SECTION 12. REVIEW BY DIRECTOR

.01 In general . The director may determine whether the taxpayer complied with all the applicable provisions for the change in method of accounting, including, but not limited to:

(1) the facts and representations provided by the taxpayer on which the con

Bulletin No. 2015–5 443 February 2, 2015

sent for the change in method of accounting is based reflect a complete and accurate statement of the material facts;

(2) the taxpayer properly determined the amount of the § 481(a) adjustment;

(3) the taxpayer implemented the change in method of accounting in compliance with all the applicable provisions;

(4) whether, during the period the taxpayer used the method of accounting for which consent was granted, there has been any change in the material facts on which consent for the change was based; and

(5) whether, during the period the taxpayer used the method of accounting for which consent was granted, there has been any change in the applicable law affecting the propriety of the taxpayer’s use of the method of accounting for which consent was granted.

Except as provided in SECTION 12.02, the director must apply a change made in compliance with all the applicable provisions in determining the taxpayer’s federal income tax liability, unless the director recommends that the change should be modified or revoked ( see SECTION 10.03).

.02 Change not made in compliance with all applicable provisions .

(1) In general . If the director determines that the taxpayer did not comply with all the applicable provisions for the change in method of accounting, including the requirement to timely return the Consent Agreement ( see SECTION 11.03(2)), or did not implement the change in method of accounting in compliance with all the applicable provisions, the director may:

(a) make any adjustments (including the amount of any § 481(a) adjustment) that are necessary to bring the change in method of accounting into compliance with all the applicable provisions;

(b) deny the change in method of accounting and place the taxpayer on a proper method of accounting ( see Rev. Proc. 2002–18 (or any successor)); or

(c) deny the change in method of accounting and require the taxpayer to continue to use the prior method of accounting ( see Rev. Proc. 2002–18 (or any successor)).

(2) Improperly determined § 481(a) adjustment . Notwithstanding SECTIONS 12.01 and 12.02(1), the director may make any necessary correction to the amount of

any § 481(a) adjustment pursuant to SECTION 12.02(1)(a) and may make any other adjustment(s) that are necessary to properly implement the change in method of accounting for which consent is granted. If the director makes such a necessary correction to the amount of the § 481(a) adjustment, the director may take the entire amount necessary to correct the § 481(a) adjustment into account in computing the taxpayer’s taxable income for the earliest taxable year in the § 481(a) adjustment period that is under examination, regardless of whether the statute of limitations under § 6501 has expired for one or more taxable years in the § 481(a) adjustment period.

Example . A taxpayer obtained consent to change its method of accounting under this revenue procedure with a Year 1 year of change. The taxpayer determined that the § 481(a) adjustment for this change in method of accounting is a positive adjustment of $75,000, to be taken into account ratably over four taxable years, pursuant to SECTION 7.03(1). The taxpayer is under examination for Year 2. The statute of limitations under § 6501 has expired for Year 1. As part of the examination of Year 2, the examining agent determines that the correct § 481(a) adjustment for this change in method of accounting is a positive adjustment of $100,000. The examining agent may take the entire amount of the $25,000 correction to the § 481(a) adjustment into account in the taxpayer’s taxable income for Year 2.

(3) Penalties and additions to tax . If the director denies the change in method of accounting pursuant to SECTION 12.02(1) or corrects the § 481(a) adjustment under SECTIONS 12.02(1)(a) and 12.02(2), the director may impose any otherwise applicable penalty, addition to tax, or additional amount on the understatement of tax attributable to the denial of the change in method of accounting or the net amount of any necessary correction(s) to the § 481(a) adjustment.

(4) Referral to the national office . If the director recommends that a change made in compliance with all the applicable provisions should be modified or revoked, the director will forward the matter to the national office for consideration before taking any further action, unless the modification relates solely to the amount of the § 481(a) adjustment. The referral to the national office is a request for technical advice and the provisions of Rev. Proc. 2015–2 (or successor) apply.