SECTION 32. SHORT-TERM

OBLIGATIONS (§ 1281).

01 Interest income on short obliga- tions

(1) Description of change (a) This change applies to a taxpayer that wants to change its method of accounting to comply with § 1281 for interest income on short-term obligations.

(b) Under § 1281, a holder of certain short-term obligations, including a bank as defined in § 581, must include in gross income any accrued interest income on such obligations, regardless of the holder’s overall method of accounting. Section 1281 applies to all types of interest income, including acquisition discount, original issue discount (OID), and stated interest. See S. Rep. No. 99-313, 99 ^th Cong., 2d Sess. 903 (1986), 1986-3 (Vol. 3) C. B. 903.

(c) Section 1283(a)(1) generally defines a short-term obligation as any bond, debenture, note, certificate, or other evidence of indebtedness that matures in one year or less from its issue date.

(d) Under §§ 1281(a) and 1283(c), a holder of a short-term obligation subject to § 1281 must include in gross income an amount equal to the sum of the daily portions of the acquisition discount or OID, whichever is applicable, on the obligation for each day during the taxable year that the obligation is held by the holder. See § 1283(b), as modified by § 1283(c), to determine the daily portions of acquisition discount or OID. In addition, § 1281(a) requires the holder to include in gross income any stated interest that is payable on the short-term obligation (other than stated interest taken into account to determine the amount of the acquisition discount or OID) as it accrues.

(2) Section 481(a) adjustment period . A taxpayer must take the entire § 481(a) adjustment into account in computing taxable income for the year of change.

(3) Designated automatic accounting method change number . The designat

ed automatic accounting method change number for a change under this section 32. 01 is “74. ” (4) Contact information . For further information regarding a change under this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number)..

02 Stated interest on short-term loans of cash method banks

(1) Description of change . This change applies to a bank that uses the cash receipts and disbursements (cash) method of accounting as its overall accounting method and that wants to change its method of accounting from accruing stated interest on short-term loans made in the ordinary course of business to using the cash method for that interest. For example, see Se- curity State Bank v. Commissioner, 214 F. 3d 1254 (10 ^th Cir. 2000), aff’g 111 T. C. 210 (1998), acq ., 2001-1 C. B. xix; and Se- curity Bank Minnesota v. Commissioner, 994 F. 2d 432 (8 ^th Cir. 1993), aff’g 98 T. C. 33 (1992), in which the courts held that § 1281 does not apply to short-term loans made by a cash method bank in the ordinary course of its business.

(2) 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. (3) Section 481(a) adjustment period . A taxpayer making this change must take the entire § 481(a) adjustment into account in computing taxable income for the year of change.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 32. 02 is “75. ” (5) Contact information . For further information regarding a change under this section, contact William E. Blanchard at (202) 317-3900 (not a toll-free number).

EFFECTIVE DATE .

01 In general . Except as otherwise provided under this EFFECTIVE DATE section, this revenue procedure is effective for a Form 3115 filed on or after November 8, 2019, for a year of change ending on or after March 31, 2019, that is filed under the automatic change procedures of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, as clarified and modified by Rev. Proc. 2015-33,

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2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2017-59, 2017-48 I. R. B. 543, and by section 17. 02(b) and (c) of Rev. Proc. 2016-1, 2016-1 I. R. B. 1..

02 Transition rules . The following transition rules apply:

(1) Limited time period to convert a Form 3115 filed under the non-auto- matic change procedures in Rev. Proc. 2015-13 . If before November 8, 2019, a taxpayer properly filed a Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13 requesting the Commissioner’s consent for a change in method of accounting described in this revenue procedure, and the Form 3115 is pending with the national office on November 8, 2019, the taxpayer may choose to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 if the taxpayer is otherwise eligible to use this revenue procedure and the automatic change procedures in Rev. Proc. 201513. The taxpayer must notify the national office contact person (if unknown, see section 9. 08(6) of Rev. Proc. 2019-1, 2019-1 I. R. B. 1, 50-51 (or successor)) for the Form 3115 of the taxpayer’s intent to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 before the later of (a) December 9, 2019, or (b) the issuance of a letter ruling granting or denying consent for the change. The notification should indicate that the taxpayer chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 2015-13. If the taxpayer timely notifies the national office that it chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 201513, the national office will send a letter to the taxpayer acknowledging its request and will return the user fee submitted with the Form 3115.

A taxpayer converting a Form 3115 to the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting described in this revenue procedure must resubmit a Form 3115 that conforms to the automatic change procedures, with a copy of the national office letter sent acknowledging the taxpayer’s request attached, to the IRS in Ogden, UT by the earlier of (a) the

30 ^th calendar day after the date of the national office’s letter acknowledging the taxpayer’s request, or (b) the date the taxpayer is required to file the duplicate copy of the Form 3115 under SECTION 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13. See SECTION 6. 03(3) of Rev. Proc. 2015-13 regarding additional required copies of Form 3115.

For purposes of the eligibility rules in SECTION 5 of Rev. Proc. 2015-13, the duplicate copy of the timely resubmitted Form 3115 will be considered filed as of the date the taxpayer originally filed the converted Form 3115 under the non-automatic change procedures in Rev. Proc. 2015-13. This paragraph (1) does not extend the date the taxpayer must file the original (converted) Form 3115 under SECTION 6. 03(1)(a)(i)(A) of Rev. Proc. 2015-13. A Form 3115 filed under the non-automatic change procedures in Rev. Proc. 2015-13 before November 8, 2019, for a change in method of accounting described in this revenue procedure, will be disregarded for purposes of the prior five year change rules in SECTIONS 5. 04 and 5. 05 of Rev. Proc. 2015-13 if the taxpayer converts the Form 3115 pursuant to this paragraph (1).

(2) Forms 3115 for changes in methods of accounting that can no longer be filed under the automatic change procedures . Except as provided in subsection . 02(2) (a) of this EFFECTIVE DATE section, the following transition rules apply to the changes in methods of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13 because of changes made in this revenue procedure. Examples of such changes in methods of accounting are described in subsection . 01(3), (4), and (7) of the SIGNIFICANT CHANGES section of this revenue procedure.

(a) If before November 8, 2019, a taxpayer properly filed the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer may make that change in method of accounting under the automatic change proce

dures in Rev. Proc. 2015-13 for the year of change.

(b) If before November 8, 2019, a taxpayer did not properly file the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer must make that change in method of accounting under the non-automatic change procedures in Rev. Proc. 2015-13. Notwithstanding § 1. 446-1(e)(3)(i), the taxpayer may file a Form 3115 to request the Commissioner’s consent to change the method of accounting under the non-automatic change procedures in Rev. Proc. 2015-13 for the taxpayer’s last taxable year ending before November 8, 2019, on or before the due date of the federal income tax return for that taxable year. Solely for purposes of this paragraph (2)(b), the due date of the taxpayer’s federal income tax return includes extensions, notwithstanding that the taxpayer may not have extended the due date.

EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure amplifies and modifies Rev. Proc. 2018-31, 2018-22 I. R. B. 637. Rev. Proc. 2018-31, as amplified and modified is superseded in part. The second sentence in the subsection . 01 under the EFFECT ON OTHER DOCUMENTS section of Rev. Proc. 2018-31 remains in effect (that is, the second sentences in sections 14. 01 and 14. 02, and sections 14. 04, 14. 05, 14. 06, and 14. 07 of Rev. Proc. 2011-14, 2011-4 I. R. B. 330, remain in effect). All other sections of Rev. Proc. 2018-31 are superseded. .

02 Rev. Proc. 2011-46, 2011-42 I. R. B. 518, is modified as follows: (1) Section 5.02(3)(a) is modified to remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences in its place:

(a) In accordance with § 1. 446-1(e)(3) (ii), the requirement under § 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

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of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, the statement in lieu of a Form 3115 that is permitted under this paragraph 5. 02(3) (a) is considered a Form 3115 for purposes of the automatic consent procedures in 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.

(2) Section 5.03(2)(a) is modified to remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences in its place:

(a) In accordance with § 1. 446-1(e)(3) (ii), the requirement under § 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, the statement in lieu of a Form 3115 that is permitted under this paragraph 5. 03(2)(a) is considered a Form 3115 for purposes of the automatic consent procedures in 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..

03 Rev. Rul. 2004-62, 2004-1 C. B. 1072, is modified to remove the second sentence in the CHANGE IN METHOD OF ACCOUNTING section and to substitute the following new two sentences in its place:

A taxpayer that wants to change its method of accounting to comply with this revenue ruling must follow the automatic change procedures in Rev. Proc. 2015-13, 2015-5 I. R. B. 419, (or successor) if the taxpayer is eligible to request such consent under the automatic change procedures therein. The eligibility rules in section 5. 01(1) of Rev. Proc. 2015-13 (or successor) apply to a change in method of accounting described in section 3. 04 of Rev. Proc. 2019-43, 2019-48 I. R. B. 1107 (or successor). .

04 Rev. Rul. 2000-7, 2000-9 C. B. 712, is modified to remove the fourth sentence of the paragraph in the APPLICATION section and to substitute the following new fourth sentence:

A taxpayer that wants to change its method of accounting to conform with the holding in this revenue ruling must

follow the automatic change procedures in Rev. Proc. 2015-13, 2015-5 I. R. B. 419, (or successor) if the taxpayer is eligible to request such consent under the automatic change procedures therein, except that the eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13 (or successor) does not apply to a change described in section 11. 03 of Rev. Proc. 2019-43, 2019-48 I. R. B. 1107 (or successor). .

05 Rev. Rul. 2000-4, 2000-1 C. B. 331, is modified to remove the second sentence of the paragraph in the APPLICATION section, and to substitute the following two new sentences in that paragraph in its place:

A taxpayer that wants to change its method of accounting to conform with the holding in this revenue ruling must follow the automatic change procedures in Rev. Proc. 2015-13, 2015-5 I. R. B. 419, (or successor) if the taxpayer is eligible to request such consent under the automatic change procedures therein. The eligibility rules in section 5. 01(1) of Rev. Proc. 2015-13 (or successor) apply to a change in method of accounting under section 3. 02 of Rev. Proc. 2019-43, 2019-48 I. R. B. 1107 (or successor). .

06 Rev. Proc. 2007-48, 2007-2 C. B. 110, is modified to remove section 5.06(1) and to substitute it with the following sentence:

The eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, (or successor) does not apply to a change in method of accounting described in section 5. 06 of Rev. Proc. 2007-48, and made under section 22. 09 of Rev. Proc. 201943, 2019-48 I. R. B. 1107 (or successor). . 07 Rev. Proc. 2007-16, 2007-1 C. B. 358, is modified as follows: (1) The second sentence in section 4. 01 is modified by substituting “and Rev. Proc. 2015-13, 2015-5 I. R. B. 419” for “and, as applicable, Rev. Proc. 97-27 or Rev. Proc. 2002-9. ” (2) The first sentence in section 4.02 is modified by:

(a)Substituting “the non-automatic change or automatic change procedures of Rev. Proc. 2015-13” for “Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable,”; and

(b) Substituting “(as defined in section 3. 19 of Rev. Proc. 2015-13)” for “(as defined in section 5.02(2) of Rev. Proc. 97

27 or section 5. 02 of Rev. Proc. 2002-9, as applicable)”.

(c) Section 4.03 is modified by substituting “Rev. Proc. 2015-13,” for “Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable,”.

PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. S. C. 3507) under control number 15451551. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collections of information in this revenue procedure are in sections 3, 5, 6, 7, 8, 9, 11, 12, 15, 16, 17, 18, 20, 21, 22, 23, 24, 25, 26, 29, 30, and 31. This information is necessary and will be used to determine whether the taxpayer properly changed to a permitted method of accounting. The collections of information are required for the taxpayer to obtain consent to change its method of accounting. The likely respondents are the following: individuals, farms, business or other for-profit institutions, nonprofit institutions, and small businesses or organizations.

The estimated total annual reporting and/or recordkeeping burden is 34,279 hours.

The estimated annual burden per respondent/recordkeeper varies from 1/6 hour to 8 ½ hours, depending on individual circumstances, with an estimated average of 1 ¼ hours. The estimated number of respondents is 28,046. The estimated annual frequency of responses is on occasion.

SIGNIFICANT CHANGES

.01 Significant changes made by this revenue procedure to the List of Automatic Changes in Rev. Proc. 2018-31 include:

(1) Section 6. 03, relating to a change for sale, lease, or financing transactions, is modified to provide that a change in method of accounting for a transaction entered into before the beginning of the year of

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change is eligible to be made under the automatic change procedures of Rev. Proc. 2015-13 with a § 481(a) adjustment and a statement with the name of the counterparty instead of the counterparty representation is required to be attached to the Form 3115. Section 6.03 also is modified to provide that the audit protection rules in section 8 of Rev. Proc. 2015-13 apply, but ruling protection is not provided on the characterization of any transaction as a lease, sale, or financing transaction;

(2) Section 6. 08, relating to a change for tenant construction allowances, is modified to provide that a change in method of accounting for an existing lease is eligible to be made under the automatic change procedures of Rev. Proc. 2015-13 with a § 481(a) adjustment and a statement with the name of the counterparty instead of the counterparty representation is required to be attached to the Form 3115. Section 6.08 also is modified to provide that the audit protection rules in section 8 of Rev. Proc. 2015-13 apply, but ruling protection is not provided on whether the taxpayer has, or does not have, a depreciable interest in the property subject to the tenant construction allowances for federal income tax purposes;

(3) The following sections are modified to remove both paragraph (2)(b)(i), relating to the temporary waiver of the eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13, and paragraph (2)(b)(ii), relating to the temporary waiver of the eligibility rules in section 5. 01(1)(d) and (f) of Rev. Proc. 2015-13 for a taxpayer making both a change under section 6. 12, 6. 13, 6. 14, or 6. 15, as applicable, and a change under section 6. 01 of Rev. Proc. 2018-31 on a single Form 3115 for the same asset for the same year of change, because these paragraphs are obsolete:

(a) Section 6. 12, relating to a change from a permissible to a permissible meth

od of accounting for depreciation of MACRS property;

(b) Section 6. 13, relating to a change for disposing of a building or a structural component or disposing of a portion of a building (including its structural components) to which the partial disposition rule in § 1. 168(i)-8(d)(1) applies;

(c) Section 6. 14, relating to a change for disposing of § 1245 property or a depreciable land improvement or disposing of a portion of § 1245 property or a depreciable land improvement to which the partial disposition rule in § 1. 168(i)-8(d) (1) applies; and

(d) Section 6. 15, relating to a change for disposing of an asset subject to a general asset account election under § 168(i) (4) and the regulations thereunder.

(4) Section 11. 08, relating to a change under §§ 1. 162-3, 1. 162-4, 1. 263(a)-1, 1.263(a)-2, or 1.263(a)-3, is modified to remove paragraph (2), relating to the temporary waiver of the eligibility rules in section 5. 01(1)(d) and (f) of Rev. Proc. 2015-13, because this paragraph is obsolete;

(5) Section 16. 07, relating to changes for advance payments, and section 20. 10, relating to changes for gift cards issued as a refund for returned goods, are modified to remove changes in methods of accounting under § 1. 451-5 because § 1. 451-5 was removed by T. D. 9870;

(6) Section 16. 12, relating to changes in the timing of income recognition, is modified to permit taxpayers without an applicable financial statement to: (a) use the streamlined method change procedures in section 16. 12(4)(c)(i)(B) to make a change in method of accounting to comply with proposed § 1. 451-8(d) when the § 481(a) adjustment required by the change is zero; and (b) make a change under this section to defer income based on earned income under proposed § 1. 451-8(d)(4)

(ii) determined using a straight line ratable basis over the term of the agreement;

(7) Section 22. 16, relating to certain changes made by a taxpayer using the retail inventory method, is modified to remove the language in paragraph (2), relating to the temporary waiver of the eligibility rule in section 5. 01(1)(f) of Rev. Proc. 2015-13, because it is obsolete; and

(8) Section 26. 04, relating to a change in basis of computing reserves under § 807(f), is modified to make several changes in response to comments and to include a reference to § 807(f)(2), which generally provides that if a taxpayer is no longer a life insurance company, the taxpayer must include the remaining balance of any § 481(a) adjustment in the preceding taxable year.

DRAFTING INFORMATION

The principal author of this revenue procedure is Charles Magee of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Bruce Chang at (202) 317-7005 (not a toll-free number).

For further information regarding a specific change in method of accounting in this revenue procedure, contact the individual listed in the “Contact Person(s)” section located at the end of each section of the revenue procedure (numbers are not toll-free) or see the CONTACT LIST at the end of this revenue procedure. The contact person is with one of the following Offices of Associate Chief Counsel: Corporate (CORP), Financial Institutions and Products (FI&P), Income Tax & Accounting (IT&A), International (INTL), Passthroughs and Special Industries (P&SI), or Employee Benefits, Exempt Organizations, and Employment Taxes (EEE).

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LIST OF AUTOMATIC CHANGES CONTACT LIST

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06 Section 1. 42-1T(b) of the Temporary Income Tax Regulations provides that a state’s population for any calendar year is determined by reference to the most recent census estimate of the resident population of the state released by the Bureau of the Census before the beginning of the calendar year for which the state’s housing credit ceiling is set. .

07 Section 42(l)(3) provides that each state or local housing credit agency (Agency) that allocates a housing credit dollar amount to any building for any calendar year shall submit to the Secretary (at the time and in the manner as the Secretary shall prescribe) an annual report specifying the housing credit dollar amount allocated to each building for that year and sufficient information to identify each building and the taxpayer(s) associated with the building. Agencies file Form 8610, Annual Low-Income Housing Credit Agencies Report, with the Service to fulfill their obligations under § 42(l)(3). .

08 The general instructions to Form 8610 require that if a state has multiple Agencies, the Agencies must coordinate to file with the Service a single Form 8610 for the state. For each state, there is one Agency responsible for filing the Form 8610 with the Service (Filing Agency). Section 1. 42-1T(d)(8)(ii) provides that this single completed Form 8610, with the appropriate attachments, must be filed not later than the 28th day of the second calendar month after the close of the calendar year in which a housing credit dollar amount was allocated..

09 The information provided on Form 8610 is used to determine the prior calendar year’s unused housing credit car

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability

(Also: Part I, § 42; § 1.42-14.)