SECTION 12. LOSSES — Internal Revenue Bulletin 2015-5

TO TRANSACTIONS BETWEEN RELATED TAXPAYERS (§ 267)..........................................................................................520 .01 Change to comply with § 267 ............................................................................................................................................520 .02 Reserved...............................................................................................................................................................................520

SECTION 13. DEFERRED COMPENSATION (§ 404) ..........................................................................................................................................520

.01 Reserved...............................................................................................................................................................................520 .02 Deferred compensation........................................................................................................................................................520 .03 Grace period contributions..................................................................................................................................................521

February 2, 2015 452 Bulletin No. 2015–5

SECTION 14. METHODS OF ACCOUNTING (§ 446)..........................................................................................................................................521

.01 Change in overall method from the cash method to an accrual method ..........................................................................521 .02 Multi-year insurance policies for multi-year service warranty contracts..........................................................................523 .03 Taxpayers changing to overall cash method ......................................................................................................................523 .04 Nonaccrual-experience method ...........................................................................................................................................524 .05 Interest accruals on short-term consumer loans—Rule of 78’s method ...........................................................................525 .06 Film producer’s treatment of certain creative property costs............................................................................................525 .07 Deduction of incentive payments to health care providers................................................................................................525 .08 Change by bank for uncollected interest............................................................................................................................526 .09 Change from the cash method to an accrual method for specific items...........................................................................526 .10 Multi-year service warranty contracts ................................................................................................................................527 .11 Overall cash method for specified transportation industry taxpayers................................................................................527 .12 Change to overall cash/hybrid method for certain banks ..................................................................................................528 .13 Change to overall cash method for farmers .......................................................................................................................529 .14 Nonshareholder contributions to capital under § 118........................................................................................................529 .15 Debt issuance costs..............................................................................................................................................................530

SECTION 15. TAXABLE YEAR OF INCLUSION (§ 451) ...................................................................................................................................530

.01 Accrual of interest on nonperforming loans.......................................................................................................................530 .02 Advance rentals ...................................................................................................................................................................530 .03 State or local income or franchise tax refunds ..................................................................................................................530 .04 Capital Cost Reduction Payments.......................................................................................................................................531 .05 Credit card annual fees........................................................................................................................................................531 .06 Credit card late fees ............................................................................................................................................................531 .07 Advance payments...............................................................................................................................................................531 .08 Credit card cash advance fees.............................................................................................................................................532 .09 Reserved...............................................................................................................................................................................532 .10 Retainages............................................................................................................................................................................532 .11 Advance payments - change in applicable financial statements (AFS)............................................................................532

SECTION 16. OBLIGATIONS ISSUED AT DISCOUNT (§ 454) .........................................................................................................................533

.01 Series E, EE or I U.S. savings bonds.................................................................................................................................533 .02 Reserved...............................................................................................................................................................................534

SECTION 17. PREPAID SUBSCRIPTION INCOME (§ 455)................................................................................................................................534

.01 Prepaid subscription income ...............................................................................................................................................534 .02 Reserved...............................................................................................................................................................................534

SECTION 18. SPECIAL RULES FOR LONG-TERM CONTRACTS (§ 460) ......................................................................................................534

.01 Change to percentage-of-completion method (PCM) ........................................................................................................534 .02 Reserved...............................................................................................................................................................................535

SECTION 19. TAXABLE YEAR INCURRED (§ 461)...........................................................................................................................................535

.01 Timing of incurring liabilities for employee compensation ..............................................................................................535

(1) Self-insured employee medical benefits..........................................................................................................................535 (2) Bonuses ............................................................................................................................................................................535 (3) Vacation pay, sick pay, and severance pay ....................................................................................................................536 .02 Timing of incurring liabilities for real property taxes, personal property taxes,

state income taxes, and state franchise taxes .....................................................................................................................536 .03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or violation of law....................536 .04 Timing of incurring certain liabilities for payroll taxes ....................................................................................................537 .05 Cooperative advertising.......................................................................................................................................................538 .06 Timing of incurring certain liabilities for services or insurance .......................................................................................538 .07 Rebates and allowances.......................................................................................................................................................538 .08 Ratable accrual of real property taxes................................................................................................................................538

Bulletin No. 2015–5 453 February 2, 2015

.09 California Franchise Taxes..................................................................................................................................................538 .10 Gift cards issued as a refund for returned goods...............................................................................................................539 .11 Timing of incurring liabilities under the recurring item exception to the economic performance rules.........................539

SECTION 20. RENT (§ 467) .....................................................................................................................................................................................539

.01 Change from an improper method of inclusion of rental income or expense to

inclusion in accordance with the rent allocation................................................................................................................539 .02 Reserved...............................................................................................................................................................................539

SECTION 21. INVENTORIES (§ 471) .....................................................................................................................................................................539

.01 Cash discounts .....................................................................................................................................................................539 .02 Estimating inventory “shrinkage” .......................................................................................................................................540 .03 Small taxpayer exception from requirement to account for inventories under § 471......................................................540 .04 Qualifying volume-related trade discounts.........................................................................................................................541 .05 Impermissible methods of identification and valuation .....................................................................................................541 .06 Core Alternative Valuation Method....................................................................................................................................541 .07 Replacement cost for automobile dealers’ parts inventory................................................................................................542 .08 Replacement cost for heavy equipment dealers’ parts inventory......................................................................................542 .09 Rotable spare parts ..............................................................................................................................................................542 .10 Advance Trade Discount Method .......................................................................................................................................542 .11 Permissible methods of identification and valuation..........................................................................................................542 .12 Change in the official used vehicle guide utilized in valuing used vehicles....................................................................543 .13 Invoiced advertising association costs for new vehicle retail dealerships ........................................................................543 .14 Rolling-average method of accounting for inventories......................................................................................................543 .15 Sales-Based Vendor Chargebacks.......................................................................................................................................543 .16 Retail inventory method......................................................................................................................................................543

SECTION 22. LAST-IN, FIRST-OUT (LIFO) INVENTORIES (§ 472).................................................................................................................544

.01 Change from the LIFO inventory method..........................................................................................................................544 .02 Determining current-year cost under the LIFO inventory method....................................................................................545 .03 Alternative LIFO inventory method for retail automobile dealers....................................................................................545 .04 Used vehicle alternative LIFO method...............................................................................................................................546 .05 Determining the cost of used vehicles purchased or taken as a trade-in..........................................................................546 .06 Change to the inventory price index computation (IPIC) method ....................................................................................547 .07 Changes within the inventory price index computation (IPIC) method............................................................................547 .08 Changes to the Vehicle-Pool Method.................................................................................................................................548 .09 Changes within the used vehicle alternative LIFO method...............................................................................................548 .10 Changes to dollar-value pools of manufacturers................................................................................................................549

SECTION 23. MARK-TO-MARKET ACCOUNTING METHOD (§ 475).............................................................................................................549

.01 Commodities dealers, securities traders, and commodities traders electing to use

the mark-to-market method of accounting under § 475(e) or (f)......................................................................................549 .02 Taxpayers requesting to change their method of accounting from the mark-to-market

method of accounting described in § 475 to a realization method ...................................................................................549

SECTION 24. BANK RESERVES FOR BAD DEBTS (§ 585)..............................................................................................................................551

.01 Changing from the § 585 reserve method to the § 166 specific charge-off method........................................................551 .02 Reserved...............................................................................................................................................................................552

SECTION 25. INSURANCE COMPANIES (§§ 816, 832, 833)..............................................................................................................................552

.01 Safe harbor method of accounting for premium acquisition expenses .............................................................................552 .02 Certain changes in method of accounting for organizations to which § 833 applies.......................................................552 .03 Change in qualification as life/nonlife insurance company under § 816(a)......................................................................552

SECTION 26. DISCOUNTED UNPAID LOSSES (§ 846)......................................................................................................................................553

.01 Composite method for discounting unpaid losses..............................................................................................................553 .02 Reserved...............................................................................................................................................................................553

February 2, 2015 454 Bulletin No. 2015–5

SECTION 27. REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) (§§ 860A-860G)...............................................................553

.01 REMIC Inducement Fees....................................................................................................................................................553 .02 Reserved...............................................................................................................................................................................553

SECTION 28. RESERVED ........................................................................................................................................................................................553

SECTION 29. FUNCTIONAL CURRENCY (§ 985)...............................................................................................................................................553

.01 Change in functional currency............................................................................................................................................553 .02 Reserved...............................................................................................................................................................................553

SECTION 30. RESERVED ........................................................................................................................................................................................554

SECTION 31. ORIGINAL ISSUE DISCOUNT (§§ 1272, 1273)............................................................................................................................554

.01 De minimis original issue discount (OID) .........................................................................................................................554 .02. Proportional method of accounting for OID on a pool of credit card receivables..........................................................554

SECTION 32. MARKET DISCOUNT BONDS (§ 1278) ........................................................................................................................................554

.01 Revocation of § 1278(b) election .......................................................................................................................................554 .02 Reserved...............................................................................................................................................................................555

SECTION 33. SHORT-TERM OBLIGATIONS (§ 1281)........................................................................................................................................555

.01 Interest income on short obligations...................................................................................................................................555 .02 Stated interest on short-term loans of cash method banks ................................................................................................555

EFFECTIVE DATE ....................................................................................................................................................................................................555

EFFECT ON OTHER DOCUMENTS.......................................................................................................................................................................555

PAPERWORK REDUCTION ACT...........................................................................................................................................................................557

SIGNIFICANT CHANGES ........................................................................................................................................................................................557

DRAFTING INFORMATION....................................................................................................................................................................................559

LIST OF AUTOMATIC CHANGES CONTACT LIST...........................................................................................................................................559

This revenue procedure provides the List of Automatic Changes to which the automatic change procedures in Rev. Proc. 2015–13, 2015–5 I.R.B. 419, (or successor) apply. The definitions in section 3 of Rev. Proc. 2015–13 apply to this revenue procedure.

LIST OF AUTOMATIC CHANGES