SECTION 17. PREPAID

SUBSCRIPTION INCOME (§ 455)

.01 Prepaid subscription income .

2008–36 I.R.B. 657 September 8, 2008

any amounts not covered by insurance, such as a “deductible” amount under an insurance policy) relating to employee medical expenses that are not paid from a welfare benefit fund within the meaning of § 419(e) to a method as follows:

(A) If the taxpayer has a liability to pay an employee for medical expenses incurred by the employee, the taxpayer will treat the liability as incurred in the taxable year in which the employee files the claim with the employer. See United States v. General Dynamics Corp., 481 U.S. 239 (1987), 1987–2 C.B. 134.

(B) If the taxpayer has a liability to pay a 3rd party for medical services provided to its employees, the taxpayer will treat the liability as incurred in the taxable year in which the services are provided.

(ii) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 19.01(1) of the APPENDIX if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable).

(b) Amounts taken into account . Applicable provisions of the Code, regulations, and other guidance published in the IRB prescribe the manner in which a liability that has been incurred is taken into account. For example, for a taxpayer with inventories, direct labor costs must be included in inventory costs and may be recovered through cost of goods sold. See § 1.263A–1(e)(2)(i)(B). A taxpayer may not rely on the provisions of this section 19.01 of the APPENDIX to take a current year deduction.

(c) Concurrent automatic change . A taxpayer that wants to make both this change and a change to a UNICAP method under section 11.01 or 11.02 of this APPENDIX (as applicable) for the same year of change should file a single Form 3115 for both changes and enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115.

(d) Designated automatic account- ing method change number . The des

(1) Description of change . This change applies to an accrual method taxpayer that wants to change its method of accounting for prepaid subscription income to the method described in § 455 and the regulations thereunder, including an eligible taxpayer that wants to make the “within 12 months” election under § 1.455–2.

(2) Manner of making change and designated automatic accounting method change number .

(a) This change is made on a cut-off basis and applies only to prepaid subscription income received on or after the beginning of the year of change. Any prepaid subscription income received prior to the year of change is accounted for under the taxpayer’s former method of accounting. See section 2.06 of this revenue procedure for more information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) In accordance with § 1.446– 1(e)(3)(ii), the requirement of § 1.446– 1(e)(3)(i) to file an application on Form 3115 is waived and a statement in lieu of the Form 3115 is authorized for this change. The statement must set forth:

(i) the designated automatic accounting method change number for this change, which is “132”;

(ii) the taxpayer’s name and employer identification (or social security number in the case of an individual);

(iii) the year of change (both the beginning and ending dates);

(iv) the information described in § 1.455–6(a), as required by § 1.455–6(b); and

(v) if the taxpayer wants to make a “within 12 months” election under § 1.455–6(c), the information described in section § 1.455–6(c)(2).

(c) The consent granted under this revenue procedure satisfies the consent required under § 455(c)(3) and § 1.455–6(b).

(3) Contact information . For further information regarding a change under this section, contact Willie Armstrong at 202–622–4970 (not a toll-free call).

.02 Reserved .