SECTION 19. SPECIAL RULES FOR

LONG-TERM CONTRACTS (§ 460).

01 Small business taxpayer exceptions from requirement to account for certain long-term contracts under § 460 or to capitalize costs under § 263A for certain home construction contracts.

(1) Description of Change . This change applies to a taxpayer that, beginning in the year of change, qualifies as a small business taxpayer, as defined in section 15. 18(5)(a) of this revenue procedure, and (a) wants to change its method of accounting for exempt long-term construction contracts described in § 460(e)(1)(B) from the percentage-of-completion method of accounting described in § 1. 460-4(b) to an exempt contract method of accounting described in § 1. 460-4 (c), or (b) chooses to stop capitalizing costs under § 263A for home construction contracts defined in § 460(e)(1)(A). (2) Applicability . This change applies to exempt long-term contracts described in § 460(e)(1) that are entered into after December 31, 2017, in taxable years ending after December 31, 2017.

(3) Inapplicability . A taxpayer can use a method of accounting for its exempt long-term contracts that is different from the method used for contracts that are not exempt. Thus, a taxpayer must use the percentage-of-completion method of accounting for nonresidential long-term construction contracts entered into in the first taxable year that the taxpayer fails the § 448(c) gross receipts test, but must continue to use its exempt contract method of ac

counting for its existing exempt long-term construction contracts. Similarly, in the taxable year that a taxpayer first meets the § 448(c) gross receipts test, the taxpayer can use a permissible exempt contract method of accounting for long-term construction contracts it expects to complete within two years. Rev. Rul. 92-28, 1992-1 C. B. 153. Accordingly, only a taxpayer who previously adopted the percentage-of-completion method of accounting for exempt long-term construction contracts and wants to change to another permissible exempt contract method of accounting is required to request consent to change under this section 19. 01. Similarly, a taxpayer that meets the § 448(c) gross receipts test and enters into a home construction contract that it expects to complete within two years requires consent to change its method of accounting to not capitalize costs under § 263A only if the taxpayer has previously applied § 263A to home construction contracts exempt from the capitalization requirement under § 460(e)(1).

(4) Manner of making change . This change is made on a cut-off basis and applies only to long-term construction contracts entered into after December 31, 2017, in taxable years ending after December 31, 2017. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(5) Certain eligibility rule temporar- ily 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 this change for a taxpayer’s first, second, or third taxable year ending after December 31, 2017. (6) Reduced filing requirement . A taxpayer is required to complete only the following information on Form 3115 (Rev. December 2018) to make this change:

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

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

(c) Part I; (d) Part II, all lines except line 16; (e) Part IV, line 25; and (f) Schedule D, Part I. (7) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 19. 01 is “236. ”

(8) Contact information . For further information regarding changes under this section, contact Innessa Glazman at (202) 317-7006 (not a toll-free number).