SECTION 4. SCOPE

.01 Applicability . This revenue procedure applies to a taxpayer requesting the Commissioner’s consent to change to a method of accounting described in the APPENDIX of this revenue procedure. This revenue procedure is the exclusive proce

dure for a taxpayer within its scope to obtain the Commissioner’s consent.

.02 Inapplicability . Except as otherwise provided in the APPENDIX of this revenue procedure (see, for example, section 2.01 of the APPENDIX of this revenue procedure), this revenue procedure does not apply in the following situations:

(1) Under examination . If, on the date the taxpayer (or if section 6.02(3)(b) of this revenue procedure applies, the designated shareholder) would otherwise file a copy of the application with the national office, or, if applicable, with the Ogden office, pursuant to section 6.02(3) of this revenue procedure, the taxpayer is under examination (as provided in section 3.08 of this revenue procedure), except as provided in sections 6.03(2) (90-day window), 6.03(3) (120-day window), 6.03(4) (consent of director), 6.03(5) (changes lacking audit protection), 6.03(6) (issue pending), 6.04 (issue under consideration by an appeals office), and 6.05 (issue under consideration by a federal court) of this revenue procedure;

(2) Consolidated group member . A corporation that is (or was formerly) a member of a consolidated group is under examination, for purposes of section 4.02(1) of this revenue procedure, if the consolidated group is under examination for a taxable year(s) that the corporation was a member of the group;

(3) Partnerships and S corporations . For an entity (including a limited liability company) treated as a partnership or an S corporation for federal income tax purposes, if, on the date the entity would otherwise file a copy of the application with the national office or, if applicable, the Ogden office, pursuant to section 6.02(3) of this revenue procedure, the entity’s accounting method to be changed is an issue under consideration in an examination of a partner, member, or shareholder’s federal income tax return;

(4) Section 381(a) transaction . Except as otherwise provided in this section 4.02(4) or in final regulations issued under § 381, if the taxpayer engages in a transaction to which § 381(a) applies within the proposed taxable year of change (determined without regard to any potential closing of the year under § 381(b)(1)):

January 24, 2011 341 2011–4 I.R.B.

change to the IPIC method of computing the index and value of its dollar-value pools, a method that A has never used. As part of this change, A seeks to change its method of determining the current-year cost of inventories from the earliest-acquisitions cost method to the most-recent acquisitions cost method. A is eligible to change its method of computing the index and value of its dollar-value pools to the IPIC method under this revenue procedure. However, A is not eligible to change its method of determining the current-year costs of inventories under this revenue procedure because A changed this LIFO inventory sub-method within the proscribed five-year period.

Example 2 . B uses the dollar-value LIFO inventory method and maintains separate dollarvalue pools for its inventory of (1) new cars; (2) new trucks; (3) used cars; and (4) used trucks. For 2006, B terminated its use of the LIFO inventory method for its used cars and used trucks under Rev. Proc. 2002–9. For 2010, B seeks to terminate its use of the LIFO inventory method for its new cars and new trucks. B is eligible to change its method of accounting for new cars and new trucks under this revenue procedure because it has not changed the inventory-identification method for those pools within the proscribed five-year period.

Example 3 . C, a driving instruction school, uses an overall accrual method of accounting. C obtains payment in full from its students at the beginning of each session of classes. For 2009, C properly elected the deferral method for advance payments as described in Rev. Proc. 2004–34. For 2010, C seeks to change its overall method of accounting to the cash method as described in Rev. Proc. 2001–10 which it qualifies to use. C is eligible to change its method of accounting for advance payments even though it made a prior change in its method of accounting for advance payments within the previous 5 taxable years ending with 2010 because C is required to change its treatment of advance payments as part of its change to the overall cash method of accounting.

.03 Nonautomatic changes . If a taxpayer is precluded other than by sections 4.02(1) through 4.02(3) of this revenue procedure from using this revenue procedure to make a change in method of accounting, the taxpayer requesting such a change must file a Form 3115 with the Commissioner in accordance with the requirements of § 1.446–1(e)(3)(i) and Rev. Proc. 97–27, 1997–1 C.B. 680, as amplified and modified by Rev. Proc. 2002–19, as amplified and clarified by Rev. Proc. 2002–54, as modified by Rev. Proc. 2007–67, as clarified and modified by Rev. Proc. 2009–39, and as clarified and modified by Rev. Proc. 2011–14 (or any other applicable Code, regulation, or guidance published in the Internal Revenue Bulletin (IRB)).

quest would result in either a positive or negative § 481(a) adjustment or be made on a cut-off basis.

(6) Prior five-year overall method change . Except as provided in section 13.02(1) and the APPENDIX of this revenue procedure, if during any of the five taxable years ending with the year of change a taxpayer changed its overall method of accounting, or applied for consent to change its overall method of accounting, regardless of whether it implemented that change, the taxpayer may not obtain automatic consent to change its overall method of accounting under this revenue procedure. However, a taxpayer that changed its overall method of accounting during the five taxable years ending with the year of change may obtain automatic consent to change a method of accounting for an item when that change may otherwise be implemented under the provisions of this revenue procedure. For purposes of this section 4.02(6), a change in overall method of accounting does not include the use of an overall method of accounting when computing taxable income for the taxable year that the taxpayer first files a federal income tax return (“adopts an overall method of accounting”) or a change in method of accounting imposed by the Service pursuant to Rev. Proc. 2002–18 (or any successor). The five-year change prohibition in this section 4.02(6) applies regardless of whether the taxpayer’s current or prior method is a permissible method or clearly reflects the taxpayer’s income and regardless of the administrative guidance used to request consent or to change the prior method of accounting.

Example . A, an attorney, began business in 2003 and adopted the overall cash method of accounting. For 2008, A changed to an overall accrual method of accounting using the then appropriate administrative guidance. A may not use the provisions of this revenue procedure for 2010 to change to the overall cash method because of the five-year change prohibition contained in this section 4.02(6). However, A may still be able to use the provisions of this revenue procedure to change the method of accounting the taxpayer will use to treat advances made on behalf of clients for 2010. See section 3.01 of the APPENDIX of this revenue procedure.

(7) Prior five-year item change .

(a) In general . Except as provided in sections 4.02(7)(b), 13.02(1), and the AP

PENDIX of this revenue procedure, if during any of the five taxable years ending with the year of change a taxpayer changed its method of accounting for a specific item, or applied for consent to change a method of accounting for a specific item regardless of whether it implemented that change, the taxpayer may not obtain automatic consent to change its method of accounting for that same item. For purposes of this section 4.02(7)(a), a change in method of accounting for an item does not include the use of a method of accounting for the first taxable year that the taxpayer accounts for the item (for example, include in income, deduct, or capitalize) to which the method of accounting relates, or a change in method of accounting imposed by the Service pursuant to Rev. Proc. 2002–18 (or any successor). The five-year change prohibition in this section 4.02(7) applies regardless of whether the taxpayer’s current or prior method is a permissible method or clearly reflects the taxpayer’s income and regardless of the administrative guidance used to request consent or to change the prior method of accounting.

(b) Exceptions . Notwithstanding section 4.02(7)(a) of this revenue procedure, a taxpayer may obtain automatic consent to change its method of accounting for an item when that change is required as part of another change in method of accounting that the taxpayer may otherwise implement under the provisions of this revenue procedure. In addition, a taxpayer is not prohibited from changing a last-in, first-out (LIFO) inventory sub-method (for example, the method of determining current-year cost or the method of computing a dollar-value pool index) within five years of adopting or changing to the LIFO inventory method or another LIFO inventory sub-method. However, a taxpayer that changes a LIFO inventory sub-method within five years of adopting or changing to the LIFO inventory method does not receive audit protection under section 7 of this revenue procedure.

(c) Examples .

Example 1 . A uses the LIFO inventory method. For 2007, A changed a LIFO inventory sub-method. Specifically, A changed from the average-cost method of determining the current-year cost of inventories to the earliest-acquisitions cost method. For 2010, A seeks to

2011–4 I.R.B. 342 January 24, 2011