SECTION 32. SHORT-TERM

OBLIGATIONS (§ 1281)

.01 Interest income on short-term obligations .

(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.

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(3) Designated automatic accounting method change number . The designated 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 Security 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 Security 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 June 15, 2023, for a year of change ending on or after October 31, 2022, 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, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2021-34, 2021-35 I.R.B. 337, Rev. Proc. 2021-26, 2021-22 I.R.B. 1163, Rev. Proc. 2017-59, 2017-48 I.R.B. 543, and 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-automatic change procedures in Rev. Proc. 2015-13 . If, before June 15, 2023, 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 June 15, 2023, 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, fax the notification to 855-574-9031 or send the notification to the attention of Control Clerk, CC:ITA, Room 4512 at the address specified in section 9.08(6) of Rev. Proc. 2023-1, 2023-1 I.R.B. 1 (or its 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) July 17, 2023, 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. 2015-13, 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 June 15, 2023, 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(6), (7), (10), and (11) of the SIGNIFICANT CHANGES section of this revenue procedure.

(a) If before June 15, 2023, 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,

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the taxpayer may continue to make that change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 for the year of change. The taxpayer is not required to resubmit a duplicate copy of the Form 3115 to the IRS in Ogden, UT under section 6.03(1) (a)(i)(B) of Rev. Proc. 2015-13.

(b) If before June 15, 2023, 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 § 1.4461(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 June 15, 2023, 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.

(3) Transition rule for taxpayers that properly filed the duplicate copy of Form 3115 before June 15, 2023, for a change that continues to qualify under the auto- matic change procedures.

(a) Option to implement change as described in Rev. Proc. 2022-14 or under this revenue procedure . If, before June 15, 2023, a taxpayer properly filed the duplicate copy of the Form 3115, pursuant to section 6.03(1)(a)(i)(B) of Rev. Proc. 2015-13, requesting consent to change its method of accounting for a change described in Rev. Proc. 2022-14, 2022-7 I.R.B. 502, as modified prior to June 15, 2023, that continues to be eligible for the automatic change procedures in this revenue procedure, but has not filed its timely filed (including extensions) original Federal income tax return for the year of change implementing the change, the taxpayer may choose to implement the change as described in either Rev. Proc. 2022-14 or this revenue procedure, but not both.

(b) Procedures to implement change as described Rev. Proc. 2022-14. A taxpayer who meets the requirements of paragraph (3)(a) and chooses to implement the change as described in Rev� Proc� 2022-14 is not required to resubmit a duplicate copy of the Form 3115 to the IRS in Ogden, UT� However, if requested by the Director, the taxpayer must provide written substantiation that the duplicate copy of the Form 3115 was filed before June 15, 2023, pursuant to section 6�03(1)(a)(i)(B) of Rev� Proc� 2015-13� Such written substantiation may include proof of mailing or faxing, as appropriate, of the duplicate copy of the Form 3115� (c) Procedures to implement the change as described in this revenue procedure. A taxpayer who meets the requirements of paragraph (3)(a) and chooses to implement the change as described in this revenue procedure, must resubmit a duplicate copy (with signature) of the Form 3115 to the IRS in Ogden, UT for the year of change under this revenue procedure, pursuant to the requirements of section 6�03(1)(a)(i)(B) of Rev� Proc� 2015-13� The resubmitted duplicate copy must include the following statement on the top of page 1 of the Form 3115: “FILED UNDER REV� PROC� 2023-24, AS PROVIDED IN SECTION �02(3)(c) OF THE EFFECTIVE DATE SECTION OF REV� PROC� 2023-24”� For purposes of the eligibility rules in section 5 of Rev� Proc� 2015-13, the duplicate copy of the resubmitted Form 3115 will be considered filed as of the date the taxpayer originally filed the duplicate copy of the Form 3115 requesting the change under Rev� Proc� 2022-14� This paragraph (3) (c) does not extend the date the taxpayer must file either the resubmitted duplicate copy or original Form 3115 under section 6�03(1)(a) of Rev� Proc� 201513� If requested by the Director, the taxpayer must provide written substantiation that the duplicate copy of the Form 3115 requesting the change under Rec� Proc. 2022-14 was filed before June 15, 2023, pursuant to section 6�03(1)(a)(i) (B) of Rev� Proc� 2015-13� Such written substantiation may include proof of mailing or faxing, as appropriate, of the duplicate copy of the Form 3115�

EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure amplifies and modifies Rev. Proc. 2022-14, 2022-7 I.R.B. 502. Rev. Proc. 2022-14, 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. 2022-14 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. 2022-14 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 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. 201513. However, the requirement to file the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived.

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.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. 201513, 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. 2023-24, 2023-28 I.R.B. ___ (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. 2023-24, 2023-28 I.R.B. ___ (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. 2023-24, 2023-28 I.R.B. ___ (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 22.08 of Rev. Proc. 202324, 2023-28 I.R.B. ___ (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. 20029, as applicable)”. (3) Section 4.03 is modified by substituting “Rev. Proc. 2015-13,” for “Rev. Proc. 97-27 or Rev. Proc. 2002-9, as applicable,”.

.08 Rev. Proc. 2000-50, 2000-52 I.R.B. 601, is modified for amounts paid or incurred in taxable years beginning after December 31, 2021, as follows: (1) Section 5.01 is removed as obsolete. (2) Section 5 is modified to add the fol lowing sentence: Reserved. (3) Section 8 is modified to remove all

references to section 5.

PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget under OMB control numbers 1545-0074 for individual filers, 1545-0123 for business filers, and 1545-0047 for tax-exempt filers, in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(d)). 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, 31, and .02(3) of the Effective Date. 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.

SIGNIFICANT CHANGES

.01 Significant changes made by this revenue procedure to the List of Automatic Changes in Rev. Proc. 2022-14 include:

(1) The following sections are removed because these sections are obsolete:

(a) Section 6.18, relating to late elections or revoking elections under § 168(k) (5), (7), and (10);

(b) Section 12.18, relating to the revocation of a historic absorption ratio election;

(c) Section 16.06, relating to advance payments; and

(d) Section 16.09, relating to changes in timing of recognition of income due to the New Standards;

(2) Section 3.12, relating to a taxpayer that wants to change its treatment of natural gas transmission and distribution property costs to use the natural gas transmission and distribution property safe harbor method of accounting under Rev. Proc. 2023-15, is clarified as follows. First, by adding new paragraph 3.12(3)(c), providing that, if any asset is public utility property within the meaning of § 168(i) (10), the taxpayer must attach a statement to its Form 3115 providing that the taxpayer agrees to certain additional terms and conditions to make the change under section 3.12. Second, by adding new paragraph 3.12(4)(c), providing that a taxpayer changing its method of accounting under section 3.12 must not include in the § 481(a) adjustment any amount attributable to property for which the taxpayer elected to capitalize repair and maintenance costs under § 1.263(a)-3(n) for any taxable year in which this election was made;

(3) Section 6.01, relating to impermissible to permissible method of accounting for depreciation or amortization, is modified to provide, in section 6.01(1)(c) (xvi), that section 6.01 does not apply to

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any property for which the taxpayer has claimed a federal income tax credit, unless the change does not alter the amount of the federal income tax credit;

(4) Section 6.03, relating to sale, lease, or financing transactions, is clarified by adding section 6.03(2)(b), providing that a change being made under section 6.03 is made with a § 481(a) adjustment;

(5) Section 6.21 (formerly section 6.22 of Rev. Proc. 2022-14), relating to depreciation of tangible property under § 168(g) by controlled foreign corporations, is modified by removing paragraph (4), which allowed the taxpayer to convert a Form 3115 filed under the non-automatic change procedures in Rev. Proc. 2015-13 to make the change described in section 6.21 to a Form 3115 filed under the automatic change procedures under section 6.21, because the paragraph is obsolete; (6) Section 7.02, relating to a taxpayer that changes its method of accounting for specified research or experimental expenditures (as defined under § 174(b)) to the required § 174 method (as defined in section 7.02(1)(b)) to comply with § 174, is clarified to provide that this change includes a change from capitalizing specified research and experimental expenditures to inventoriable property or depreciable property and recovering such expenditures through cost of goods sold or depreciation, respectively, to the required § 174 method;

(7) Section 12.01, relating to certain uniform capitalization (UNICAP) methods used by resellers and reseller-producers, is modified as follows. First, to remove section 12.01(2)(b), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because this language is obsolete. Second, to remove section 12.01(6), providing an audit protection exception in section 8.02(1) of Rev. Proc. 2015-13, because this language is obsolete. Third, to remove the reference to the term “early application year” in section 12.01(2)(b)(iii), because this reference is obsolete;

(8) Section 12.02, relating to certain uniform capitalization (UNICAP) methods used by producers and reseller-producers, is modified as follows. First, to remove section 12.02(4)(b), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13,

because this language is obsolete. Second, to remove section 12.02(5), providing an audit protection exception in section 8.02(1) of Rev. Proc. 2015-13, because this language is obsolete. Third, to remove the reference to the term “early application year” in section 12.02(4)(b)(iii), because this reference is obsolete;

(9) Section 12.12, relating to a change to or within the U.S. ratio method, is clarified as follows. Section 12.12(2)(c) is clarified to provide that the § 481(a) adjustment is computed in the manner provided in Notice 88-104, 1988-2 C.B. 443, as modified by Notice 89-67, 1989-1 C.B. 723. In addition, section 12.12(2) is clarified to provide that a taxpayer completing the Short Form 3115 must also complete Part IV of Form 3115, except Line 25;

(10) Section 12.16, relating to a change for a small business taxpayer that chooses to no longer capitalize costs under § 263A, is modified to remove references to changes to proposed § 1.263A-1 and to the term “early application year” in most places because such references are obsolete;

(11) Section 12.17, relating to recharacterizing costs under the simplified resale method, simplified production method, or the modified simplified production method, is modified as follows. First, to remove section 12.17(3), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because this language is obsolete. Second, to remove section 12.17(7), providing an audit protection exception in section 8.02(1) of Rev. Proc. 2015-13, because this language is obsolete;

(12) Section 15.01, relating to changes in overall method from the cash receipts and disbursements method (cash method) to an accrual method is modified or clarified as follows. First, section 15.01 is clarified to more clearly provide that this section applies to a taxpayer that wants to change its overall method from an accrual method with regard to purchases and sales and inventories and the cash method for computing all other items of income and expense to an accrual method. In addition, section 15.01 is modified to provide that the definition of “cash method” for purposes of this revenue procedure does not include the overall method of using

an accrual method with regard to purchases and sales of inventories and the cash method for computing all other items of income and expense. Section 15.01 is also modified to remove the defined term “hybrid method.” Section 15.01, however, clarifies in section 15.01(1)(b) that the change under section 15.01 continues to not apply to a taxpayer that uses any combination of the cash method and an accrual method as its present overall method of accounting other than an accrual method with regard to purchases and sales of inventories and the cash method for computing all other items of income and expense. Second, section 15.01(2)(a) is clarified to add citations to §§ 1.61-4(a) and 1.162-12 for specific rules relating to farmers’ expenses. Third, section 15.01(2) (d) is clarified to include the crop method under § 1.162-12 as an example of a special method of accounting. Fourth, section 15.01 is modified to remove any change that reflect obsolete method changes, or provisions. As such, the following changes are removed due to obsolescence: for a taxpayer with an AFS, a change to § 451(b) or proposed § 1.451-3; and a change in the taxpayer’s first § 448 year. Similarly, for example, the following provisions are removed for obsolescence: section 15.01(3)(a)(ii), the temporary rule for certain S corporation revocations, section 15.01(3)(a)(iii), the § 481(a) adjustment period for changes related to specified credit card fees; and, section 15.01(6), regarding no ruling protection for taxpayers with an AFS changing to a § 451(b) method. Fifth, section 15.01(3)(b) is modified to remove the statement requirement for a taxpayer with an AFS that changes to an accrual method under section 15.01, and instead, must also complete Line 3 of Schedule B of Form 3115, Application for Change in Accounting Method (Rev. December 2022);

(13) Section 15.03, relating to the nonaccrual-experience method of accounting, is modified to remove references to a change to an accrual method in a taxpayer’s “first § 448 year” because these references are obsolete;

(14) Section 15.08, relating to a change from the cash method to an accrual method for specific items, is modified to include reference to the AFS income inclusion rule under § 451(b)(1) and § 1.451-3(b)

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in paragraph (2)(b) to make it consistent with section 15.01(2)(b).

(15) Section 15.12, relating to a change to the overall cash method for farmers, is modified as follows. First, section 15.12(1)(a) is modified to specify that such a change will only apply to the trade or business of farming for which the change is being made where a farmer is engaged in multiple farming trades or businesses. Second, section 15.12(2)(a) is modified to separate the citations to §§ 1.61-4(a) and 1.162-12 because §1.61-4(a) references cash method rules for farmers in its entirety while § 1.162-12 only does so in part. Third, section 15.12(3), relating to the temporary waiver of the eligibility rule in section 5.01(1)(e) of Rev. Proc. 201513, is removed because the paragraph is obsolete;

(16) Section 15.17, relating to a small business taxpayer changing to overall cash method, or to a method of accounting in which a small business taxpayer uses an accrual method for purchases and sales of inventories and uses the cash method for computing all other items of income and expense, is modified to remove any references to obsolete method changes, or provisions, including, for example, changes under proposed §§ 1.448-2(b)(2), 1.4482(c), 1.448-2(g)(1) and 1.460-3(b)(3); and the terms “first § 448 year” and a change for the “early application year”;

(17) Section 16.07 (formerly section 16.08 of Rev. Proc. 2022-14), relating to changes in applicable financial statements (AFS) for purposes of applying certain revenue recognition methods of accounting, is modified to remove changes under sections 16.07(1)(a)(i)-(iv) for taxpayers using methods under Rev. Proc. 2004-34, the proposed regulations under § 1.451-3 and/or § 1.451-8, or § 451(b), respectively, and other paragraphs related to these changes, because these changes are obsolete;

(18) Section 16.08 (formerly section 16.10 of Rev. Proc. 2022-14), relating to changes in the timing of income recognition under § 451(b) and (c), is modified as follows. First, section 16.08 is modified to remove sections 16.08(2)(a)(i), (2)(a)(ii), and 16.10(2)(b)(i) for a change to a method under § 451(b), proposed § 1.451-3, proposed § 1.451-8, proposed § 1.1275-2(l), and other paragraphs related

to these changes because these changes are obsolete. Second, section 16.08 is modified to remove section 16.08(5)(b), relating to changes related to specified credit card fees, because it is obsolete. Third, section 16.08(5)(a), relating to the eligibility rule being temporarily inapplicable, is modified to extend the eligibility waiver for one additional year to provide that the eligibility rule in section 5.01(f) of Rev. Proc. 2015-13 does not apply to a change under sections 16.08(2)(a)(i), (2) (a)(ii), or (2)(b) for a taxpayer’s first or second taxable year beginning on or after January 1, 2021, for a taxpayer that did not apply § 1.451-3, § 1.451-8, and/or § 1.1275-2(l) for a taxable year beginning before January 1, 2021. In the case of a taxpayer that applied § 1.451-3, § 1.4518, and/or § 1.1275-2(l), as applicable, for a taxable year beginning before January 1, 2021, the eligibility rule in section 5.01(f) of Rev. Proc. 2015-13 does not apply to a change under sections 16.08(2)(a)(i), (2) (a)(ii), or (2)(b), as applicable, for a taxpayer’s second taxable year beginning on or after January 1, 2021. Fourth, section 16.08(4), relating to the manner of making the change, is modified by adding section 16.08(4)(b)(iv) to provide special § 481(a) adjustment rules when the eligibility waiver under section 16.08(5)(a) of this revenue procedure applies. Fifth, section 16.08(4)(b)(v) is modified to provide two new examples to illustrate the special section 481(a) adjustment rules of section 16.08(4)(b)(iv). Sixth, language concerning method changes in the “early application year” is removed from section 16.08(5)(a) because a taxpayer can no longer timely file a change for the early application year;

(19) Section 19.01, relating to small business taxpayer exceptions from the requirement to account for certain longterm contracts under § 460 or to capitalize costs under § 263A for certain home construction contracts, is modified to remove section 19.01(4), providing a temporary waiver of the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13, because this language is obsolete;

(20) Section 20.10(2), relating to a taxpayer using an overall accrual method of accounting that sells goods at retail and that wants to change its method of accounting for gift cards issued as a

refund for returned goods, is clarified to provide that a taxpayer making both a change under section 20.10 and an automatic change to the deferral method under section 16.08 of this revenue procedure for the same taxable year of change may file a single Form 3115 for both changes;

(21) Section 20.13, relating to an accrual method taxpayer that wants to change its method of accounting for one or more inventory costs to treat such costs as incurred in accordance with § 1.4611(a)(2) and § 1.461-4(d)(4), is modified to remove the reference to the term “early application year” in section 20.13(1)(d), because this reference is obsolete;

(22) Section 22.04, relating to a taxpayer that wants to change from an impermissible method of identifying or valuing inventories to a permissible method of identifying or valuing inventories, is modified to remove the reference to the term “early application year” in section 22.04(1)(d)(iii), because this reference is obsolete;

(23) Section 22.10, relating to a taxpayer that wants to change from one permissible method of identifying or valuing inventories to another permissible method of identifying or valuing inventories, is modified to remove the reference to the term “early application year” in section 22.10(1)(d)(iii), because this reference is obsolete;

(24) Section 22.17, relating to a taxpayer that wants to change from currently deducting inventories to a permissible method of identifying and valuing inventories, is modified to remove the reference to the term “early application year” in section 22.17(1)(d)(iii), because this reference is obsolete;

(25) Section 22.18, relating to small business taxpayer § 471(c) methods, is modified as follows. First, to remove any changes that reflect obsolete method changes or provisions, including, for example, changes under § 471(c) or proposed § 1.471-1(b). Second, to remove section 22.18(7), regarding no ruling protection for certain changes made under section 22.18, because this paragraph is obsolete. Third, to generally remove the term “early application year,” because a taxpayer can no longer timely file a change for the early application year;

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(26) Section 22.19, relating to changes within a § 471(c) inventory method, is modified to remove section 22.19(1)(a) and 22.19(1)(c) because these paragraphs are obsolete;

(27) Section 22.20, relating to changes from a small business taxpayer § 471(c) inventory method to an inventory method under § 471(a), is modified to remove references to a change from proposed § 1.471-1(b)(4), (5), or (6) because these references are obsolete;

(28) Section 24.01, relating to commodities dealers, securities traders, and commodities traders electing to use the mark-to-market method of accounting under § 475(e) or (f), as applicable, is clarified as follows. First, section 24.01(1) is clarified to provide that if a taxpayer makes a timely election under § 475(e) or (f), as applicable, and the taxpayer’s method of accounting for its taxable year immediately preceding the election year for securities or commodities subject to the election is inconsistent with § 475, such taxpayer is required to change its method of accounting to comply with the election by filing a Form 3115 under the procedures provided in section 24.01(5) of this revenue procedure. Second, section 24.01(2) is clarified by adding new paragraph (d), providing that for the change to be applicable to a taxpayer, the taxpayer must not have revoked a previous § 475(e) or (f) election within the five taxable years ending with the election year. If this condition is not met, the taxpayer must request a change to resume using the mark-to-market method under the procedures provided in section 24.01(7) of this revenue procedure. Third, section 24.01(4) is clarified to update the example explaining how a taxpayer makes an election to use the markto-market method of accounting under § 475(e) or (f), as applicable, in accordance with the procedures provided in Rev. Proc. 99-17. Fourth, section 24.01 is clarified by adding new paragraph (5), providing that unless the election year is the first taxable year in which the taxpayer owns securities or commodities, as applicable, a Form 3115 is required to be filed with the federal income tax return for the year of change in accordance with the procedures provided in section 6.03(1) of Rev. Proc. 2015-13. Fifth, section 24.01 is clarified by adding new paragraph (7), providing

that if a taxpayer has revoked a previous § 475(e) or (f) election, as applicable, within the five taxable years ending with the election year for a new § 475(e) or (f) election, as applicable, then the taxpayer may not use the automatic change procedures in Rev. Proc. 2015-13 and section 24.01 of this revenue procedure to resume using the mark-to-market method of accounting pursuant to the new § 475(e) or (f) election. Instead, to resume using the markto-market method of accounting described in § 475 during this 5-year period, the taxpayer must: (i) timely file, by the due date described in section 5.03 of Rev. Proc. 99-17, an election statement that satisfies the requirements of section 5.04 of Rev. Proc. 99-17 and (ii) file a Form 3115 under the non-automatic change procedures provided in Rev. Proc. 2015-13. Finally, section 24.01 is clarified by adding new paragraph (8), providing that if a taxpayer wants to revoke a § 475(e) or (f) election, as applicable, within the five taxable years ending with the year of change for the election, the taxpayer makes the change by filing a Form 3115 under the non-automatic change procedures of Rev. Proc. 2015-13 and following the specific procedures in section 24.02(9) of this revenue procedure; and

(29) Section 24.02, relating to taxpayers requesting to change their method of accounting from the mark-to-market method of accounting described in § 475 to a realization method, is clarified as follows. First, section 24.02(2) is clarified to provide that any taxpayer requesting permission to change to a realization method must timely file its Notification Statement, as described in section 24.02(7) of this revenue procedure. Second, section 24.02(3) is clarified by adding new paragraph (d), providing that for a change under section 24.02 of this revenue procedure to apply to the taxpayer, the taxpayer must not have changed to a mark-to-market method for securities described in § 475(c)(2) (Section 475 Securities), commodities described in § 475(e)(2) (Section 475 Commodities), or both, whichever are applicable, within the five taxable years ending with the year of change. If this condition is not met, the taxpayer must request the change from a mark-to-market method to a realization method under the procedures in section 24.02(9) of this

revenue procedure. Third, section 24.02 is clarified by adding new paragraph (4), providing that the change under section 24.02 of this revenue procedure does not apply to a dealer in securities, as defined in § 475(c)(1). Instead, a dealer in securities must request a change from a markto-market method to a realization method under the non-automatic change procedures provided in Rev. Proc. 2015-13 and this change will be made on a cut-off basis in the same manner as described in section 24.02(6) of this revenue procedure. Fourth, section 24.02(7) (renumbered from section 24.02(6)) is clarified by adding an example that describes the proper filing of a Notification Statement, described therein. Fifth, section 24.02(8) (renumbered from section 24.02(7)) is clarified by adding new paragraph (a), providing that to make a change under section 24.02 of this revenue procedure, in addition to filing the Notification Statement described in section 24.02(7) of this revenue procedure, a Form 3115 is required to be filed with the federal income tax return for the year of change in accordance with the procedures described in section 6.03(1) of Rev. Proc. 2015-13. Sixth, section 24.02 is clarified by adding new paragraph (9), providing that the automatic change procedures provided in Rev. Proc. 2015-13 and section 24.02 do not apply if a taxpayer wants to change from a mark-tomarket method to a realization method for § 475(c)(2) (Section 475 Securities), commodities described in § 475(e)(2) (Section 475 Commodities), or both, within the five taxable years ending with the year of change in which the taxpayer changed to the mark-to-market method for the same item. Instead, the taxpayer must request such change under the non-automatic change procedures provided in Rev. Proc. 2015-13 and file a Notification Statement that satisfies all applicable requirements of section 24.02(7) and implement the change on a cut-off basis. Finally, section 24.02(10) (renumbered from section 24.02(9)) is clarified to provide that, to resume using the mark-to-market method of accounting described in § 475 for the Section 475 Securities, Section 475 Commodities, or both, that are the subject of the method change being requested using section 24.02 of this revenue procedure during any of the five taxable

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years beginning with the year of change, a taxpayer must timely file an Election Statement in accordance with section 5.04 of Rev. Proc. 99-17 and request a change in method of accounting using the non-automatic change procedures provided in Rev. Proc. 2015-13.

DRAFTING INFORMATION

The principal author of this revenue procedure is Bruce Chang of the Office

of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Chang at (202) 317-4870 (not a tollfree 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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