SECTION 9. COMPUTER — Internal Revenue Bulletin 2011-4

EXPENDITURES (§§ 162, 167, and 197)

.01 Computer software expenditures . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for the costs of computer software to a method described in Rev. Proc. 2000–50, 2000–1 C.B. 601, as modified by Rev. Proc. 2007–16, 2007–1 C.B. 358. Section 5 of Rev. Proc. 2000–50 describes the methods applicable to the costs of developing computer software. Section 6 of Rev. Proc. 2000–50 describes the method applicable to the costs of acquired computer software. Section 7 of Rev. Proc. 2000–50 describes the method applicable to leased or licensed computer software. If a taxpayer treats the costs of computer software in accordance with the applicable method described in Rev. Proc. 2000–50, the Service will not disturb the taxpayer’s treatment of its costs of computer software.

(2) Scope . This change applies to all costs of computer software as defined in section 2 of Rev. Proc. 2000–50. However, this change does not apply to any computer software that is subject to amortization as an “amortizable section 197 intangible” as defined in § 197(c) and the regulations thereunder, or to costs that a taxpayer has treated as research and experimentation expenditures under § 174.

(3) Statement required . If a taxpayer is changing to the method described in section 5.01(2) of Rev. Proc. 2000–50, the taxpayer must attach to its Form 3115 a statement providing the information required in section 8.02(2) of Rev. Proc. 2000–50. (4) Ogden copy of Form 3115 required in lieu of national office copy . A taxpayer changing its method of accounting under

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automatic accounting method change number for a change under section 10.04 of this APPENDIX is “47.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call). .05 Intangibles . (1) Description of change . This change applies to a taxpayer that wants to change its treatment of an item to a method of accounting permitted by §§ 1.263(a)–4, 1.263(a)–5, and 1.167(a)–3(b). See Rev. Proc. 2006–12, 2006–1 C.B. 310, as modified by Rev. Proc. 2006–37, 2006–2 C.B. 499, for the specific requirements, information, and documentation required for this change.

(2) Prior unauthorized change in method of accounting . In certain circumstances, a taxpayer that made an unauthorized change in method of accounting for an item the treatment of which is provided for in §§ 1.263(a)–4, 1.263(a)–5, and 1.167(a)–3(b) is eligible for this change only if the taxpayer amends prior federal income tax returns to correct the unauthorized change in method of accounting. See section 4.03 of Rev. Proc. 2006–12 for details.

(3) Scope limitations . The 5-year prior change scope limitation in section 4.02(7) of this revenue procedure is modified for this change in that the taxpayer does not take into account a change in method of accounting provided in §§ 1.263(a)–4, 1.263(a)–5, and 1.167(a)–3(b) requested or made for a tax year ending on or before December 31, 2005.

(4) Section 481(a) adjustment . In computing the § 481(a) adjustment for this change, the taxpayer takes into account only amounts paid or incurred in taxable years ending on or after January 24, 2002. See section 5 of Rev. Proc. 2006–12 for detailed rules for computing the § 481(a) adjustment and reporting it on Form 3115.

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 10.05 of this APPENDIX is “78.” See section 6.02(4) of this revenue procedure. (6) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call).

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 number for a change under section 10.01 of this APPENDIX is “19.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call). .02 Line pack gas or cushion gas . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for line pack gas or cushion gas to a method consistent with the holding in Rev. Rul. 97–54, 1997–2 C.B. 23. Rev. Rul. 97–54 holds that the cost of line pack gas or cushion gas is a capital expenditure under § 263, the cost of recoverable line pack gas or recoverable cushion gas is not depreciable, and the cost of unrecoverable line pack gas or unrecoverable cushion gas is depreciable under §§ 167 and 168.

(2) Additional requirements . A taxpayer that changes its method of accounting for unrecoverable line pack gas or unrecoverable cushion gas under section 10.02 of this APPENDIX must change to a permissible method of accounting for depreciation for the cost of that gas.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 10.02 of this APPENDIX is “20.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call). .03 Removal costs . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for certain costs incurred in the retirement and removal of depreciable assets to conform with Rev. Rul. 2000–7, 2000–1 C.B. 712.

(2) Additional requirements . (a) Except for assets for which depreciation is determined in accordance with § 1.167(a)–11 (ADR), the taxpayer’s new method of treating removal costs for assets

accounted for in a multiple asset account must be consistent with the taxpayer’s method of treating salvage proceeds. See Rev. Rul. 74–455, 1974–2 C.B. 63. (See section 6.02 of the APPENDIX of this revenue procedure for changing a taxpayer’s present method of treating salvage proceeds.)

(b) If this change involves assets that are public utility property within the meaning of § 168(i)(10) or former § 167(l)(3)(A), the taxpayer must comply with the terms and conditions in section 6.01(3)(b)(v) of this APPENDIX. (3) Scope limitations inapplicable . The scope limitations in section 4.02 of this revenue procedure do not apply to this change.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 10.03 of this APPENDIX is “21.” See section 6.02(4) of this revenue procedure. (5) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call). .04 Distributor commissions . (1) Description of change . (a) Applicability . This change applies to a taxpayer that wants to change from currently deducting distributor commissions (as defined by section 2 of Rev. Proc. 2000–38, 2002–2 C.B. 310, as modified by Rev. Proc. 2007–16, 2007–1 C.B. 358) to a method of capitalizing and amortizing distributor commissions using the distribution fee period method, the 5-year method, or the useful life method (all described in Rev. Proc. 2000–38).

(b) Inapplicability . This change does not apply to an amortizable section 197 intangible (including any property for which a timely election under § 13261(g)(2) of the Revenue Reconciliation Act of 1993, 1993–3 C.B. 1, 128, was made). (2) Manner of making change . This change is made on a cut-off basis and applies only to distributor commissions paid or incurred on or 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.

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

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convention, and applicable asset class under Rev. Proc. 87–56, 1987–2 C.B. 674, as clarified and modified by Rev. Proc. 88–22, 1988–1 C.B. 785) that the taxpayer uses for the related equipment for which the repairable and reusable spare parts are acquired.

(3) Concurrent automatic change . (a) 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, 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.

(b) A taxpayer that wants to make both this change and a change to a permissible method of accounting for depreciation for repairable and reusable spare parts, or for the related equipment for which the repairable and reusable spare parts are acquired, under section 6 of this APPENDIX (as applicable) for the same year of change 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.

(c) A taxpayer that makes this change also may establish pools for the repairable and reusable spare parts or may identify disposed repairable and reusable spare parts in accordance with section 6.20 of this APPENDIX. A taxpayer that wants to make both this change and the change under section 6.20 of this APPENDIX for the same year of change 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.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 10.07 of this APPENDIX is “121”. See section 6.02(4) of this revenue procedure. (5) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call).

.06 Rotable spare parts . (1) Description of change . This change applies to a taxpayer that maintains a pool or pools of rotable spare parts that are primarily used to repair customer-owned (or customer-leased) equipment under warranty or maintenance agreements, and wants to change its method of accounting for the rotable spare parts to the safe harbor method of accounting provided in Rev. Proc. 2007–48, 2007–2 C.B. 110. The taxpayer must meet the requirements in section 4.01 of Rev. Proc. 2007–48 to use this safe harbor method of accounting.

(2) Change from safe harbor method . A taxpayer that is required to change its method of accounting from the safe harbor method under section 5.06 of Rev. Proc. 2007–48, must make the change under section 21.09 of this APPENDIX.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 10.06 of this APPENDIX is “109.” See section 6.02(4) of this revenue procedure. (4) Contact information . For further information regarding a change under this section, contact Gwen Turner at 202–622–5020 (not a toll-free call). .07 Repairable and reusable spare parts .

(1) Description of change . (a) Applicability . This change applies to a taxpayer that wants to change its method of accounting to treat repairable and reusable spare parts as depreciable property to conform with the holdings in Rev. Rul. 69–200, 1969–1 C.B. 90, and Rev. Rul. 69–201, 1969–1 C.B. 60. This change applies to repairable and reusable spare parts that: are owned by the taxpayer at the beginning of the year of change; are used to repair equipment owned by the taxpayer; are acquired by the taxpayer for a specific type of equipment at the time that the related equipment is acquired; usually have the same useful life as the related equipment; and have been placed in service by the taxpayer after 1986. A taxpayer making a change in method of accounting under this section 10.07 of the APPENDIX may treat its repairable and reusable spare parts as tangible property for which depreciation is allowable

at the time that the related equipment is placed in service by the taxpayer. The method of computing depreciation for the repairable and reusable spare parts is the same method of computing depreciation for the related equipment.

(b) Inapplicability . This change does not apply to:

(i) a taxpayer that is currently capitalizing and depreciating the cost of its repairable and reusable spare parts, or that is currently capitalizing the cost of its repairable and reusable spare parts and treating these parts as nondepreciable property (but see section 6.01 of this APPENDIX for making a change from an impermissible to a permissible method of accounting for depreciation);

(ii) 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 10.07 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); or

(iii) a taxpayer that is using an impermissible method of accounting for depreciation for the related equipment for which the repairable and reusable spare parts are acquired, unless the taxpayer concurrently changes its method to use a permissible method of accounting for depreciation under section 6 of this APPENDIX.

(2) Additional requirements . In addition to the other filing requirements of this revenue procedure, to change a method of accounting under this section 10.07 of the APPENDIX, a taxpayer must complete Schedule E of Form 3115 for the repairable and reusable spare parts and also provide and attach the following to the completed application:

(a) A description of the repairable and reusable spare parts;

(b) A list of related equipment for which the repairable and reusable spare parts are acquired; and

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(d) “Producer” means a taxpayer that produces real or tangible personal property.

(e) “Reseller-producer” means a taxpayer that is both a producer and a reseller.

(f) “Permissible UNICAP method” means a method of capitalizing costs that is permissible under § 263A.

(g) “A UNICAP method specifically described in the regulations” includes the 90–10 de minimis rule to allocate a mixed service department’s costs to resale activities (§ 1.263A–1(g)(4)(ii)), the 1/3–2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1.263A–3(c)(3)(ii)(A)), the 90–10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1.263A–3(c)(5)(iii)(C)), the specific identification method (§ 1.263A–1(f)(2)), the burden rate method (§ 1.263A–1(f)(3)), the standard cost method (§ 1.263A–1(f)(3)), the direct reallocation method (§ 1.263A–1(g)(4)(iii)(A)), the step-allocation method (§ 1.263A–1(g)(4)(iii)(B)), the simplified service cost method (§ 1.263A–1(h)) (with a labor-based allocation ratio), and the simplified resale method without the historic absorption ratio election (§ 1.263A–3(d)), but does not include any other reasonable allocation method within the meaning of § 1.263A–1(f)(4).

(h) “Special reseller cost allocation rule” means the 90–10 de minimis rule to allocate a mixed service department’s costs to property acquired for resale (§ 1.263A–1(g)(4)(ii)), the 1/3 - 2/3 rule to allocate labor costs of personnel to purchasing activities (§ 1.263A–3(c)(3)(ii)(A)), and the 90–10 de minimis rule to allocate a dual-function storage facility’s costs to property acquired for resale (§ 1.263A–3(c)(5)(iii)(C)).

(i) “Permissible non-UNICAP inventory capitalization method” means a method of capitalizing inventory costs that is permissible under § 471.

(3) Section 481(a) adjustment pe- riod . Beginning with the year of change, a taxpayer changing its method of accounting for costs pursuant to sections 11.01(1)(a)(i), 11.01(1)(a)(iii), or 11.01(1)(a)(iv) of this APPENDIX generally must take any applicable net positive § 481(a) adjustment for such change into account ratably over the same number of