SECTION 23. — Internal Revenue Bulletin 2011-4

ACCOUNTING METHOD FOR DEALERS IN SECURITIES (§ 475)

.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f) .

(1) Description of change . This change applies to certain taxpayers that have elected to use the mark-to-market method of accounting under § 475(e) or (f). Under § 475(e) and (f) and Rev. Proc. 99–17, 1999–1 C.B. 503, if a taxpayer makes an election under § 475(e) or (f), then beginning with the first taxable year for which the election is effective (election year), mark to market is the only permissible method of accounting for securities or commodities subject to the election. Thus, if the electing taxpayer’s method of accounting for its taxable year immediately preceding the election year is inconsistent with § 475, the taxpayer is required to change its method of accounting to comply with the election. A taxpayer that makes a § 475(e) or (f) election but fails to change its method of accounting to comply with that election is using an impermissible method. See section 4 of Rev. Proc. 99–17.

(2) Scope . This change applies to a taxpayer if all of the following conditions are satisfied:

(a) the taxpayer is a commodities dealer, securities trader, or commodities trader that has made a valid election under § 475(e) or (f) ( see section 5.03(1) of Rev. Proc. 99–17) and that is required to change its method of accounting to comply with the election;

(b) the method of accounting to which the taxpayer changes is in accordance with its election under § 475(e) or (f); and

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

(4) Election under Rev. Proc. 99–17 . In accordance with section 5.03(1) of Rev. Proc. 99–17, in order to make a section 475(e) or (f) election, a taxpayer must file a statement satisfying the requirements in section 5.04 of Rev. Proc. 99–17. The statement must be filed not later than the due date (without regard to extensions) of

Vehicle-Pool Method under this section 22.08 of the APPENDIX and a change to the Alternative LIFO Method under Rev. Proc. 97–36 ( see section 22.03 of this APPENDIX) or the Used Vehicle Alternative LIFO Method under Rev. Proc. 2001–23 ( see section 22.04 of this APPENDIX) should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115.

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 22.08 of this APPENDIX is “112.” See section 6.02(4) of this revenue procedure. (6) Contact information . For further information regarding a change under this section, contact Leo Nolan at 202–622–4970 (not a toll-free call). .09 Changes within the used vehicle alternative LIFO method .

(1) Description of change . This change applies to a taxpayer using the “Used Vehicle Alternative LIFO Method” as described in Rev. Proc. 2001–23, 2001–1 C.B. 784, as modified by Announcement 2004–16, 2004–1 C.B. 668, and Rev. Proc. 2008–23, 2008–1 C.B. 664, that wants to change the particular “official used vehicle guide” utilized by the taxpayer in connection with the Used Vehicle Alternative LIFO Method or any change in the precise manner of its utilization ( e.g., a change in the specific guide category that a taxpayer uses to represent vehicles of average condition for purposes of section 4.02(5)(a) of Rev. Proc. 2001–23).

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 22.09 of this APPENDIX is “140.” See section 6.02(4) of this revenue procedure.

(4) Contact information . For further information regarding a change under this section, contact Leo Nolan at 202–622–4970 (not a toll-free call). .10 Changes to dollar-value pools of manufacturers .

(1) Description of change . This change applies to a manufacturer that:

(a) purchases goods for resale (resale goods) and, thus, must reassign resale goods from the pool(s) it maintains for the goods it manufactures to one or more resale pools;

(b) wants to change from using multiple pools described in § 1.472–8(b)(3) to using natural business unit (NBU) pools described in § 1.472–8(b)(1), or vice versa ; or

(c) wants to reassign items in NBU pools described in § 1.472–8(b)(1) into the same number or a greater number of NBU pools.

(2) Manner of making change . This change is made on a cut-off basis and applies only to the computation of ending inventories after the beginning of the year of change. 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. A taxpayer that changes its method of pooling pursuant to section 22.10 of this APPENDIX must combine or separate pools as required by § 1.472–8(g). If a taxpayer splits a pool into two or more permissible pools pursuant to section 22.10 of this APPENDIX, which must be implemented on a cut-off basis, the taxpayer then may file a separate Form 3115 to change from the LIFO inventory method for one or more of the resulting pools pursuant to section 22.01 of this APPENDIX, which must be implemented with a § 481(a) adjustment.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 22.10 of this APPENDIX is “141.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Leo Nolan at 202–622–4970 (not a toll-free call).

2011–4 I.R.B. 416 January 24, 2011

immediately preceding the year of change. See § 1.1374–4 (d).

(b) Election to include § 481(a) adjust- ment in taxable year immediately preced- ing the year of change .

(i) Election requirements . A bank that changes its method of accounting for bad debts under this section 24.01 of the APPENDIX, from the § 585 reserve method to the § 166 specific charge-off method for the first taxable year for which the bank’s S corporation election is effective (year of change) may elect under § 1361(g) 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 this revenue procedure 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 this revenue procedure, and (3) include the amount of the § 481(a) adjustment in gross income for the taxable year immediately preceding the year of change. The bank must attach a statement to the original and both copies of Form 3115 stating that the bank elects under § 1361(g) to take the § 481(a) adjustment into account in determining taxable income for the taxable year immediately preceding the year of change.

(ii) Special rule for Qsub banks . In the case of a Qsub bank, the S corporation parent must file an original and copy of Form 3115 under section 6.02(3) of this revenue procedure for the year of change. The Qsub bank must 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 this revenue procedure, and include the amount of the § 481(a) adjustment in gross income for the taxable year immediately preceding the year of change. In the case of a Qsub bank, the Form 3115 should indicate that the “filer” is the S corporation parent and the “applicant” is the Qsub bank.

the original federal income tax return for the taxable year immediately preceding the election year and must be attached either to that return or, if applicable, to a request for an extension of time to file that return. For example, if a calendar year individual taxpayer wants to make a section 475(e) or (f) election for 2009 (the election year), the taxpayer must file the statement on or before April 15, 2009, with the taxpayer’s timely filed (without regard to extensions) federal income tax return for 2008 or the taxpayer’s timely filed request for an extension of time to file the 2008 federal income tax return. On the Form 3115 filed for the year of change, a taxpayer should indicate that the taxpayer has filed the statement in compliance with section 5.03(1) of Rev. Proc. 99–17.

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 23.01 of this APPENDIX is “64.” See section 6.02(4) of this revenue procedure. (6) Contact information . For further information regarding a change under this section, contact Eric E. Boody at 202–622–3950 (not a toll-free call).

.02 Reserved .