SECTION 5. PROPORTIONAL

METHOD OF ACCOUNTING

This section 5 describes the proportional method of accounting for OID on a pool of credit card receivables. Under the method—

.01 The required computations must be made monthly. Thus, the computation period referred to below is a calendar month (or that portion of a month that falls within a short taxable year). A taxpayer that changes its method of accounting to the proportional method must make the required computations for each month in the year of change by the due date for the taxpayer’s timely filed (including extensions) original federal income tax return implementing the change in method of accounting for the year of change.

.02 At the beginning of each computation period, the taxpayer must determine the following information for each pool of credit card receivables:

(1) The SRPM as of the beginning of the period (“Beginning SRPM”), which is equal to the aggregate balance owed on all credit card receivables included in the

M_OID = BEG_OID * (SRPM_P / BEG_SRPM),

where

M_OID = Monthly OID; BEG_OID = Beginning OID; SRPM_P = SRPM Payments; and BEG_SRPM = Beginning SRPM.

pool at the beginning of such period, other than amounts representing charges or fees that are not properly treated as OID (such as finance charges that are qualified stated interest).

(2) The unaccrued OID as of the beginning of the period (“Beginning OID”), which is equal to the OID with respect to the pool at the beginning of such period that has not previously been taken into income.

.03 During each computation period, the taxpayer must determine for each pool of credit card receivables the sum of the payments during the period of amounts that reduce the Beginning SRPM for the period (“SRPM Payments”) (equivalently, total payments less amounts that are not included in SRPM, such as charges or fees that are not properly treated as OID).

.04 For each computation period, the taxpayer must compute the OID allocated to the period (“Monthly OID”) and include this amount in income for the period. Monthly OID is the product of (1) the Beginning OID multiplied by (2) the quotient of the SRPM Payments divided by the Beginning SRPM.

.05 The formula in section 5.04 of this revenue procedure can be restated as follows:

ferred out of the first pool must be equal to the unaccrued OID transferred into the second pool.

.09 In the case of a pool wholly owned by two or more members of an affiliated group of corporations that file a consolidated return for federal income tax purposes, the members of the group may apply the proportional method to the entire pool and then allocate the OID among the owners, provided that the OID is allocated using a reasonable method. For example, an allocation in proportion to the SRPM attributable to the members’ interests in the pool is reasonable.

.06 For purposes of determining the Beginning SRPM and Beginning OID for a period, the taxpayer should take into account the following items:

(1) The charges and fees relating to the pool for the preceding period that are properly treated as OID;

(2) Credit card accounts transferred into the pool during the preceding period, including any unaccrued OID attributable to the accounts;

(3) Credit card accounts transferred out of the pool during the preceding period, including any unaccrued OID attributable to the accounts; and

(4) Credit card accounts written off during the preceding period, including any unaccrued OID attributable to the accounts.

.07 For purposes of sections 5.06(3) and 5.06(4) of this revenue procedure, the taxpayer may determine the unaccrued OID attributable to an account in a pool as the portion of the unaccrued OID attributable to the pool as of the beginning of the preceding period that is proportional to the SRPM of the account as of the beginning of the preceding period.

.08 If the taxpayer transfers credit card accounts from one of its pools into another one of its pools, the unaccrued OID trans

2013–22 I.R.B. 1162 May 28, 2013

for the pool as of the beginning of the first period in the year of change is equal to the unaccrued OID for the pool as of the end of the preceding year under the taxpayer’s previous method of accounting for the pool. See section 2.06 of this revenue procedure for more information regarding a cut-off basis.

(3) Waiver of 5-year restriction . The scope limitation in section 4.02(7) of this revenue procedure does not apply to a change to the proportional method of accounting for OID on a pool of credit card receivables, as described in section 5 of Rev. Proc. 2013–26, for the taxpayer’s first or second taxable year ending on or after December 31, 2012.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 31.02 of this APPENDIX is “183.” See section 6.02(4) of this revenue procedure. (5) Contact information . For further information regarding this section, please contact Charles W. Culmer at (202) 622–3950 (not a toll-free call).