SECTION 18. SIGNIFICANT CHANGES

.01 Changes affecting both Rev. Proc. 2011–14 and Rev. Proc. 97–27 . (1) SECTION 3.04(2)(f) clarifies that a sale or exchange of 50 percent or more of the total interest in partnership capital and profits under § 708(b)(1)(B) is a transaction that constitutes the cessation of a partnership’s trade or business for purposes of this revenue procedure.

(2) SECTION 3.08 clarifies and modifies the rules for when a method of accounting for an item is under consideration to provide that an issue is under consideration as of the date of the operative written notification to the taxpayer.

(3) SECTION 3.08(1) clarifies that an item ceases to be an issue under consideration after an examination ends unless the examining agent provides the taxpayer with written notification that the item is an issue placed in suspense. SECTION 3.08(1) also clarifies that a corporation that is or was formerly a member of a consolidated group has an issue under consideration before Examination if the same item is an issue under consideration before Examination for any member of that consolidated group for the taxable year(s) that the corporation was a member of the consolidated group. SECTION 3.08(1) also clarifies that an entity (includ

ing a limited liability company) treated as a partnership or an S corporation for federal income tax purposes also has an issue under consideration before Examination if the same item is an issue under consideration in an examination of a partner, member, or shareholder’s federal income tax return.

(4) SECTIONS 3.08(2) and 3.08(3) clarify that, for an entity treated as a partnership or S corporation, a method of accounting is an issue under consideration before an Appeals office or a federal court if it is an issue under consideration by an Appeals office or a federal court for a partner, member, or shareholder’s federal income tax return.

(5) SECTION 3.08(3) also clarifies that a corporation that is or was formerly a member of a consolidated group is before a federal court during the period of time the consolidated group is before a federal court for the taxable year(s) it was a member of the consolidated group.

(6) SECTION 3.17(2) clarifies the term “taxpayer” in the context of a member of a consolidated group. In the case of a consolidated group, except as otherwise provided in this revenue procedure, “taxpayer” refers to the individual member of the consolidated group for which the change in method of accounting is requested or the common parent of the group acting on behalf of that member. For example, to determine eligibility for a window period in SECTION 8.02(1)(a) or 8.02(1)(b) the length of time a member of a consolidated group has been under examination is calculated at the member level, which may be different from the length of time, if any, the member’s current common parent has been under examination.

(7) SECTION 3.18(5) clarifies the rule that a taxpayer continues to be under examination when Examination reports the taxable year(s) under examination to the Joint Committee on Taxation.

(8) SECTION 5.01 modifies the rules for when a taxpayer under examination may file a Form 3115 by replacing “issue pending” and “consent of director” in Rev. Proc. 97–27 and Rev. Proc. 2011–14 with broad eligibility rules that allow taxpayers under examination to request changes in method of accounting. How

Bulletin No. 2015–5 447 February 2, 2015

ever, see SECTIONS 7.03(3)(b) and 8.02(1). (9) SECTIONS 6.03(1)(a)(ii), 6.03(1)(a)(iii), 6.03(3)(b), and 6.03(3)(c) clarify the rules for how foreign corporations and foreign partnerships that are not required to file a federal income tax return file a Form 3115 and their controlling domestic shareholders and partners comply with the filing and other requirements regarding Forms 3115 and Consent Agreements.

(10) SECTION 7.03(2)(c) modifies the rules for the treatment of a § 481(a) adjustment regarding a § 381(a) transaction within a consolidated group in which the method of accounting that gave rise to a § 481(a) adjustment is carried over and used by the acquiring corporation. In that case, the portion of the § 481(a) adjustment attributable to the short taxable year of the transferor ending on the date of the § 381(a) transaction is treated as an intercompany item as defined in § 1.1502– 13(b)(2) and taken into account under the § 1.1502–13 rules.

(11) SECTION 7.03(3)(b) modifies the § 481(a) adjustment period for taxpayers under examination with positive § 481(a) adjustments. In that case, the § 481(a) adjustment period is two taxable years, unless the Form 3115 is filed in a threemonth or 120-day window, the present method is not before the director, or the applicant is a new member of a consolidated group in CAP.

(12) SECTION 7.03(3)(c) modifies the de minimis election for a one-year adjustment period for a positive § 481(a) adjustment to make it available for a positive § 481(a) adjustment that is less than $50,000.

(13) SECTION 7.03(3)(d) provides an optional election for a one-year adjustment period for a positive § 481(a) adjustment for taxpayers with an eligible acquisition transaction. Also, SECTION 6.03(4)(b) provides that a taxpayer is not eligible to make a late election except in unusual and compelling circumstances.

(14) SECTION 7.06 provides, consistent with existing practice, a term and condition that requires a taxpayer to maintain accounting records for the year of change and subsequent taxable years to support the method of accounting for which consent is granted to the taxpayer.

(15) SECTIONS 7.07, 7.08, and 7.09 provide, consistent with existing practice, additional terms and conditions specific to (a) certain foreign corporations, (b) trades or businesses of a domestic corporation, domestic partnership, or other United States person that affect the amount of foreign source taxable income, and (c) foreign partnerships.

(16) SECTION 8.02(1)(a) modifies the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection by replacing the 90-day window that began on the first day of the taxpayer’s taxable year in Rev. Proc. 97–27 and Rev. Proc. 2011–14 with a three-month window that applies to taxpayers that have been under examination for at least 12 consecutive months as of the first day of the three-month window. In general, the three-month window begins on the fifteenth day of the seventh month of the taxable year and ends on the fifteenth day of the tenth month of the taxable year, to correspond to the extended due date of a taxpayer’s federal income tax return. In addition, a CFC or 10/50 corporation that has had an issue under consideration within the meaning of SECTION 3.08(4) for at least 24 consecutive months and all of its controlling domestic shareholders that are under examination have been under examination for at least 24 consecutive months is eligible to change its method of accounting during the three-month window if the method of accounting is not an issue under consideration within the meaning of SECTION 3.08(1) or an item placed in suspense.

(17) SECTION 8.02(1)(b) is modified to make a CFC or 10/50 corporation ineligible for the 120-day window.

(18) SECTIONS 8.02(1)(c), 8.02(1)(e), and 8.02(1)(f) modify the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection outside of a window period. These rules replace the previous requirement that the taxpayer acquire the director’s statement consenting to the filing of the Form 3115 prior to filing the Form 3115.

(19) SECTION 8.02(1)(d) modifies the rules for when a taxpayer under examination filing a Form 3115 may receive audit protection by permitting the parent of a consolidated group to request a change in

method of accounting on behalf of a consolidated group member that is under examination solely because it joined the consolidated group in a taxable year for which the group is participating in the CAP. However, the member’s method of accounting to be changed must not be an issue under consideration. SECTION 6.03(2)(a)(ii) provides a limited time frame after the member joins the consolidated group for the parent to file the Form 3115 for a year of change that is the taxable year the corporation became a member of the consolidated group, which in some cases permits the common parent of the consolidated group to file the Form 3115 up to 30 calendar days after the end of the taxable year.

(20) SECTION 8.02(5) modifies the rules for audit protection to provide that the IRS may require a CFC or 10/50 corporation to change its method of accounting for a taxable year preceding the requested year of change if any of the controlling domestic shareholders computed an amount of foreign taxes deemed paid with respect to the CFC or 10/50 corporation that exceeds 150 percent of the average amount of foreign taxes deemed paid by the shareholder with respect to the CFC or 10/50 corporation for the three preceding taxable years.

(21) SECTION 12.02(2) clarifies the rules for a § 481(a) adjustment to provide that if the director makes a correction to the amount of the § 481(a) adjustment, ordinarily the director will take the entire amount of the correction into account for the earliest taxable year in the § 481(a) adjustment period that is under examination, regardless of whether the statute of limitations on the assessment of tax under § 6501 has not expired for one or more taxable years in the adjustment period.

.02 Other changes affecting Rev. Proc. 2011–14 . (1) SECTIONS 5.01 and 8.02(1) clarify, consistent with the IRS’s longstanding interpretation of Rev. Proc. 2011–14, that waiver of a scope limitation under Rev. Proc. 2011–14 or an eligibility requirement under this revenue procedure does not affect whether the taxpayer receives audit protection for the change in method of accounting.

(2) SECTIONS 5.04(2) and 5.05(2) clarify that a taxpayer may file a Form

February 2, 2015 448 Bulletin No. 2015–5

3115 under the automatic change procedures notwithstanding the fact that the taxpayer previously filed a Form 3115 under the non-automatic change procedures for the same change in method of accounting and for the same year of change, in limited specified circumstances.

(3) SECTION 6.01 modifies section 6.02(1) of Rev. Proc. 2011–14 to require taxpayers to file a Form 3115 in all cases when requesting consent under the automatic change procedures. However, when permitted in the applicable section of the List of Automatic Changes, a taxpayer may file a short Form 3115. See SECTION 3.07(2).

(4) SECTION 6.03(1)(a)(i)(B) modifies section 6.02(3)(a)(ii) of Rev. Proc. 2011–14 to require taxpayers to file a copy of the Form 3115 with the IRS in Ogden, UT for all changes in method of accounting requested under the automatic change procedures.

(5) SECTION 6.03(1)(e) clarifies how taxpayers submit additional correspondence regarding a Form 3115 filed under

the automatic change procedures to Ogden, UT.

(6) The list of automatic changes in method of accounting, formerly in the APPENDIX of Rev. Proc. 2011–14, is now in Rev. Proc. 2015–14 (List of Automatic Changes).

.03 Other changes affecting Rev. Proc. 97–27 . (1) SECTIONS 5.03 and 11.02(1) provide, consistent with the IRS’s longstanding practice, that ordinarily the IRS will not consent to a taxpayer changing a method of accounting in the year it ceases to engage in a trade or business to which the change would relate.

(2) SECTION 11.03(2)(c) modifies section 8.11 of Rev. Proc. 97–27 to generally invalidate a Consent Agreement if the taxpayer does not implement the change in method of accounting by the later of either the due date of the taxpayer’s federal income tax return for the taxable year succeeding the year of change or one year from the date of issuance of the letter ruling.

(3) SECTION 13.01(1)(b) modifies the rules for revising the year of change to provide that, if a taxpayer files its Form 3115 on or before the last day of the sixth month of the year of change, it may submit a written request to revise the year of change on or after, but not before, the first day of the taxable year following the original year of change.

(4) SECTION 13.01(3) modifies the § 481(a) acceleration requirement for a revised year of change to generally require that no more than seventy-five percent of a positive § 481(a) adjustment be taken into account in the revised year of change.

DRAFTING INFORMATION

The principal author of this revenue procedure is Christopher W. Call of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Call at (202) 317-7007 (not a toll-free number).

Bulletin No. 2015–5 449 February 2, 2015

26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also Part I, §§ 56, 61, 77, 118, 162, 163, 166, 167, 168, 171, 174, 179D, 194, 197, 263, 263A, 267, 280F, 404, 446, 447, 448, 451, 454, 455, 460, 461, 467, 471, 472, 475, 481, 585, 816, 832, 833, 846, 860A–860G, 861, 904, 953, 985, 1272, 1273, 1278, 1281, 1363, 1400I, 1400L, 1400N; 1.61–1, 1.61–4, 1.61–8, 1.77–1, 1.77–2, 1.118–2, 1.162–1, 1.162–3, 1.162–4, 1.162–11, 1.162–12, 1.166–1, 1.166–2, 1.166–4, 1.167(a)–2, 1.167(a)–3(b), 1.167(a)–4, 1.167(a)–7, 1.167(a)–8, 1.167(a)–11, 1.167(a)–14, 1.167(e)–1, 1.168(d)–1, 1.168(i)–1, 1.168(i)–4, 1.168(i)–6, 1.168(i)–7, 1.168(i)–8, 1.168(k)–1, 1.171–4, 1.174–1, 1.174–3, 1.174–4, 1.179–5, 1.194–1, 1.197–2, 1.263(a)–1, 1.263(a)–2, 1.263(a)–3, 1.263(a)–4, 1.263(a)–5, 1.263A–1, 1.263A–2, 1.263A–3, 1.263A–4, 1.263A–7, 1.267(a)–1, 1.280F–6, 1.404(b)–1T, 1.446–1, 1.446–1T, 1.446–2, 1.446–5, 1.446–6, 1.448–1T, 1.448–2, 1.451–1, 1.451–5, 1.454–1, 1.455–6, 1.460–1, 1.460–4, 1.461–1, 1.461–4, 1.461–5, 1.467–1, 1.471–1, 1.471–2, 1.471–3, 1.471–4, 1.471–5, 1.471–8, 1.472–1, 1.472–2, 1.472–6, 1.472–8, 1.481–1, 1.481–4, 1.832–4, 1.832–5, 1.860A–6, 1.861–18, 1.985–5, 1.985–8, 1.1016–3, 1.1245–3, 1.1272–1, 1.1273–1, 1.1273–2, 1.1363–2, 1.1374–4, 1.1400L(b)–1.)

Rev. Proc. 2015–14

LIST OF AUTOMATIC CHANGES ......................................................................................................................................................................455

SECTION 1. GROSS INCOME (§ 61)......................................................................................................................................................................455

.01 Up-front Payments for Network Upgrades received by Utilities ......................................................................................455 .02 Reserved...............................................................................................................................................................................455

SECTION 2. COMMODITY CREDIT LOANS (§ 77)............................................................................................................................................455

.01 Treating amounts received as loans....................................................................................................................................455 .02 Reserved...............................................................................................................................................................................456

SECTION 3. TRADE OR BUSINESS EXPENSES (§ 162)....................................................................................................................................456

.01 Advances made by a lawyer on behalf of clients..............................................................................................................456 .02 ISO 9000 Costs....................................................................................................................................................................456 .03 Restaurant or tavern smallwares packages .........................................................................................................................456 .04 Timber grower fertilization costs........................................................................................................................................456 .05 Materials and supplies.........................................................................................................................................................456 .06 Repair and maintenance costs.............................................................................................................................................456 .07 Wireline network asset maintenance allowance and units of property

methods of accounting under Rev. Proc. 2011–27 ............................................................................................................456 .08 Wireless network asset maintenance allowance and units of property methods

of accounting under Rev. Proc. 2011–28 ...........................................................................................................................456 .09 Method of accounting under Rev. Proc. 2011–43 for taxpayers in the business of transporting,

delivering, or selling electricity ..........................................................................................................................................457 .10 Reserved...............................................................................................................................................................................457 .11 Reserved...............................................................................................................................................................................457 .12 Reserved...............................................................................................................................................................................457 .13 Reserved...............................................................................................................................................................................457 .14 Reserved...............................................................................................................................................................................457 .15 Reserved...............................................................................................................................................................................457 .16 Reserved...............................................................................................................................................................................457 .17 Reserved...............................................................................................................................................................................457 .18 Reserved...............................................................................................................................................................................457 .19 Reserved...............................................................................................................................................................................457 .20 Method of accounting under Rev. Proc. 2013-24 for taxpayers in the business of generating steam or electric power. .......457 .21 Cable network asset capitalization methods of accounting under Rev. Proc. 2015–12 ...................................................457

SECTION 4. BAD DEBTS (§ 166) ...........................................................................................................................................................................458

.01 Change from reserve method to specific charge-off method.............................................................................................458 .02 Conformity election by bank after previous election automatically revoked ...................................................................458

SECTION 5. INTEREST EXPENSE (§ 163) AND AMORTIZABLE BOND PREMIUM (§ 171)......................................................................458

.01 Revocation of § 171(c) election..........................................................................................................................................458 .02 Change to comply with § 163(e)(3) ...................................................................................................................................458

February 2, 2015 450 Bulletin No. 2015–5

SECTION 6. DEPRECIATION OR AMORTIZATION (§ 56(a)(1), 56(g)(4)(A), 167, 168, 197, 280F(a), 1400I, 1400L, or 1400N(d),

OR FORMER § 168)............................................................................................................................................................................459 .01 Impermissible to permissible method of accounting for depreciation or amortization ....................................................459 .02 Permissible to permissible method of accounting for depreciation...................................................................................463 .03 Sale, lease, or financing transactions..................................................................................................................................465 .04 Reserved...............................................................................................................................................................................466 .05 Reserved...............................................................................................................................................................................466 .06 Reserved...............................................................................................................................................................................466 .07 Reserved...............................................................................................................................................................................466 .08 Depreciation of cable TV fiber optics ................................................................................................................................466 .09 Change in general asset account treatment due to a change in the use of MACRS property.........................................466 .10 Change in method of accounting for depreciation due to a change in the use of MACRS property .............................466 .11 Depreciation of qualified non-personal use vans and light trucks ....................................................................................467 .12 Reserved...............................................................................................................................................................................467 .13 Reserved...............................................................................................................................................................................467 .14 Reserved...............................................................................................................................................................................467 .15 Reserved...............................................................................................................................................................................467 .16 Reserved...............................................................................................................................................................................467 .17 Impermissible to permissible method of accounting for depreciation or amortization for disposed

depreciable or amortizable property ...................................................................................................................................467 .18 Reserved...............................................................................................................................................................................468 .19 Reserved...............................................................................................................................................................................468 .20 Reserved...............................................................................................................................................................................468 .21 Reserved...............................................................................................................................................................................468 .22 Reserved...............................................................................................................................................................................468 .23 Tenant construction allowances ..........................................................................................................................................468 .24 Reserved...............................................................................................................................................................................469 .25 Reserved...............................................................................................................................................................................469 .26 Safe harbor method of accounting for determining the depreciation of certain tangible

assets used by wireless telecommunications carriers under Rev. Proc. 2011-22 .............................................................469 .27 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)–4T) ..........................................................470 .28 Permissible to permissible method of accounting for depreciation of MACRS property

(§ 168; §§1.168(i)–1T, 1.168(i)–7T, and 1.168(i)–8T, Prop. Reg. §§1.168(i)–1, 1.168(i)–7, and 1.168(i)–8)..............470 .29 Disposition of a building or structural component (§ 168; § 1.168(i)–8T, and Prop. Reg. § 1.168(i)–8).....................474 .30 Dispositions of tangible depreciable assets (other than a building or its structural components)

(§ 168; § 1.168(i)–8T and Prop. Reg. § 1.168(i)–8). .......................................................................................................477 .31 Dispositions of tangible depreciable assets in a general asset account

(§ 168(i)(4); § 1.168(i)–1T and Prop. Reg. § 1.168(i)–1).................................................................................................479 .32 General asset account elections (§ 168(i)(4); § 1.168(i)–1; §1.168(i)–1T, and Prop. Reg. § 1.168(i)–1) ......................481 .33 Late partial disposition election (§ 168; § 1.168(i)–8 and Prop. Reg. § 1.168(i)–8)......................................................483 .34 Revocation of a general asset account election (§ 168; § 1.168(i)–1, § 1.168(i)–1T and Prop. Reg. § 1.168(i)–1)................485 .35 Partial dispositions of tangible depreciable assets to which the IRS’s adjustment pertains

(§ 168; § 1.168(i)–8 and Prop. Reg. § 1.168(i)–8)...........................................................................................................487 .36 Depreciation of leasehold improvements (§§ 167, 168, and 197; § 1.167(a)–4).............................................................488 .37 Permissible to permissible method of accounting for depreciation of MACRS property

(§ 168; §§ 1.168(i)–1, 1.168(i)–7, and 1.168(i)–8) ...........................................................................................................489 .38 Disposition of a building or structural component (§ 168; § 1.168(i)–8) ........................................................................492 .39 Dispositions of tangible depreciable assets (other than a building or its structural components)

(§ 168; § 1.168(i)–8) .............................................................................................................................................495 .40 Dispositions of tangible depreciable assets in a general asset account (§ 168(i)(4); § 1.168(i)–1) ................................497 .41 SUMMARY OF CERTAIN CHANGES IN METHODS OF ACCOUNTING

RELATED TO DISPOSITIONS OF MACRS PROPERTY.............................................................................................499 .42 Depreciation of fiber optic transfer node and fiber optic cable used by a cable system operator (§§ 167 and 168)...............503

Bulletin No. 2015–5 451 February 2, 2015

SECTION 7. RESEARCH AND EXPERIMENTAL EXPENDITURES (§ 174)....................................................................................................504

.01 Changes to a different method or different amortization period.......................................................................................504 .02 Reserved...............................................................................................................................................................................505

SECTION 8. ELECTIVE EXPENSING PROVISIONS (§ 179D) ...........................................................................................................................505

.01 Reserved...............................................................................................................................................................................505 .02 Reserved...............................................................................................................................................................................505 .03 Reserved...............................................................................................................................................................................505 .04 Deduction for Energy Efficient Commercial Buildings (§ 179D).....................................................................................505

SECTION 9. COMPUTER SOFTWARE EXPENDITURES (§§ 162, 167, and 197) ............................................................................................505

.01 Computer software expenditures.........................................................................................................................................505 .02 Reserved...............................................................................................................................................................................505

SECTION 10. CAPITAL EXPENDITURES (§ 263)................................................................................................................................................505

.01 Package design costs ...........................................................................................................................................................505 .02 Line pack gas or cushion gas..............................................................................................................................................506 .03 Removal costs......................................................................................................................................................................506 .04 Distributor commissions......................................................................................................................................................506 .05 Intangibles............................................................................................................................................................................506 .06 Rotable spare parts safe harbor method. ............................................................................................................................507 .07 Repairable and reusable spare parts....................................................................................................................................507 .08 Reserved...............................................................................................................................................................................508 .09 Reserved...............................................................................................................................................................................508 .10 Reserved...............................................................................................................................................................................508 .11 Tangible property ................................................................................................................................................................508 .12 Railroad track structure expenditures .................................................................................................................................508

SECTION 11. UNIFORM CAPITALIZATION (UNICAP) METHODS (§ 263A) ................................................................................................512

.01 Certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers.........................................512 .02 Certain uniform capitalization (UNICAP) methods used by producers and reseller-producers.......................................515 .03 Reserved...............................................................................................................................................................................515 .04 Impact fees...........................................................................................................................................................................515 .05 Change to capitalizing environmental remediation costs under § 263A...........................................................................515 .06 Change in allocating environmental remediation costs under § 263A..............................................................................516 .07 Safe harbor methods under § 263A for certain dealerships of motor vehicles ................................................................516 .08 Change to not apply § 263A to one or more plants removed from the list of plants that have

a preproductive period in excess of 2 years.......................................................................................................................516 .09 Change to a reasonable allocation method described in § 1.263A–1(f)(4) for self-constructed assets...........................517 .10 Real property acquired through foreclosure .......................................................................................................................517 .11 Sales-Based Royalties..........................................................................................................................................................517 .12 Treatment of Sales-Based Vendor Chargebacks under a Simplified Method...................................................................518 .13 U.S. ratio method ................................................................................................................................................................518 .14 Depletion..............................................................................................................................................................................520