SECTION 16. TAXABLE — Internal Revenue Bulletin 2019-48

INCLUSION (§ 451).

01 Accrual of interest on nonperform- ing loans

(1) Description of change (a) This change applies to a taxpayer using an overall accrual method of accounting that is a bank as defined in § 581 (or whose primary business is making or managing loans) and wants to change its method of accounting to comply with § 451 and § 1.451-1(a) for qualified stated interest (as defined in § 1.1273-1(c)) on nonperforming loans.

(b) Section 1. 451-1(a) requires income to be accrued when all the events have occurred that fix the right to receive the income and the amount thereof can be determined with reasonable accuracy. A taxpayer may not stop accruing qualified stated interest on a nonperforming loan for federal income tax purposes merely because payments on the loan are overdue by a certain length of time, such as 90 days, even if a federal, state, or other regulatory authority having jurisdiction over the taxpayer permits or requires that the overdue interest not be accrued for regulatory purposes.

(c) Under § 451 and § 1. 451-1(a), a taxpayer must continue accruing qualified stated interest on any nonperforming loan until either (i) the loan is worthless under § 166 and charged off as a bad debt, or (ii) the interest is determined to be uncollectible. In order for interest to be determined uncollectible, the taxpayer must substantiate, taking into account all the facts and circumstances, that it has no reasonable expectation of payment of the interest. This substantiation requirement is applied on a loan by loan basis.

(d) A taxpayer that changes its method of accounting under this section 16. 01 must do so for all of its loans.

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(3) Contact information . For further information regarding a change under this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number).. 04 Capital Cost Reduction Payments (1) Description of change . This change applies to a taxpayer that purchases motor vehicles subject to leases and assumes the associated leases from the vehicles’ dealers and wants to use the safe harbor method of accounting for capital cost reduction (CCR) payments specified in Rev. Proc. 2002-36, 2002-1 C. B. 993. (2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16. 04 is “39. ” (3) Contact information . For further information regarding a change under this section, contact Bill Ruane at (202) 3174718 (not a toll-free number).. 05 Credit card annual fees (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for credit card annual fees as described in Rev. Rul. 2004-52, 2004-1 C. B. 973, either to a method that satisfies the all events test in accordance with Rev. Rul. 2004-52 or to the Ratable Inclusion Method for Credit Card Annual Fees that is described in section 4 of Rev. Proc. 2004-32, 2004-1 C. B. 988. Rev. Rul. 2004-52 holds that credit card annual fees are not interest for federal income tax purposes and that such fees are includible in income by the card issuer when the all events test under § 451 is satisfied. Rev. Proc. 200432 provides additional guidance for taxpayers seeking to change their methods of accounting for such fees, including guidance with respect to the Ratable Inclusion Method for Credit Card Annual Fees. However, a taxpayer may make either change under this revenue procedure only if the taxpayer uses an overall accrual method of accounting for federal income tax purposes and issues credit cards to, and receives annual fees from, cardholders under agreements that allow each cardholder to use a credit card to access a revolving line of credit to make purchases of goods and services and, if so authorized, to obtain cash advances.

(2) Manner of making change . In completing its Form 3115 to make this change,

a taxpayer must identify the specific method to which the taxpayer is changing.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16.05 to a method that satisfies the all events test in accordance with Rev. Rul. 2004-52 is “80. ” The designated automatic accounting method change number for a change under this section 16. 05 to the Ratable Inclusion Method for Credit Card Annual Fees is “81. ”

(4) Contact information . For further information regarding a change under this section, contact Kate Sleeth at (202) 3177053 (not a toll-free number).. 06 Credit card late fees (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for credit card late fees to a method that treats these fees as interest income that creates or increases the amount of original issue discount (OID) on the pool of credit card loans to which the fees relate. This change is available only to a taxpayer that issues credit cards allowing cardholders to access a revolving line of credit established by the taxpayer and that, for federal income tax purposes, does not treat the credit card purchase transactions of its cardholders as creating either debt that is given in consideration for the sale or exchange of property (within the meaning of § 1274) or debt that is deferred payment for property (within the meaning of § 483). See Rev. Proc. 2004-33, 2004-1 C. B. 989, for additional guidance relating to this change.

(2) Additional requirements . A taxpayer making this change must be able to demonstrate both of the following:

(a) the amount of any credit card late fee charged to each cardholder by the taxpayer is separately stated on the cardholder’s account when that fee is imposed; and

(b) under the applicable credit card agreement governing each cardholder’s use of the credit card, no amount identified as a credit card late fee is charged for property or for specific services performed by the taxpayer for the benefit of the cardholder.

(3) Audit protection . Any audit protection provided in connection with this change is not a determination by the Commissioner that the taxpayer is properly ac

counting for any OID income on that pool of credit card loans. Thus, for example, the IRS is not precluded from pursuing the issue of whether a taxpayer is properly accounting for its OID income (including any OID income attributable to credit card late fees) on its pool of credit card loans in accordance with § 1272(a)(6).

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16. 06 is “82. ” (5) Contact information . For further information regarding a change under this section, contact Kate Sleeth at (202) 3177053 (not a toll-free number).. 07 Advance payments (1) Description of change (a) Applicability . This change applies to a taxpayer using or changing to an overall accrual method of accounting that receives advance payments, as defined in Rev. Proc. 2004-34, 2004-1 C. B. 991, as modified and clarified by Rev. Proc. 201118, 2011-5 I. R. B. 443, and Rev. Proc. 2013-29, 2013-33 I. R. B. 141, and as modified by Rev. Proc. 2011-14, 2011-4 I.R.B. 330, and wants to change to either the full inclusion or deferral method, as described in Rev. Proc. 2004-34, other than a taxpayer changing to a method described in section 16. 10 of this revenue procedure. See also Notice 2018-35, 2018-18 I. R. B. 520, and Announcement 2004-48, 2004-1 C. B. 998.

(b) Inapplicability . This change does not apply to a taxpayer that wants to use the Deferral Method for payments described in section 5. 02(4)(a) of Rev. Proc. 2004-34 (other than allocable payments described in section 5. 02(4)(c) of Rev. Proc. 2004-34) or for payments for which a method under section 5. 02(3)(b)(i) or (iii) of Rev. Proc. 2004-34 applies. The taxpayer must request any such change in method of accounting using the non-automatic change procedures in Rev. Proc. 2015-13, 2015-5 I. R. B. 419. See section 8. 03 of Rev. Proc. 2004-34. (2) Certain eligibility rule temporarily inapplicable . The eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to a taxpayer that changes to a method of accounting provided under section 16. 07(1)(a) of this revenue procedure for the taxpayer’s first

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or second taxable year ending on or after May 9, 2018.

(3) Concurrent automatic change to an overall accrual method . A taxpayer making both a change to its method of accounting for advance payments under this section 16. 07 and a change to an overall accrual method under section 15. 01 of this revenue procedure for the same year of change must file a single Form 3115 for both changes and enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(4) Designated automatic account- ing method change number . The designated automatic accounting method change number for a change under section 16. 07(1)(a) of this revenue procedure to use the full-inclusion method is “83. ” The designated automatic accounting method change number for a change under section 16. 07(1)(a) of this revenue procedure to use the deferral method is “84. ”

(5) Contact information . For further information regarding a change under this section, contact Peter E. Ford or Jo Lynn Ricks at (202) 317-7003 (not a toll-free number)..

08 Credit card cash advance fees (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for credit card cash advance fees to a method that treats these fees as creating or increasing original issue discount (OID) on a pool of credit card loans that includes the cash advances that give rise to the fees. This change is available only to a taxpayer that issues credit cards allowing cardholders to access a revolving line of credit established by the taxpayer both to make credit card purchase transactions and to obtain cash advances and that, for federal income tax purposes, does not treat the credit card purchase transactions of its cardholders as creating debt that is given in consideration for the sale or exchange of property. See Rev. Proc. 2005-47, 2005-2 C. B. 269, for additional guidance relating to this change.

(2) Other requirements . A taxpayer making this change must be able to demonstrate both of the following:

(a) the amount of any credit card cash advance fee charged to a cardholder by the

taxpayer is separately stated on the cardholder’s account when that fee is imposed; and

(b) under the credit card agreement with the cardholder, no amount identified as a credit card cash advance fee is charged for property or for specific services performed by the taxpayer for the benefit of the cardholder.

(3) Audit protection . Any audit protection applicable to this change under section 8 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, is not a determination by the Commissioner that the taxpayer is properly accounting for any OID income on that pool of credit card loans. Thus, for example, the IRS is not precluded from pursuing the issue of whether, under § 1272(a)(6), a taxpayer is correctly accounting for its OID income (including any OID income attributable to credit card cash advance fees) on its pool of credit card loans.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 16. 08 is “94. ”

(5) Contact information . For further information regarding a change under this section, contact Kate Sleeth at (202) 3177053 (not a toll-free number).. 09 Retainages (1) Description of change (a) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for treating retainages to a method consistent with the holding in Rev. Rul. 69-314, 1969-1 C. B. 139. A taxpayer changing its method of accounting for retainages under this section 16. 09 must treat all retainages, that is both receivables and payables, in the same manner.

(b) Inapplicability . This change does not apply to retainages (receivables and payables) for long-term contracts that must be accounted for under the percentage-of-completion method (PCM) under § 460. Nor does this change apply to long-term contracts otherwise accounted for under the PCM or long-term contracts accounted for under exempt percentage-of-completion method or the completed contract method. For the treatment of retainages under such methods, see Treas.

Reg. §§ 1. 460-4(b)(4)(i)(A) and 1. 4604(d)(3). (2) Manner of making change (a) Except as provided in section 16. 09(2)(b) of this revenue procedure, a taxpayer changing its method of accounting under this section 16. 09 must take into account a § 481(a) adjustment.

(b) For retainages received and paid in connection with long term contracts that are exempt construction contracts (as defined in § 1.460-3(b)(1)) accounted for using the taxpayer’s overall accrual method of accounting, this change is made on a cut-off basis and applies only to longterm contracts entered into on or after the beginning of the year of change. See § 1. 460-1(c)(2) for a description of when a contract is treated as “entered into. ” Accordingly, a § 481(a) adjustment is neither permitted nor required.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16. 09 for retainages not received under long-term contracts is “130. ” The designated automatic method change number for a change under this section 16. 09 for retainages received under long-term contracts is “217. ” A taxpayer making a change under this section 16. 09 that has both types of retainages must file a single Form 3115 and enter both change numbers on the appropriate line on Form 3115.

(4) Contact information . For further information regarding a change under this section, contact Peter Cohn at (202) 3177011 (not a toll-free number).. 10 Change in applicable financial statements (AFS) for purposes of applying certain revenue recognition methods of accounting.

(1) Description of change (a) Applicability (i) This change applies to a taxpayer that: (A) receives advance payments, as defined in Rev. Proc. 2004-34, 20041 C.B. 991, as modified and clarified by Rev. Proc. 2011-18, 2011-5 I. R. B. 443, and Rev. Proc. 2013-29, 2013-33 I. R. B. 141, and as modified by Rev. Proc. 201114, 2011-4 I. R. B. 330, (B) uses the deferral method described in section 5. 02(3) (a) of Rev. Proc. 2004-34 for including those advance payments in gross income in accordance with its applicable financial

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statement (AFS), (C) changes the manner in which it recognizes advance payments in revenues in its AFS, and (D) wants to change its method of accounting to use its proposed method of recognizing advance payments in revenues in its AFS for determining the extent to which advance payments are included in gross income under Rev. Proc. 2004-34. See also Notice 201835, 2018-18 I. R. B. 520. (ii) This change applies to a taxpayer that: (A) receives advance payments, as defined in proposed § 1.451-8(b)(1); (B) uses the deferral method described in proposed § 1. 451-8(c); (C) changes the manner in which it recognizes advance payments in revenues in its AFS; and (D) wants to change its method of accounting to use its proposed method of recognizing advance payments in revenues in its AFS for determining the extent to which advance payments are included in income under proposed § 1. 451-8(c).

(iii) This change applies to a taxpayer that: (A) includes amounts in income in accordance with § 451(b); (B) changes the manner in which the item, or portion thereof, is taken into account in revenue in its AFS; and (C) wants to change its method of accounting to use the proposed method of taking into account the item, or portion thereof, in revenue in its AFS for purposes of § 451(b), including, if applicable, allocation of the transaction price to performance obligations under § 451(b) (4).

(iv) This change applies to a taxpayer that: (A) includes amounts in income in accordance with proposed § 1. 451-3; (B) changes the manner in which the item, or portion thereof, is taken into account as revenue in its AFS; and (C) wants to change its method of accounting to use the proposed method of taking into account the item, or portion thereof, in revenue in its AFS for purposes of proposed § 1. 4513, including for purposes of allocating transaction price to performance obligations under proposed § 1. 451-3(g).

(b) Inapplicability (i) Changes relating to Rev. Proc. 2004-34 . This change does not apply to: (A) a taxpayer that uses a present method of accounting for advance payments that is not the deferral method described in section 5. 02(3)(a) of Rev. Proc. 2004-34. For example, this change does not apply

to a taxpayer that uses the full inclusion method under section 5. 01 of Rev. Proc. 2004-34; or (B) a taxpayer that wants to change its method for allocating payments under section 5. 02(4) of Rev. Proc. 2004-34.

(ii) Changes relating to § 451(b), pro- posed § 1.451-3, or proposed § 1.451-8 . This change does not apply to:

(A) a taxpayer whose present method of accounting does not use its AFS for purposes of § 451(b), proposed § 1. 451-3, or proposed § 1. 451-8;

(B) a change in the manner in which the taxpayer identifies contracts or determines the transaction price, including the inclusion and exclusion of variable consideration in the transaction price, under the New Standards, as defined in section 16. 11(1) of this revenue procedure; (C) any change in method of accounting that qualifies under another automatic change described in the List of Automatic Changes provided in this revenue procedure (or any successor); or

(D) with respect to a change described in section 16. 10(1)(a)(ii) of this revenue procedure, a taxpayer whose present method is not the deferral method under proposed § 1. 451-8(c). For example, this change does not apply to a taxpayer that uses the full inclusion method under § 451(c) or the non-AFS deferral method under proposed § 1. 451-8(d).

(c) Restatements . A taxpayer’s restatement of its AFS for financial accounting presentation does not affect the propriety of the taxpayer’s method of accounting for revenue recognized in the prior taxable year(s). For example, if the taxpayer uses the deferral method described in section 5. 02(3)(a) of Rev. Proc. 2004-34 for including advance payments in gross income in accordance with its AFS (even if the AFS for that taxable year is later restated), the taxpayer satisfies the requirement of section 16. 10(1)(a)(i)(B) of this revenue procedure and may change its method of accounting under this section 16. 10 if it is otherwise eligible. (2) Manner of making change and designated automatic accounting method change number

(a) Cut-off basis for certain changes . A change made under section 16. 10(1)(a)(i) or (ii) of this revenue procedure is made on a cut-off basis and applies to items of

income received by the taxpayer on or after the beginning of the year of change. Any advance payments received prior to the year of change are accounted for under the taxpayer’s former method of accounting (that is, according to its former AFS), and any advance payments received in the year of change and in subsequent taxable years are accounted for under the taxpayer’s new method of accounting. A taxpayer that makes a change in allocation for purposes of § 451(c)(4)(D) must allocate any payment allocations prior to the year of change using the taxpayer’s former method of accounting. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) In accordance with § 1. 446-1(e) (3)(ii), the requirement of § 1. 446-1(e) (3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115 in section 3. 07 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, the statement in lieu of a Form 3115 that is permitted under this section 16. 10 is considered a Form 3115 for purposes of the automatic consent procedures of Rev. Proc. 2015-13. However, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived. The statement attached to the taxpayer’s return for the year of change must include the following information:

(i) the designated automatic accounting change number for this change, which is “153;”

(ii) the taxpayer’s name and employer identification (or social security number in the case of an individual) for each applicant as would be provided had a Form 3115 been required; (iii) the year of change (both the beginning and ending dates);

(iv) for each applicant, identify the type of applicable financial statement used by the taxpayer, as defined in applicable guidance. See, as applicable, section 4. 06 of Rev. Proc. 2004-34, § 451(b)(3), proposed § 1. 451-8(b)(2), or proposed §

451-3(c)(1); (v) a detailed and complete description of each type of item affected by the change in revenue recognition and the line number (or schedule) where the affected item is reflected on the federal tax return for the year of change, and if applicable,

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the section 481(a) adjustment for each change; and

(vi) a detailed description of the basis used for revenue recognition (that is, the method the taxpayer uses in its applicable financial statement or how the taxpayer determines amounts earned, as applicable) both before and after the change in the revenue recognition policy for the applicable financial statement.

(c) Concurrent automatic change . A taxpayer may make more than one change under this section 16. 10 on the same statement in lieu of a Form 3115 for the same year of change. The taxpayer must provide all of the information required for each change.

(3) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) Rev. Proc. 2015-13 does not apply to this change.

(4) No audit protection . A taxpayer does not receive audit protection under section 8. 01 of Rev. Proc. 2015-13 in connection with this change. See section 8. 02(2) of Rev. Proc. 2015-13. (5) Special rule – advance payments under Rev. Proc. 2004-34

(a) Background . Under § 446(e), a taxpayer that changes its book method of accounting must secure the Commissioner’s consent before applying its new book method of accounting for tax purposes. See also § 1. 446-1(e)(2)(i). Accordingly, a taxpayer that previously elected to defer advance payments under Rev. Proc. 2004-34 is required to obtain consent under § 446(e) if the taxpayer subsequently changes its book method for the deferred advance payments and wants to use its new AFS in determining the extent to which advance payments are included in gross income under Rev. Proc. 2004-34. The IRS recognizes that some taxpayers took the position that consent under § 446(e) was not required in these circumstances and changed their method of accounting without properly obtaining consent. The safe harbor described below in section 16. 10(5)(b) of this revenue procedure is provided to reduce controversy in this area.

(b) Safe harbor . If before January 10, 2011, a taxpayer: (i) received advance payments, as defined in Rev. Proc. 200434; (ii) used the deferral method described in section 5. 02(3)(a) of Rev. Proc. 2004

34 for including those advance payments in gross income in accordance with its AFS; (iii) changed the manner in which advance payments are recognized in revenues in its AFS; and (iv) used its new AFS method with respect to a timely filed original federal income tax return in determining the amount of advance payments included in gross income under the deferral method of Rev. Proc. 2004-34 without securing the consent of the Commissioner to that change in accordance with § 446(e) and § 1. 446-1(e)(2)(i), the IRS will not assert that the taxpayer’s present method of accounting for advance payments is not a proper deferral method described in section 5. 02(3)(a) of Rev. Proc. 2004-34 solely on the ground that the taxpayer failed to obtain the consent of the Commissioner for that change.

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16. 10 is “153. ” (7) Contact information . For further information regarding a change under this section, contact Justin Grill or Peter E. Ford at (202) 317-7003 (not a toll-free number)..

11 Changes in the timing of recogni- tion of income due to the New Standards

(1) Description of change . On May 28, 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly announced new financial accounting standards for revenue recognition entitled “Revenue from Contracts with Customers (Topic 606)” (New Standards). See FASB Update No. 2014-09, and IASB International Financial Reporting Standard (IFRS) 15. Under the New Standards, a taxpayer generally recognizes revenue for financial accounting purposes when the taxpayer satisfies a performance obligation by transferring a promised good or service to a customer, as described in the New Standards.

(2) Applicability . This change applies to a taxpayer that wants to change its method of accounting for the recognition of income for federal income tax purposes to a method under the New Standards for: (a) identifying performance obligations, (b) allocating transaction price to performance obligations, and/or (c) consider

ing performance obligations satisfied. A taxpayer may request a change under this section 16. 11 only if the taxpayer’s new method of accounting is otherwise permissible for federal income tax purposes and the change in method of accounting is made for the taxable year in which the taxpayer adopts the New Standards for financial accounting purposes. The taxpayer’s allocation of transaction price to performance obligations to comply with the New Standards under this section 16. 11 is deemed to be an allocation based on objective criteria. See section 5. 02(4)(c) of Rev. Proc. 2004-34, 2004-1 C. B. 991, as modified and clarified by Rev. Proc. 201118, 2011-5 I. R. B. 443, and Rev. Proc. 2013-29, 2013-33 I. R. B. 141, and as modified by Rev. Proc. 2011-14, 2011-4 I.R.B. 330. (3) Inapplicability . This change does not apply to:

(a) a change in the manner in which the taxpayer identifies contracts or determines the transaction price, including the inclusion and exclusion of variable consideration in the transaction price, under the New Standards;

(b) a change in method of accounting for recognizing income that is made in a year that is different from the year that the taxpayer adopts the New Standards;

(d) any change in method of accounting that qualifies under another automatic change described in the List of Automatic Changes provided in this revenue procedure (or any successor), even if it is described in section 16. 11(2) of this revenue procedure, and otherwise satisfies the requirements of paragraphs 5. 01(1) (a)-(d) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419 (or any successor). The taxpayer must request such change(s) in method of accounting by applying the automatic change procedures in section 6 of Rev. Proc. 2015-13 (or any successor) and the respective section of Rev. Proc. 2019-43 (or any successor); or

(e) any change in the method of accounting for income from a long-term contract, as defined in § 460(f), unless the long-term contract is excepted from required use of the percentage-of-completion method by § 460(e)(1).

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(4) Time for making change . The change under this section 16. 11 may only be made for a taxable year ending on or before May 10, 2021.

(5) Manner of making change (a) Cut-off basis or § 481(a) adjustment . A taxpayer making a change under this section 16. 11 may implement the change with either a § 481(a) adjustment as provided in sections 7. 02 and 7. 03 of Rev. Proc. 201513, or on a cut-off basis. If the taxpayer implements the change on a cut-off basis, (i) the taxpayer must allocate any payment allocations prior to the year of change using the taxpayer’s former method of accounting, (ii) all changes made under this section 16. 11 must be implemented using a cut-off basis, and (iii) a § 481(a) adjustment is neither permitted nor required. Notwithstanding anything to the contrary in this section 16. 11(5)(a), if a taxpayer is a member of a consolidated group (within the meaning of § 1. 1502-1 (h)), then the member must implement all changes with respect to its intercompany transactions (within the meaning of § 1. 1502-13 (b)(1)(i)) under this section 16. 11 on a cut-off basis and can apply the first two sentences of this section 16. 11(5)(a) to all other transactions. See §

1502-17(b)(2); section 7. 02 of Rev. Proc. 2015-13. (b) Reduced filing requirement . A taxpayer making a change under this section
11 is required to complete only the following information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I; (iv) Part II, all lines except lines 13,16c, and 19; and

(v) Part IV, all lines. For a taxpayer making a change under this section 16. 11 using a § 481(a) adjustment, the statement required for Line 26 of Form 3115 should list a description of each change, the § 481(a) adjustment for each change (or a statement that the change is being made on a cut-off basis) and, if applicable, a description of where the item’s § 481(a) adjustment is reflected on the federal income tax return (line number (or schedule)).

In addition, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived.

(6) Under examination – certain au- dit protection exceptions temporarily inapplicable . For a taxpayer’s first, second, or third taxable year beginning after December 31, 2017, section 8. 02(1) of Rev. Proc. 2015-13 does not apply to a change in method of accounting made under section 16. 11(2) of this revenue procedure if the method of accounting to be used complies with the proposed regulations under § 1. 451-3 and/or § 1. 451-8. However, section 8. 02(1) of Rev. Proc. 2015-13 continues to apply for purposes of determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided in section 7. 03(3)(b) of Rev. Proc. 2015-13.

(7) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13 does not apply to this change for a taxable year ending on or before May 10, 2021.

(8) No ruling on method used . The consent granted under section 9 of Rev. Proc. 2015-13 for a change made under this section 16. 11 is not a determination by the Commissioner that the new method of accounting is a permissible method of accounting and does not create any presumption that the allocation method is a permissible method of accounting under any provision of the Code. Further, the consent granted under section 9 of Rev. Proc. 2015-13 for a change made under this section 16. 11 is not a determination that the amount of income included in taxable income using an allocation method described in the New Standards is correct. The director will ascertain whether the new method of accounting is a permissible method of accounting and whether the allocation method is permissible under the Code (for example, a method that is permitted under § 451).

(9) Concurrent automatic change . A taxpayer that wants to make one or more changes in method of accounting under this section 16.11 may file a single Form 3115 that includes all of the changes, must separately state the § 481(a) adjustment for each change made under this section, and may not net the § 481(a) adjustments with § 481(a) adjustments from other changes.

(10) Designated automatic accounting method change number . The designated automatic accounting method change

number for a change under this section 16. 11 is “231. ” (11) Contact information . For further information regarding a change under this section, contact Peter E. Ford or Jo Lynn Ricks at (202) 317-7003 (not a toll free number)..

12 Changes in the timing of income recognition under § 451(b) or proposed § 1.451-3, and changes relating to advance payments under proposed § 1.451-8

(1) Description of change . This change applies to an accrual method taxpayer with an applicable financial statement (AFS) that wants to make certain changes in method of accounting described in section 16. 12(2) (a) of this revenue procedure for taxable years beginning after December 31, 2017, or, in the case of a specified credit card fee (as defined in proposed § 1.451-3(i)(2)), for taxable years beginning after December 31, 2018. This change also applies to a taxpayer without an AFS that wants to make certain changes in method of accounting described in section 16. 12(2)(b) of this revenue procedure for a taxable year beginning after December 31, 2017. For purposes of this section 16.12, the term AFS is defined under § 451(b)(3), or for a taxpayer making a change to apply proposed § 1. 451-3 or proposed § 1.451-8, the term AFS is defined in proposed § 1. 451-3(c)(1).

(2) Applicability (a) Taxpayer with an AFS . This change applies to a taxpayer with an AFS that:

(i) wants to change to a method of accounting that treats an item of gross income, or portion thereof, as meeting the all events test no later than when such item, or portion thereof, is taken into account as revenue in its AFS under § 451(b) (1)(A);

(ii) is not adopting the New Standards (as defined in section 16.11(1) of this revenue procedure) for the year of change, and wants to allocate the transaction price to performance obligations under § 451(b) (4);

(iii) wants to change to a method of accounting that complies with the proposed regulations under § 1. 451-3 (including a change for a specified credit card fee under proposed §§ 1. 451-3(i) and 1. 12752(l)); or (iv) wants to change to a method of accounting that complies with the proposed regulations under § 1. 451-8(c).

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(b) Taxpayer without an AFS . This change applies to a taxpayer that does not have an AFS and that wants to change to a method of accounting that complies with the proposed regulations under § 1. 4518(d). (3) Inapplicability . This change does not apply to:

(a) a taxpayer that wants to make a change for federal income tax purposes to a method that adopts the New Standards, as provided in section 16. 11 of this revenue procedure (for example, a change to comply with § 451(b)(4), proposed §

451-3(g), or proposed § 1. 451-8(c)(6)); (b) a taxpayer that wants to make a change in method of accounting to a method described in § 451(b)(2);

(c) a taxpayer without an AFS that wants to change to defer income based on earned income under proposed § 1. 4518(d)(4)(ii) determined using the following: (i) a statistical basis if adequate data are available to the taxpayer; or (ii) the use of any other basis that in the opinion of the Commissioner results in a clear reflection of income; or

(d) a taxpayer that wants to make a change in method of accounting for specified fees (as defined in proposed § 1.4513(i)(2)) other than specified credit card fees.

(4) Manner of making change (a) Short Form 3115 . A taxpayer making a change under this section 16. 12 is required to complete only the following information on Form 3115 (Rev. December 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I; (iv) Part II, all lines except lines 13,16c, and 19; and

(v) Part IV, all lines. For a taxpayer making a change under this section 16. 12, the statement required for Line 26 of Form 3115 should list the § 481(a) adjustment(s), and a description of where the § 481(a) adjustment is reflected on the federal income tax return (line number or schedule).

In addition, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, is waived.

(b) Special rules relating to § 481(a) adjustment or cut-off basis

(i) Section 481(a) adjustment period for changes relating to specified credit card fees . In the case of income from a specified credit card fee, the § 481(a) adjustment period for any qualified change in method of accounting described in this section 16. 12(4)(b)(i) is six taxable years (year of change and next five taxable years). For purposes of the preceding sentence, a qualified change in method of accounting is a change in method of accounting for income from a specified credit card fee to a method that is required by § 451(b), as added by section 13221 of the Tax Cuts and Jobs Act (TCJA), Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), for such income, but only for the taxpayer’s first taxable year beginning after December 31, 2018. Section 16. 12(4) (b)(ii) of this revenue procedure may not be used for a change relating to specified credit card fees.

(ii) Cut-off basis or § 481(a) adjust- ment

(A) Cut-off basis or § 481(a) adjust- ment for changes made under section 16.12(2)(a)(i) or (iii) of this revenue pro- cedure . Except as otherwise provided in this section 16. 12(4)(b)(ii), a taxpayer making a change described in section 16. 12(2)(a)(i) or (iii) of this revenue procedure may implement the change with either a § 481(a) adjustment as provided in sections 7. 02 and 7. 03 of Rev. Proc. 2015-13 or on a cut-off basis provided the taxpayer is also making a concurrent method change under section 16. 11 of this revenue procedure. See section 16. 12(8) (b) of this revenue procedure for information on making this concurrent change. A taxpayer described in section 16. 12(4)(c) (i)(B) of this revenue procedure that uses the streamlined procedures provided in section 16. 12(4)(c) of this revenue procedure may not make a change in method of accounting on a cut-off basis. If the taxpayer makes a concurrent change under section 16. 11 of this revenue procedure and implements the change under this section 16. 12(4)(b)(ii) of this revenue procedure on a cut-off basis, (1) the change applies to contracts entered into on or after the beginning of the year of change, (2) all changes made under section 16. 12(2)(a)(i) or (iii) of this revenue procedure must be

implemented using a cut-off basis, and (3) a § 481(a) adjustment is neither permitted nor required. Notwithstanding anything to the contrary in this section 16. 12(4) (b)(ii)(A), if a taxpayer is a member of a consolidated group (within the meaning of § 1. 1502–1(h)), then the member must implement all changes under this section 16. 12 with respect to its intercompany transactions (within the meaning of § 1. 1502–13(b)(1)(i)) under this section 16. 12(4)(b)(ii) on a cut-off basis. (B) Cut-off basis or § 481(a) adjust- ment for changes to use proposed § 1.451- 8(c) . Except as otherwise provided in this section 16. 12(4)(b)(ii), a taxpayer making a change described in section 16. 12(2)(a) (iv) of this revenue procedure may implement the change with either a § 481(a) adjustment as provided in sections 7. 02 and 7. 03 of Rev. Proc. 2015-13 or on a cut-off basis. A taxpayer described in section 16. 12(4)(c)(i)(B) of this revenue procedure that uses the streamlined procedures provided in section 16. 12(4)(c) of this revenue procedure may not make a change in method of accounting on a cutoff basis. If the taxpayer implements the change on a cut-off basis, (1) the change applies to contracts entered into on or after the beginning of the year of change, (2) all changes made under this section 16. 12 to adopt proposed § 1. 451-8(c) must be implemented using a cut-off basis, and (3) a § 481(a) adjustment is neither permitted nor required. Notwithstanding anything to the contrary in this section 16. 12(4) (b)(ii)(B), if a taxpayer is a member of a consolidated group (within the meaning of § 1. 1502–1(h)), then the member must implement all changes to adopt proposed § 1. 451-8(c) with respect to its intercompany transactions (within the meaning of § 1. 1502–13(b)(1)(i)) under this section 16. 12(4)(b)(ii)(B) on a cut-off basis. (c) Streamlined method change proce- dures for certain taxpayers

(i) Applicability . The procedures described in this section 16. 12(4)(c) may be used by a taxpayer to make a change in method of accounting described in section 16. 12(2)(a)(i) or (ii) of this revenue procedure in the taxpayer’s first taxable year beginning after December 31, 2017. The procedures described in this section 16. 12(4)(c) may also be used by a taxpayer to make a change in method of ac

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counting described in section 16. 12(2)(a) (iii), 16. 12(2)(a)(iv), or 16. 12(2)(b) of this revenue procedure in the taxpayer’s first or second taxable year beginning after December 31, 2017. A taxpayer is permitted to use the streamlined method change procedures in this section 16. 12(4)(c) if the taxpayer meets one of the following requirements:

(A) the taxpayer, other than a tax shelter (as defined in § 448(d)(3)), meets the § 448(c) gross receipts test (a “small business taxpayer”). The taxpayer meets the § 448(c) gross receipts test if the taxpayer has average annual gross receipts for the three prior taxable years of $25,000,000 or less (adjusted for inflation); or

(B) the taxpayer is making one or more changes under section 16. 12(2) of this revenue procedure, and the § 481(a) adjustment required by each of the changes is zero. A taxpayer making more than one change in method of accounting under section 16. 12(2) of this revenue procedure is not permitted to net the § 481(a) adjustments to determine if the taxpayer meets the requirements to use the streamlined method change procedures. See section 16. 12(8)(a) of this revenue procedure for more information on making a permitted concurrent change.

(ii) Inapplicability . In addition to the inapplicability rules provided in section 16. 12(3) of this revenue procedure, a taxpayer may not use these streamlined method change procedures if the taxpayer wants to make a concurrent automatic change described in section 16. 12(8)(b) of this revenue procedure.

(iii) No Form 3115 required . In accordance with § 1. 446-1(e)(3)(ii), the requirement of § 1.446-1(e)(3)(i) to file a Form 3115 is waived for a taxpayer making a change in method of accounting under this section 16. 12 using the streamlined method change procedures. Thus, a taxpayer using the streamlined method change procedures is not required to file a Form 3115 and is not required to attach a separate statement when making a change under this section 16. 12.

(5) Certain eligibility rules inapplica- ble

(a) In general . Except as otherwise provided in this section 16. 12(5), the eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13 does not apply to a change

under this section 16. 12 for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017.

(b) Changes related to specified cred- it card fees . For a change related to income from a specified credit card fee, the eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13 does not apply to this change for a taxpayer’s first, second, or third taxable year beginning after December 31, 2018.

(c) Changes made under the stream- lined method change procedures . For a change made using the streamlined procedures of section 16. 12(4)(c) of this revenue procedure for a change in method of accounting described in section 16. 12(2) (a)(i) or (ii) of this revenue procedure, the eligibility rule in section 5. 01(f) of Rev. Proc. 2015-13 does not apply to this change for a taxpayer’s first taxable year beginning after December 31, 2017. For a change made using the streamlined procedures of section 16. 12(4)(c) of this revenue procedure for a change in method of accounting described in section 16. 12(2) (a)(iii), 16. 12(2)(a)(iv), or 16. 12(2)(b) of this revenue procedure, the eligibility rule in section 5. 01(f) of Rev. Proc. 2015-13 does not apply to this change for the taxpayer’s first or second taxable year beginning after December 31, 2017.

(6) Audit protection (a) Streamlined procedures . A taxpayer making a change in method of accounting under this section 16. 12 using the streamlined method change procedures provided in section 16. 12(4)(c) of this revenue procedure does not receive audit protection under section 8. 01 of Rev. Proc. 2015-13.

(b) Taxpayers under examination (i) In general – certain audit protection exception temporarily inapplicable . Except as otherwise provided in this section 16.12(6)(b), for a taxpayer’s first, second, or third taxable year beginning after December 31, 2017, the audit protection rule in section 8. 02(1) of Rev. Proc. 2015-13 does not apply to a change in method of accounting made under section 16. 12(2) (a)(iii) or (iv) of this revenue procedure. However, section 8. 02(1) of Rev. Proc. 2015-13 continues to apply for purposes of determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided in section 7. 03(3)(b) of Rev. Proc. 2015-13. This paragraph applies to a

taxpayer under examination that does not use the streamlined procedures described in section 16. 12(4)(c) of this revenue procedure.

(ii) Changes related to specified credit card fees . For a change related to income from a specified credit card fee, for a taxpayer’s first, second, or third taxable year beginning after December 31, 2018, the audit protection rule in section 8. 02(1) of Rev. Proc. 2015-13 does not apply to a taxpayer that makes a change in method of accounting described in section 16. 12(2) (a)(iii) of this revenue procedure. However, for a taxpayer’s second or third taxable year beginning after December 31, 2018, section 8. 02(1) of Rev. Proc. 2015-13 continues to apply for purposes of determining the § 481(a) adjustment period for a positive § 481(a) adjustment provided in section 7. 03(3)(b) of Rev. Proc. 2015-13.

(7) No ruling on method used . The consent granted under section 9 of Rev. Proc. 2015-13 for a change made under this section 16. 12 for a change in method of accounting described in section 16. 12(2) (a)(i) or (ii) of this revenue procedure is not a determination by the Commissioner that the new method of accounting is a permissible method of accounting under § 451 and does not create a presumption that the allocation method used under § 451(b) (4) is a permissible method of accounting. The director may ascertain whether the new method of accounting is a permissible method of accounting under § 451 and whether the allocation method is permissible under § 451(b)(4).

(8) Concurrent automatic changes (a) In general . A taxpayer that wants to make one or more concurrent changes in method of accounting under this section 16.12 may file a single Form 3115 that includes all of the changes, must separately state the § 481(a) adjustment for each change, if applicable, and may not net the § 481(a) adjustment for a change with the § 481(a) adjustment from another change. However, a taxpayer that makes a concurrent change in method of accounting to allocate transaction price to performance obligations under section 16. 12(2)(a)(ii), (iii), or (iv) of this revenue procedure is required to make the allocation change before a change to a method under § 451(b) (1)(A), the AFS income inclusion rule in proposed § 1. 451-3, or the deferral meth

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od described in proposed § 1. 451-8(c), as applicable. For example, a taxpayer that makes a change under both section 16. 12(2)(a)(i) and (2)(a)(ii) of this revenue procedure is required to implement the change under section 16. 12(2)(a)(ii) of this revenue procedure before making the change under section 16. 12(2)(a)(i) of this revenue procedure.

(b) Concurrent change in the timing of recognition of income due to the New Standards . Except as provided in section 16. 12(4)(c)(i) of this revenue procedure, a taxpayer that wants to make a change under section 16. 12(2)(a)(i), (iii), or (iv) of this revenue procedure and a change under section 16. 11 of this revenue procedure for the same year of change may file a single Form 3115 for both changes and enter the designated automatic accounting method change number for both changes on the appropriate line of Form 3115. A taxpayer that makes both changes is required to make the change under section 16. 11 of this revenue procedure before making the change under this section 16. 12(2)(a)(i), (iii), or (iv), as applicable. (9) Designated automatic account- ing method change number . The designated automatic method change number for a change under section 16. 12(2)(a) (i) or (ii) of this revenue procedure is “239. ” The designated automatic method change number for a change under section 16. 12(2)(a)(iii), (iv), or 16. 12(2)(b) of this revenue procedure (that is, a change to comply with the proposed regulations under § 1. 451-3 or § 1. 451-8) is “242. ”

(10) Contact information . For further information regarding a change under this section, contact Peter E. Ford or Jo Lynn Ricks at (202) 317-7003 (not toll-free number). For further information regarding a change under this section for OID, contact Charles W. Culmer at (202) 3174528 (not a toll-free number).