SECTION 7. RESEARCH AND

EXPERIMENTAL EXPENDITURES (§ 174).

01 Changes to a different method or different amortization period

(1) Description of change (a) This change applies to a taxpayer that wants to change the treatment of expenditures that qualify as research and experimental expenditures under § 174.

(b) Section 174 and the regulations thereunder provide the specific rules for changing a method of accounting under § 174 for research and experimental expenditures. Under § 174, a taxpayer may treat research and experimental expenditures that are paid or incurred by the taxpayer during the taxable year in connection with the taxpayer’s trade or business

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as expenses under § 174(a) or as deferred expenses amortizable ratably over a period of not less than 60 months under § 174(b). Pursuant to § 1. 174-1, research and experimental expenditures that are not treated as expenses or deferred expenses under § 174 must be treated as a charge to capital account. Further, § 1. 174-1 provides that the expenditures to which § 174 applies may relate either to a general research program or to a particular project. Finally, §§ 1. 174-3(a) and 1. 174-4(a)(5) provide that in no event will a taxpayer be permitted to apply one method as to part of the expenditures relative to a particular project and apply a different method to the balance of the expenditures relating to the same project for the same taxable year.

(c) If a taxpayer has not treated research and experimental expenditures as expenses under § 174(a), § 174(a)(2) (B) and § 1. 174-3(b)(2) provide that the taxpayer may, with consent, adopt the expense method at any time.

(d) If a taxpayer has treated research and experimental expenditures as expenses under § 174(a), § 174(a)(3) and § 1. 174-3(b)(3) provide that the taxpayer may, with consent, change to a different method of treating research and experimental expenditures.

(e) If a taxpayer has treated research and experimental expenditures as deferred expenses under § 174(b), § 174(b)(2) and § 1. 174-4(b)(2) provide that the taxpayer may, with consent, change to a different method of treating research or experimental expenditures or to a different period of amortization for deferred expenses.

(2) Applicability (a) In general . This change applies to any taxpayer that is changing:

(i) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a) to treating such expenditures as deferred expenses under § 174(b), or vice versa ;

(ii) to a different period of amortization for research and experimental expenditures for a particular project or projects that are being treated as deferred expenses under § 174(b);

(iii) from treating research and experimental expenditures for a particular project or projects as expenses under § 174(a) or deferred expenses under § 174(b) to

treating such expenditures as a charge to capital account, or vice versa; or

(iv) from treating research and experimental expenditures under any provision of the Code other than § 174 to treating such expenditures under § 174 and the regulations thereunder.

(b) Inapplicability . This change does not apply to:

(i) a change in the treatment of computer software costs under Rev. Proc. 200050, 2000-2 C.B. 601, as modified by Rev. Proc. 2007-16, 2007-1 C. B. 358 (but see section 9 of this revenue procedure for making that change); or

(ii) a change in the treatment of Year 2000 costs under Rev. Proc. 97-50, 1997-2 C. B. 525.

(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, is not applicable to this change. (4) Manner of making change (a) This change is made on a cut-off basis and applies to all research and experimental expenditures paid or incurred for a particular project or projects on or after the beginning of the year of change. See § 174(b)(2), and §§ 1. 174-3(a), 1. 174-3(b) (2), and 1. 174-4(a)(5) for more information regarding a cut-off basis. Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) The requirement under §§ 1. 1743(b)(2), 1. 174-3(b)(3), and 1. 174-4(b)(2) to file an application (that is, a Form 3115) no later than the end of the first taxable year in which the different method or different amortization period is to be used is waived for this change. However, see section 6.03 of Rev. Proc. 2015-13 for filing requirements applicable to a change under this section 7. 01.

(c) The consent granted under section 9 of Rev. Proc. 2015-13 satisfies the consent required under §§ 174(a)(2)(B), 174(a) (3), and 174(b)(2), and §§ 1. 174-3(b)(2),

1. 174-3(b)(3), and 1. 174-4(b)(2). (5) Additional requirement . A taxpayer must attach to its Form 3115 a written statement providing:

(a) the information required in § 1. 1743(b)(2) if the taxpayer is changing to treating research and experimental expenditures as expenses under § 174(a);

(b) the information required in § 1. 1743(b)(3) if the taxpayer is changing from

treating research and experimental expenditures as expenses under § 174(a); or

(c) the information required in § 1. 1744(b)(2) if the taxpayer is changing from treating research and experimental expenditures as deferred expenses under § 174(b) or is changing to a different period of amortization for research and experimental expenditures being treated as deferred expenses under § 174(b).

(6) 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. (7) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 7. 01 is “17. ” (8) Contact information . For further information regarding a change under this section, contact Elizabeth Binder at (202) 317-7005 (not a toll-free number).