This change applies to a taxpayer that wants to change its method of accounting for package design costs that are within the scope of Rev. Proc. 97–35, 1997–2 C.B. 448, as modified by Rev. Proc. 98–39, 1998–1 C.B. 1320, to one of the three alternative methods of accounting for package design costs described in section 5 of Rev. Proc. 97–35. The three alternative methods of accounting for package design costs described are: (i) the capitalization method, (ii) the design-by-design capitalization and 60-month amortization method, and (iii) the pool-of-cost capitalization and 48-month amortization method.

(b) Inapplicability . This change does not apply to a taxpayer that wants to change to the capitalization method for costs of developing (or modifying) any package design that has an ascertainable useful life.

(2) Additional requirements . If a taxpayer is changing its method of accounting for package design costs to the capitalization method or the design-by-design capitalization and 60-month amortization method, the taxpayer must attach a statement to its timely filed Form 3115. The statement must provide a description of each package design, the date on which each was placed in service, and the cost basis of each (as determined under sections 5.01(2) or 5.02(2) of Rev. Proc. 97–35).

(3) Designated automatic accounting method change number . The designated automatic accounting method change

(i) Qualified capital costs paid or incurred on or before December 31, 2002;

(ii) A taxpayer that made the § 179B(a) election for a taxable year ending after December 31, 2002, in which qualified capital costs were paid or incurred after December 31, 2002, by filing an amended federal tax return for that taxable year, and all subsequent affected taxable year(s), on or before November 15, 2006; or

(iii) The election under § 179B(e).

(3) Time for making the change . The change in method of accounting under section 8.03 of this APPENDIX must be made for the taxpayer’s first or second taxable year ending on or after December 31, 2005.

(4) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

(5) Additional requirements . (a) The change in accounting method results in items being omitted or duplicated and thus, an adjustment under § 481(a) must be computed;

(b) The statement required under the Interim Rules in section C.3. of Notice 2006–47, 2006–1 C.B. 892, 897, must be attached to the Form 3115; and

(c) The basis of any property must be reduced by the portion of the cost of the property taken into account under the § 179B(a) election.

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 8.03 of this APPENDIX is “102.” See section 6.02(4) of this revenue procedure.

(7) Contact information . For further information regarding a change under this section, contact Nicole Cimino at 202–622–3110 (not a toll-free call).