SECTION 1. GROSS INCOME (§ 61)

.01 Up-front Payments for Network Upgrades 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 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

January 24, 2011 357 2011–4 I.R.B.

number for a change under section 3.03 of this APPENDIX is “4.” See section 6.02(4) of this revenue procedure. (5) Contact information . For further information regarding a change under this section, contact Martin Osborne at 202–622–7900 (not a toll-free call). .04 Timber grower fertilization costs . (1) Description of change . This change applies to a timber grower that wants to change its method of accounting to treat post-establishment fertilization costs of an established timber stand as ordinary and necessary business expenses deductible under § 162. See Rev. Rul. 2004–62, 2004–1 C.B. 1072. (2) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 3.04 of this APPENDIX is “86.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Martin Osborne at 202–622–7900 (not a toll-free call). .05 Materials and supplies . (1) Description of change . (a) Applicability . This change applies to a taxpayer that wants to change its method of accounting for materials and supplies on hand to the method of treating the cost of materials and supplies as a deferred expense to be taken into account in the taxable year in which they are actually consumed and used in operation, consistent with § 1.162–3.

(b) 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 section 3.05 of this 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). (2) 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 ac

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

.02 Reserved .