SECTION 5. ELIGIBILITY

.01 In general . (1) Automatic change . Except as otherwise provided in the List of Automatic Changes, a taxpayer within the scope of this revenue procedure is eligible to request the Commissioner’s consent to make a change in method of accounting under the automatic change procedures only if:

(a) on the date the taxpayer files a Form 3115 (original or Ogden copy under SECTION 6.03(1), whichever is filed earlier), the change is described in the List of Automatic Changes;

(b) on the date the taxpayer files a Form 3115 (original or Ogden copy under SECTION 6.03(1), whichever is filed earlier), the taxpayer meets all requirements for the change provided in the applicable section of the List of Automatic Changes;

(c) within the requested year of change, the taxpayer does not engage in a liquidation or reorganization transaction to which § 381(a) applies as described in SECTION 5.02(1), except as provided in SECTION 5.02(2);

(d) the requested year of change is not the final year of the trade or business as described in SECTION 5.03(1), except as provided in SECTION 5.03(2)(a);

(e) the taxpayer has not made or requested an overall method change during any of the five taxable years ending with the year of change as described in SECTION 5.04(1), except as provided in SECTION 5.04(2); and

(f) the taxpayer has not made or requested a change for the same item during any of the five taxable years ending with the year of change as described in

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SECTION 5.05(1), except as provided in SECTION 5.05(2).

(2) Non-automatic change . A taxpayer within the scope of this revenue procedure is eligible to request the Commissioner’s consent to make a change in method of accounting under the non-automatic change procedures only if:

(a) on the date the taxpayer files a Form 3115 with the national office, the taxpayer is not eligible to use the automatic change procedures to make the change; and

(b) the requested year of change is not the final year of the trade or business under SECTION 5.03(1), except as provided in SECTION 5.03(2).

.02 Liquidations and reorganizations under § 381(a) .

(1) In general . Except as provided in SECTION 5.02(2), any party that engages in a liquidation or reorganization transaction to which § 381(a) applies (§ 381(a) transaction) within the requested year of change (determined without regard to any potential closing of the year under § 381(b)(1)) may not request the Commissioner’s consent to make a change in method of accounting under the automatic change procedures for the taxable year in which the § 381(a) transaction occurs or is expected to occur.

(2) Exception . SECTION 5.02(1) does not apply if the taxpayer is requesting a change in method of accounting described in § 1.381(c)(4)–1(a)(4) or (5) or § 1.381(c)(5)–1(a)(4) or (5) that is not required to be made under § 1.381(c)(4)– 1(d)(1) or § 1.381(c)(5)–1(d)(1), or a change in method of computing the depreciation allowance under § 381(c)(6).

.03 Final year of trade or business . (1) In general . Except as provided in SECTION 5.03(2), a taxpayer may not request the Commissioner’s consent to make a change in method of accounting under this revenue procedure for the taxable year the taxpayer ceases to engage in the trade or business to which the change in method of accounting would relate (final year), as defined in SECTION 3.04.

(2) Exceptions . SECTION 5.03(1) does not apply to a taxpayer:

(a) requesting consent to change its method of accounting in the final year of its trade or business as the result of a transaction to which § 381(a) applies, or

(b) requesting consent under the nonautomatic change procedures if the taxpayer demonstrates to the satisfaction of the national office compelling circumstances, or that it is in the interest of sound tax administration, for the taxpayer to change the method of accounting pursuant to SECTION 11.02(1).

.04 Prior five-year overall method change .

(1) In general . Except as provided in SECTIONS 5.04(2) and 15.02, if during any of the five taxable years ending with the year of change a taxpayer changed, or applied for consent to change, its overall method of accounting, regardless of whether it implemented that change, the taxpayer may not request the Commissioner’s consent to change its overall method of accounting under the automatic change procedures. However, a taxpayer that changed its overall method of accounting during the five taxable years ending with the year of change may use the automatic change procedures to request a change in method of accounting for a specific item when that change may otherwise be implemented under the provisions of this revenue procedure. For purposes of this SECTION 5.04(1), a change in overall method of accounting does not include the use of an overall method of accounting when computing taxable income for the taxable year that the taxpayer first files a federal income tax return (“adopts an overall method of accounting”) or a change in method of accounting imposed by the IRS pursuant to Rev. Proc. 2002–18 (or any successor). (2) Exception . SECTION 5.04(1) does not apply to a taxpayer if the national office sent the taxpayer a letter instructing the taxpayer to file the Form 3115, if otherwise eligible, that was originally filed under the non-automatic change procedures, under the automatic change procedures and the taxpayer timely files a Form 3115 for the same change in method of accounting for the same year of change under the automatic change procedures.

(3) Examples . Example 1 . A, an attorney, began business in 2003 and adopted the overall cash method of accounting. For 2010, A changed to an overall accrual method of accounting using the appropriate administrative guidance. A may not use the automatic change procedures for 2014 to change to the overall cash method because of the five-year change limita

tion in this SECTION 5.04. However, A may still be able to use the automatic change procedures to change the method of accounting the taxpayer will use to treat advances made on behalf of clients for 2014. See section 3.01 of the List of Automatic Changes.

Example 2 . B, an attorney, began business in 2003 and adopted the overall cash method of accounting. B is a calendar year taxpayer. For the 2011 taxable year, B filed the national office copy of the Form 3115 on January 31, 2011, requesting to change its method of accounting to an overall accrual method under section 14.01 of the APPENDIX of Rev. Proc. 2011–14. B did not implement the requested change to an overall accrual method of accounting on its 2011 federal income tax return. Rather, B timely filed its 2011 federal income tax return using the overall cash method of accounting, and did not attach the original Form 3115 to its return. B may not use the automatic change procedures for 2014 to change to an overall accrual method because of the five-year change limitation in this SECTION 5.04. However, B may still be able to use the automatic change procedures to change the method of accounting the taxpayer will use to treat advances made on behalf of clients for 2014. See section 3.01 of the List of Automatic Changes.

.05 Prior five-year item change . (1) In general . Except as provided in SECTIONS 5.05(2) and 15.02, if during any of the five taxable years ending with the year of change a taxpayer changed, or applied for consent to change, its method of accounting for a specific item, regardless of whether it implemented that change, the taxpayer may not request the Commissioner’s consent to change its method of accounting for that same item under the automatic change procedures. For purposes of this SECTION 5.05(1), a change in method of accounting for a specific item does not include the use of a method of accounting (for example, include in income, deduct, or capitalize) for the first taxable year that the taxpayer accounts for the item or a change in method of accounting imposed by the IRS pursuant to Rev. Proc. 2002–18 (or any successor).

(2) Exceptions . SECTION 5.05(1) does not apply to a taxpayer if:

(a) the change in method of accounting for the specific item is required as part of another change in method of accounting that the taxpayer may otherwise request under the automatic change procedures;

(b) the national office sent the taxpayer a letter instructing the taxpayer to file the Form 3115, if otherwise eligible, that was originally filed under the non-automatic change procedures, under the automatic change procedures and the taxpayer timely files a Form 3115 for the same change in

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the List of Automatic Changes for its taxable year ending December 31, 2014, must enter the number “91” on Line 1(a) of Form 3115.

In general, a taxpayer may enter only one designated automatic accounting method change number on a Form 3115. However, where the List of Automatic Changes or other guidance published in the IRB specifically permits or requires a taxpayer to request two or more particular changes in method of accounting on a single Form 3115, the taxpayer must enter the designated automatic accounting method change number for each such particular change being requested on the applicable line of the Form 3115.

(4) Taxpayer with more than one trade or business . A taxpayer with multiple trades or businesses filing a Form 3115 for one or more of those trades or businesses must identify, by name, the trades or businesses to which the change relates. The taxpayer must also identify, by name, all other trades or businesses and explain the method of accounting used for each trade or business for the particular item that is the subject of the Form 3115. Except as provided in sections 9.02 and 15.07(4) of Rev. Proc. 2015–1 (or successor), the taxpayer must submit a separate Form 3115 and, in the case of a non-automatic change, user fee for each trade or business of the taxpayer for which consent for a change in method of accounting is requested.

(5) Consolidated groups . A common parent requesting a change in method of accounting on behalf of a member of the consolidated group must explain the method of accounting used by each member of the consolidated group for the particular item that is the subject of the Form 3115. Except as provided in sections 9.02 and 15.07(4) of Rev. Proc. 2015–1 (or successor), the common parent must submit a separate Form 3115 and, in the case of a non-automatic change, user fee for each member of the consolidated group (and for each trade or business of each member) for which consent for a change in method of accounting is requested.

(6) Certain foreign corporations . In the case of a CFC or a 10/50 corporation that is not required to file a federal income tax return, the controlling domestic shareholders (as defined in § 1.964–1(c)(5))

method of accounting for the same year of change under the automatic change procedures; or

(c) the specific item is an inventory sub-method within the last-in, first-out (LIFO) inventory method (for example, the method of determining current-year cost or the method of computing a dollarvalue pool index) and during any of the five taxable years ending with the year of change, the taxpayer (i) adopted or changed to the LIFO inventory method, or (ii) did not change its method of accounting with respect to the same inventory sub-method within LIFO.

(3) Examples . Example 1 . A uses the LIFO inventory method. For 2010, A changed a LIFO inventory sub-method. Specifically, A changed from the average-cost method of determining the current-year cost of inventories to the earliest-acquisitions cost method. For 2014, A seeks to change to the IPIC method of computing the index and value of its dollar-value pools, a method that A has never used. As part of this change, A seeks to change its method of determining the current-year cost of inventories from the earliestacquisitions cost method to the most-recent acquisitions cost method. A is eligible to change its method of computing the index and value of its dollar-value pools to the IPIC method under this revenue procedure. However, A is not eligible to change its method of determining the current-year costs of inventories under the automatic change procedures because A changed its method of accounting with respect to the same LIFO inventory sub-method within the proscribed five-year period.

Example 2 . B uses the dollar-value LIFO inventory method and maintains separate dollar-value pools for its inventory of (1) new cars; (2) new trucks; (3) used cars; and (4) used trucks. For 2010, B terminated its use of the LIFO inventory method for its used cars and used trucks under Rev. Proc. 2008–52. For 2014, B seeks to terminate its use of the LIFO inventory method for its new cars and new trucks. B is eligible to change its method of accounting for new cars and new trucks under the automatic change procedures because it has not changed the inventory identification method for the pools of new cars and new trucks within the proscribed five-year period.

Example 3 . C, a driving instruction school, uses an overall accrual method of accounting. C obtains payment in full from its students at the beginning of each session of classes. For 2012, C properly elected the deferral method for advance payments as described in Rev. Proc. 2004–34. For 2014, C seeks to change its overall method of accounting to the cash method as described in Rev. Proc. 2001–10, which it qualifies to use. C is eligible to change its method of accounting under the automatic change procedures for advance payments even though it made a prior change in its method of accounting for advance payments within the previous 5 taxable years ending with 2014 because C is required to change its treat

ment of advance payments as part of its change to the overall cash method of accounting.