SECTION 23. — Internal Revenue Bulletin 2015-5

ACCOUNTING METHOD (§ 475)

.01 Commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of ac- counting under § 475(e) or (f) .

(1) Description of change . This change applies to certain taxpayers that have elected to use the mark-to-market method of accounting under § 475(e) or (f). Under § 475(e) and (f) and Rev. Proc. 99–17, 1999–1 C.B. 503, if a taxpayer makes an election under § 475(e) or (f), then beginning with the first taxable year for which the election is effective (election year), mark to market is the only permissible method of accounting for securities or commodities subject to the election. Thus, if the electing taxpayer’s method of accounting for its taxable year immediately preceding the election year is inconsistent with § 475, the taxpayer is required to change its method of accounting to comply with the election. A taxpayer that makes a § 475(e) or (f) election but fails to change its method of accounting to comply with that election is using an impermissible method. See section 4 of Rev. Proc. 99–17.

(2) Applicability . This change applies to a taxpayer if all of the following conditions are satisfied:

(a) the taxpayer is a commodities dealer, securities trader, or commodities trader that has made a valid election under § 475(e) or (f) ( see section 5.03(1) of Rev. Proc. 99–17) and that is required to

change its method of accounting to comply with the election;

(b) the method of accounting to which the taxpayer changes is in accordance with its election under § 475(e) or (f); and

(3) Certain eligibility rule inapplica- ble . The eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, does not apply to this change.

(4) Election under Rev. Proc. 99–17 . In accordance with section 5.03(1) of Rev. Proc. 99–17, to make a § 475(e) or (f) election, a taxpayer must file a statement satisfying the requirements in section 5.04 of Rev. Proc. 99–17. The taxpayer must file the statement not later than the due date (without regard to any extension) of the original federal income tax return for the taxable year immediately preceding the election year and must attach the statement either to that return or, if applicable, to a request for an extension of time to file that return. For example, if a calendar year individual taxpayer wants to make a § 475(e) or (f) election for 2014 (the election year), the taxpayer must file the statement on or before April 15, 2014, with the taxpayer’s timely filed (without regard to any extension) federal income tax return for 2013 or the taxpayer’s timely filed request for an extension of time to file the 2013 federal income tax return. On the Form 3115 filed for the year of change, a taxpayer should indicate that the taxpayer has filed the statement in compliance with section 5.03(1) of Rev. Proc. 99–17.

(5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 23.01 is “64.” (6) Contact information . For further information regarding a change under this section, contact Eric E. Boody at (202) 317-6945 (not a toll-free number). .02 Taxpayers requesting to change their method of accounting from the mark- to-market method of accounting described in § 475 to a realization method .

(1) Description of change . This change applies to any taxpayer requesting permission to change its method of accounting for securities or commodities as defined in § 475 from the mark-to-market method of accounting described in § 475 to a real

Bulletin No. 2015–5 549 February 2, 2015

ization method of accounting. For example, this section 23.02 applies when a taxpayer is required to change its method of accounting to a realization method after revoking an election under § 475(e), (f)(1), or (f)(2).

(2) Exclusive procedure . The procedure set forth in this section 23.02 is the exclusive procedure for changing a taxpayer’s method of accounting from the mark-to-market method described in § 475 to a realization method. Thus, filing the Notification Statement described in section 23.02(6) of this revenue procedure is the exclusive manner of revoking a § 475(e), (f)(1), or (f)(2) election. Moreover, any taxpayer requesting permission to change to a realization method must follow the procedures described in this section 23.02 and other applicable provisions of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, to request consent to change its method of accounting for securities described in § 475(c)(2) (Section 475 Securities), commodities described in § 475(e)(2) (Section 475 Commodities), or both.

(3) Applicability. This change applies to a taxpayer if all of the following conditions in paragraphs (a) through (c) below are satisfied:

(a) the taxpayer is using, properly or improperly, the mark-to-market method of accounting described in § 475;

(b) the taxpayer is requesting permission to change to a realization method of accounting and report gains or losses from the disposition of Section 475 Securities, Section 475 Commodities, or both, under § 1001; and

(c) the taxpayer meets the requirements of this section 23.02, including the requirement that it timely file the Notification Statement described in section 23.02(6) of this revenue procedure. (4) Certain eligibility rules inapplica- ble . The eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015–13 do not apply to this change.

(5) Manner of making change . This change is made using a cut-off basis and applies only to Section 475 Securities, Section 475 Commodities, or both, that are accounted for using the mark-tomarket method of accounting described in § 475 and for which a change in method is requested under this section 23.02. Ac

cordingly, a § 481(a) adjustment is neither permitted nor required.

Under the cut-off basis, a taxpayer must make a final mark of all Section 475 Securities, Section 475 Commodities, or both, that are being marked to market and that are the subject of the accounting method change being requested, on the last business day of the year preceding the year of change. As a result of the final mark, gain or loss attributable to those securities and commodities is also recognized on the last business day of the year preceding the year of change. In the case of any Section 475 Security or Section 475 Commodity that a taxpayer holds on the first day of the year of change, the taxpayer must make proper adjustment in the amount of any subsequently realized gain or loss to take into account adjustments for the gain or loss recognized prior to the first day of the year of change pursuant to the use of the mark-to-market method of accounting described in § 475 in order to prevent amounts from being duplicated or omitted. Any change in value on or after the first day of the year of change will be taken into account using a realization method of accounting unless section 23.02(7) of this revenue procedure permits the taxpayer to resume a mark-tomarket method and the taxpayer resumes a mark-to-market method.

(6) Notification Statement required . In addition to filing the Form 3115 required under section 6.03(1) of Rev. Proc. 2015– 13, to change to a realization method of accounting under this section 23.02 of this revenue procedure, a taxpayer must also file a Notification Statement that satisfies the requirements in section 23.02(6) of this revenue procedure. The Notification Statement must be filed not later than the due date (without regard to any extension) of the original federal income tax return for the taxable year immediately preceding the year of change and must be attached either to that return or, if applicable, to a request for an extension of time to file that return.

(a) Notification Statement contents . The Notification Statement must contain (1) the name of the taxpayer that will change its method of accounting (that is, the applicant), and, if applicable, the filer (for example, its parent corporation); (2) a statement that the taxpayer is requesting

to change its method of accounting from the mark-to-market method of accounting described in § 475 to a realization method; (3) the year of change (both the beginning and ending dates); and (4) the types of instruments subject to the method change, that is, Section 475 Securities, Section 475 Commodities, or both. If a taxpayer has made an election under § 475(e), (f)(1), or (f)(2), the taxpayer must also include a statement revoking the taxpayer’s section 475 election or elections for the Section 475 Securities, Section 475 Commodities, or both, for which a change in accounting method is sought.

(b) Effect of filing Notification State- ment . Once the taxpayer files a Notification Statement for the year of change, a realization method of accounting is the only permissible method of accounting for Section 475 Securities, Section 475 Commodities, or both, described in the Notification Statement for the entire year of change and all subsequent years (unless section 23.02(7)(a) of this revenue procedure applies). A taxpayer that files the Notification Statement described in this section 23.02 but fails to change its method of accounting using the procedures described in Rev. Proc. 2015–13 and this section 23.02 is using an impermissible method.

(c) Limited § 301.9100 relief . Section 9100 relief for failure to comply with the requirements of this section 23.02(6) will be granted only in unusual and compelling circumstances.

(7) Additional requirements . (a) Resuming the mark-to-market method of accounting . A taxpayer may not use the automatic change procedures in Rev. Proc. 2015–13 and section 23.01 of this revenue procedure to resume using the mark-to-market method of accounting described in § 475 for the Section 475 Securities, Section 475 Commodities, or both, that are the subject of the method change being requested using this section 23.02 during any of the five taxable years beginning with the year of change. To resume using the mark-to-market method of accounting described in § 475 during this 5-year period, a taxpayer must: (i) request the change using the nonautomatic change procedures in Rev. Proc. 2015–13, (ii) request the change by the date an election would be due under

February 2, 2015 550 Bulletin No. 2015–5

section 5.03 of Rev. Proc. 99–17, 1999–1 C.B. 503, and (iii) include a statement that satisfies all applicable requirements of section 5.04 of Rev. Proc. 99–17.

(b) Copy of Notification Statement . A taxpayer must attach a copy of the Notification Statement required in section 23.02(6) of this revenue procedure to its Form 3115 filed under this section 23.02.

(c) No audit protection for valuation . A taxpayer does not receive audit protection under section 8.01 of Rev. Proc. 2015–13 for the method of valuation used by the taxpayer to determine the fair market value of the taxpayer’s Section 475 Securities, Section 475 Commodities, or both, for a taxable year prior to the year of change, or for a failure to comply with the requirements in Rev. Proc. 99–17 to properly elect the mark-to-market method. See section 8.02(2) of Rev. Proc. 2015–13.

(8) Designated automatic accounting method change number. The designated automatic accounting method change number for a change under this section 23.02 is “218”. (9) Contact information. For further information regarding a change under this section, contact Eric E. Boody at (202) 317-6945 (not a toll-free number).