SECTION 2. BACKGROUND

.01 Section 448(d)(5) provides that certain taxpayers may use the NAE method to account for amounts to be received for the performance of services. In general, taxpayers eligible to use a NAE method are not required to accrue any portion of amounts that, based on the taxpayer’s experience, will not be collected.

.02 The NAE method is available only to a taxpayer using an accrual method of accounting that either provides services in a field described in § 448(d)(2)(A) (health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting), or that meets the $5 million annual gross receipts test of § 448(c). The NAE method may not be used for amounts for which the taxpayer charges interest or penalties for failure to timely pay. See § 448(d)(5)(B) and § 1.448–2(c)(1)(ii).

.03 Section 448(d)(5)(C) provides that the Secretary shall provide guidance that permits taxpayers to use computations and formulas that, based on experience, accurately reflect the amount of income that a taxpayer will not collect (the uncollectible amount).

.04 Section 1.448–2(f) describes safe harbor NAE methods that a taxpayer may

use to determine the uncollectible amount. Section 1.448–2(b) provides that, except as provided in other published guidance, a taxpayer that wishes to change to a NAE method other than one of the safe harbor methods must request advance consent from the Commissioner.

.05 Rev. Proc. 2011–14, 2011–4 I.R.B. 330, provides procedures for a taxpayer to obtain automatic consent of the Commissioner to change to a method of accounting described in the Appendix to Rev. Proc. 2011–14. .06 Rev. Proc. 2006–56, 2006–2 C.B. 1169, provides procedures for requesting the consent of the Commissioner to make certain changes to, from, or within a NAE method of accounting and to adopt certain NAE methods.