SECTION 16. TAXABLE YEAR OF

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

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number for a change under this section 16.02 is “37.” (3) Contact information . For further information regarding a change under this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number). .03 State or local income or franchise tax refunds .

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that receives a state or local income or franchise tax refund and wants to accrue the refund in the taxable year the taxpayer receives payment or notice that the claim has been approved, whichever is earlier, as provided in Rev. Rul. 2003-3, 2003-1 C.B. 252.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 16.03 is “38.” (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 Michael Finn at (202) 317-4718 (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. 2004-32 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 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 16.06 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 §§ 1.460-4(b)(4)(i)(A) and 1.460-4(d)(3).

(2) Manner of making change . (a) Except as provided in section 16.06(2)(b) of this revenue procedure, a taxpayer changing its method of accounting under this section 16.06 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 long-term 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 16.06 for retainages not received under long-term contracts is “130.” The designated automatic method change number for a change under this section 16.06 for retainages received under long-term contracts is “217.” A taxpayer making a change under this section 16.06 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). .07 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 with an AFS, as defined in § 1.451-3(a) (5), that: (A) includes amounts in income in accordance with § 1.451-3; (B) changes the manner in which the item, or portion thereof, is taken into account as AFS

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revenue, as defined in § 1.451-3(a)(4), including, if applicable, a change in the manner in which transaction price is allocated to performance obligations; and (C) wants to change its method of accounting to use the new AFS method of taking into account the item, or portion thereof, in AFS revenue for purposes of § 1.451-3(b) (1), including, if applicable, a change in the manner in which transaction price is allocated for purposes of § 1.451-3(d).

(ii) This change applies to a taxpayer with an AFS, as defined in § 1.451-3(a) (5), that: (A) receives an advance payment, as defined in § 1.451-8(a)(1); (B) uses the deferral method described in § 1.451-8(c); (C) changes the manner in which it recognizes advance payments in AFS revenue, as defined in § 1.451-8(a) (4), including, if applicable, a change in the manner in which payments are allocated to performance obligations; and (D) wants to change its method of accounting to use the new AFS method of recognizing advance payments in AFS revenue for purposes of determining the extent to which advance payments are included in income under § 1.451-8, including, if applicable, a change in the manner in which payments are allocated for purposes of § 1.451-8(c) (8).

(b) Inapplicability . (i) Changes relating to § 1.451-3 or § 1.451-8 . A change described in section 16.07(1)(a)(i) or (ii) of this revenue procedure does not apply to:

(A) a taxpayer whose present method of accounting is not described in § 1.451-3, for a change described in section 16.07(1) (a)(i) of this revenue procedure. A taxpayer that wants to change to a method of accounting described in § 1.451-3 must use section 16.08(2)(a)(i) of this revenue procedure to make such change;

(B) a taxpayer whose present method of accounting for advance payments is not the deferral method under § 1.4518(c), for a change described in section 16.07(1)(a)(ii) of this revenue procedure. For example, this change does not apply to a taxpayer that uses the full inclusion method under § 1.451-8(b) or the nonAFS deferral method under § 1.451-8(d). However, this change does apply to a taxpayer that uses both the cost offset method under § 1.451-8(e) and the deferral method under § 1.451-8(c);

(C) a taxpayer that wants to change its method for allocating payments described in § 1.451-8(c)(8)(iii); or

(D) a taxpayer that wants to change its method for allocating transaction price for contracts described in § 1.451-3(d)(5).

(c) Restatements of AFS . 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 properly uses the deferral method described in § 1.451-8(c) for including advance payments in gross income in accordance with its AFS, the taxpayer satisfies the requirement of section 16.07(1)(a)(ii) of this revenue procedure even if the AFS for that taxable year is later restated and may change its method of accounting under this section 16.07 if it is otherwise eligible. (2) Manner of making change . (a) Cut-off basis or a § 481(a) adjustment .

(i) Cut-off basis for certain changes . (A) In general . Except as provided in section 16.07(2)(a)(i)(B) of this revenue procedure, a change made under section 16.07(1)(a)(ii) of this revenue procedure is made on a cut-off basis and applies to advance payments received by the taxpayer on or after the beginning of the year of change. Accordingly, any advance payments received prior to the year of change (prior advance payments) are accounted for under the taxpayer’s former method of accounting, 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 changes its method of allocating payments for purposes of § 1.451-8(c)(8)(i) must allocate any payments received 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) Section 481(a) adjustment for cer- tain changes . If a taxpayer makes a change under section 16.07(1)(a)(ii) of this revenue procedure, and the AFS treatment of prior advance payments in the year of change or a subsequent taxable year is relevant for purposes of determining the amount of such payments that is required

to be included in gross income in the year of change or a subsequent taxable year, the taxpayer must implement the change with a § 481(a) adjustment as provided in sections 7.02 and 7.03 of Rev. Proc. 2015-13. (ii) Computing § 481(a) adjustments when the year of change is a year in which the taxpayer implements a change in accounting principle with a retained earnings adjustment . If the year of change is a year in which the taxpayer implements a change in accounting principle for AFS purposes, including a change in the method of applying an accounting principle for AFS purposes, and the change in accounting principle is implemented with a retained earnings adjustment that is taken into account during the year of change, the taxpayer is required to treat such adjustment as being taken into account in the taxable year prior to the year of change for purposes of computing the § 481(a) adjustment.

(iii) Example . Computing a § 481(a) adjustment when the taxpayer presently uses the AFS cost offset method - related accounts . B is in the trade or business of selling computers. B uses an accrual method of accounting and computes Federal income tax on a calendar-year basis and has an AFS, as defined in § 1.451-3(a)(5). B is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. B does not receive advance payments. For 2022, B makes two changes in method of accounting to comply with § 1.451-3. Specifically, pursuant to section 16.08(2)(a)(i)(A) of this revenue procedure, B changes its method of accounting for gross income from the sale of computers to apply the AFS income inclusion rule and, pursuant to section 16.08(2)(a)(i) (C) of this revenue procedure, changes its method of accounting to apply the AFS cost offset method. For 2023, B changes the manner in which income from the sale of computers is taken into account as AFS revenue, as defined in § 1.451-3(a)(4), and changes its method of accounting under section 16.07(1)(a)(i) of this section to use the new AFS method. However, B continues to use the AFS cost offset method. In computing the § 481(a) adjustment resulting from the change to the new method of computing AFS revenue for 2023 under section 16.07(1)(a)(i) of this revenue procedure, B must take into account its continued use of the AFS cost offset method. See section 3.15 of Rev. Proc. 2015-13. (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 a change made under this section 16.07. 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

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under this section 16.07 is considered a Form 3115 for purposes of the automatic consent procedures of Rev. Proc. 201513. 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 for each applicant:

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

(ii) the applicant’s name, employer identification number (or social security number in the case of an individual), and type of applicant, as would be provided had a Form 3115 been required;

(iii) the year of change (both the beginning and ending dates);

(iv) the type of AFS used by the applicant, as defined in applicable guidance, and which change the applicant is making under section 16.07(1)(a) of this revenue procedure. See § 1.451-3(a)(5) and/or § 1.451-8(a)(5);

(v) a detailed and complete description of each item affected by the change in AFS revenue recognition and the line number (or schedule) where the affected item is reflected on the federal income tax return for the year of change, and if applicable, the § 481(a) adjustment for each change; and

(vi) a detailed description of the basis used for AFS revenue recognition (that is, the method the taxpayer uses in its AFS) both before and after the AFS change.

(c) Concurrent automatic change . A taxpayer may make more than one change under this section 16.07 on the same statement in lieu of a Form 3115 for the same year of change. The taxpayer must separately provide all of the information required for each change on that statement.

(3) 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.

(4) No audit protection . A taxpayer does not receive audit protection under section 8.01 of Rev. Proc. 2015-13 for this change. See section 8.02(2) of Rev. Proc. 2015-13. (5) Designated automatic accounting method change number . The designated automatic accounting method change

number for a change under this section 16.07 is “153.” (6) Contact information . For further information regarding a change under this section, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).

.08 Changes in the timing of income recognition under § 451(b) and (c) .

(1) Description of change . (a) In general . 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 16.08(2)(a) of this revenue procedure. This change also applies to a taxpayer without an AFS that wants to make certain changes in method of accounting described in section 16.08(2)(b) of this revenue procedure.

(b) Applicable terms . For this section 16.08, the term “AFS” has the meaning set forth in § 1.451-3(b)(5). Additionally, because a change to comply with §§ 1.4513, 1.451-8, and/or 1.1275-2(l), as applicable, is a change in method of accounting to which the provisions of § 446 and the accompanying regulations apply, the item being changed to comply with §§ 1.451-3, 1.451-8, and/or 1.1275-2(l), as applicable, is determined by applying § 446 and the accompanying regulations. See §§ 1.4513(l)(1) and 1.451-8(g)(2). In that regard, while §§ 451(b) and (c) and the final regulations use the term “item of gross income” to generally refer to income that arises under a specific contract, the term “item of gross income” is not synonymous with the terms “item” or “material item” as used throughout the regulations under § 446.

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

(i) wants to make one of the following changes under § 1.451-3:

(A) a change to comply with the AFS income inclusion rule in § 1.451-3(b) under which the taxpayer determines the amount of an item of gross income that is treated as “taken into account as AFS revenue” by making the AFS revenue adjustments provided in § 1.451-3(b)(2) (i) (including a change for specified credit card fees under §§ 1.451-3(j)(2) and 1.1275-2(l));

(B) a change to comply with the AFS income inclusion rule in § 1.451-3(b) under which the taxpayer determines the amount of the item of gross income that is “taken into account as AFS revenue” by making the AFS revenue adjustments provided in § 1.451-3(b)(2)(ii) (including a change for specified credit card fees under §§ 1.451-3(j)(2) and 1.1275(l)) (Alternative AFS Revenue Method);

(C) except as provided in section 16.08(2)(a)(i)(E) of this section, a change to apply the AFS cost offset method in § 1.451-3(c) to determine the amount of an item of gross income from the sale of inventory that is required to be included in gross income under the AFS income inclusion rule in § 1.451-3(b);

(D) a change from applying a cost offset method, including the AFS cost offset method in § 1.451-3(c), to not applying a cost offset method to determine the amount of an item of gross income from the sale of inventory that is required to be included in gross income under the AFS income inclusion rule in § 1.451-3(b);

(E) a change to comply with § 1.4513(c)(5)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16.08(2)(a)(iii)(E) applies whether the taxpayer presently uses a cost offset method, including the AFS cost offset method under § 1.451-3(c), or is proposing to make, for the same year of change, a change to begin using the AFS cost offset method pursuant to section 16.08(2)(a)(i)(C) of this revenue procedure;

(F) a change to comply with the transaction price allocation rules in § 1.4513(d); or (G) a change to a method of accounting described in § 1.451-3(h)(4) when a taxpayer’s AFS covers mismatched reportable periods; or

(ii) wants to make one of the following changes in method of accounting for advance payments under § 1.451-8:

(A) a change to the full inclusion method provided in § 1.451-8(b);

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gross income that is accounted for under § 1.451-3 and an item of gross income that is accounted for under a special method of accounting, as defined in § 1.451-3(a) (14), including a change to comply with § 1.451-3(d)(5);

(c) a change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii) (F) or section 16.08(2)(b)(v) of this revenue procedure, as applicable, if, immediately after such change is made, the taxpayer’s method of accounting for cost offsets does not otherwise comply with the AFS cost offset method under § 1.451-3(c) and/or the advance payment cost offset method under § 1.451-8(e), as applicable;

(d) a change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a) (ii)(F) or section 16.08(2)(b)(v) of this revenue procedure, including a change to comply with § 1.451-3(c)(5)(ii) or § 1.451-8(e)(8)(ii) because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/ or allocated under its present method of accounting for inventory, unless the taxpayer makes, for the same year of change, the cost-offset related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13;

(e) a change to use the AFS cost offset method if the taxpayer receives advance payments from the sale of inventory and does not also make a change to apply the advance payment cost offset method, or a change to use the advance payment cost offset method if the taxpayer is required to include gross income from the sale of inventory under § 1.451-3 and does not also make a change to apply the AFS cost offset method;

(f) a change to use the deferral method in § 1.451-8(c) for allocable payments described in § 1.451-8(c)(8)(iii)(A) (other than allocable payments described in § 1.451-8(c)(8)(iii)(B));

(g) a taxpayer that presently uses the deferral method in § 1.451-8(c) for allocable payments described in § 1.451-8(c)(8) (iii)(A) that wants to change its payment allocation method to an allocation method that is not described in § 1.451-8(c)(8)(iii) (B);

(h) a change to use the deferral method in § 1.451-8(d)(3) for allocable payments

(B) a change to the deferral method provided in § 1.451-8(c);

(C) a change to the specified goods § 451(c) method described in § 1.451-8(f) to treat payments that otherwise qualify for the specified good exception, as defined in § 1.451-8(a)(1)(ii)(H), as advance payments and account for such payments either under the full inclusion method provided in § 1.451-8(b) or under the deferral method provided in § 1.451-8(c);

(D) except as provided in section 16.08(2)(a)(ii)(F) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e) to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;

(E) a change from applying a cost offset method, including the advance payment cost offset method in § 1.451-8(e), to not applying a cost offset method to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1.451-8(b) or the deferral method in § 1.451-8(c), as applicable;

(F) a change to comply with § 1.4518(e)(8)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer presently determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16.08(2)(a)(ii)(F) applies whether the taxpayer presently uses a cost offset method, including the advance payment cost offset method under § 1.4518(e), or is proposing to make, for the same year of change, a change to begin using the advance payment cost offset method pursuant to section 16.08(2)(a)(ii)(D) of this revenue procedure;

(G) a change to a method of accounting described in § 1.451-8(c)(7), which refers to the methods described in § 1.451-3(h) (4), when a taxpayer’s AFS covers mismatched reporting periods; or

(H) a change to comply with the payment allocation rules in § 1.451-8(c)(8).

(b) Taxpayer without an AFS . This change applies to a taxpayer that does not have an AFS that wants to make one of the following changes in method of accounting for advance payments under § 1.451-8:

(i) a change to the full inclusion method provided in § 1.451-8(b);

(ii) a change to the deferral method provided in § 1.451-8(d)(3);

(iii) except as provided in section 16.08(2)(b)(v) of this revenue procedure, a change to apply the advance payment cost offset method in § 1.451-8(e) to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;

(iv) a change from applying a cost offset method, including the advance payment cost offset method in § 1.451-8(e), to not applying a cost offset method to determine the amount of an advance payment from the sale of inventory that is required to be included in gross income under either the full inclusion method in § 1.451-8(b) or the deferral method in § 1.451-8(d)(3), as applicable;

(v) a change to comply with § 1.451-8(e) (8)(ii) as a result of a concurrent cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13 (or successor), or because the taxpayer determines its cost of goods in progress offset by reference to costs that the taxpayer has impermissibly capitalized and/or allocated under its present method of accounting for inventory. This section 16.08(2)(b)(v) applies whether the taxpayer presently uses a cost offset method, including the advance payment cost offset method under § 1.4518(e), or is proposing to make, for the same year of change, a change to begin using the advance payment cost offset method pursuant to section 16.08(2)(b)(iii) of this revenue procedure; or

(vi) a change to a payment allocation method described in § 1.451-8(d)(4)(ii).

(3) Inapplicability . Section 16.08(2) of this revenue procedure does not apply to:

(a) a change in method of accounting to use a special method of accounting, as defined in § 1.451-3(a)(13);

(b) a change in method of allocating transaction price between an item of

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described in § 1.451-8(d)(4)(i) other than either allocable payments described in § 1.451-8(d)(4)(ii) or allocable payments that are wholly attributable to two or more items described in § 1.451-8(a)(1)(i)(C);

(i) a taxpayer that presently uses the deferral method in § 1.451-8(d)(3) for allocable payments described in § 1.4518(d)(4)(i) that wants to change its payment allocation method to an allocation method that is not described in § 1.451-8(d)(4)(ii);

(j) a taxpayer without an AFS that wants to change its method of accounting for advance payments to the deferral method under § 1.451-8(d)(3) under which the taxpayer determines the extent to which an advance payment is earned by 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;

(k) a change in method of accounting for specified fees, as defined in § 1.4513(j)(2), other than specified credit card fees;

(l) a change in method of accounting that qualifies under another automatic change provided in this revenue procedure including, for example, a change described in section 16.07 of this revenue procedure;

(m) a change in method of accounting for a liability, as defined in § 1.446-1(c) (1)(ii)(B);

(n) a change in a taxpayer’s mismatched reporting periods method described in § 1.451-3(h)(4) if the taxpayer uses the deferral method for advance payments under § 1.451-8(c) and does not also change to the same mismatched reporting periods method for purposes of accounting for advance payments pursuant to § 1.451-8(c)(7) for the same year of change; or, if applicable, a change in a taxpayer’s mismatched reporting periods method pursuant to § 1.451-8(c)(7) if the taxpayer uses the deferral method for advance payments under § 1.451-8(c) and does not also change to the same mismatched reporting periods method for purposes of § 1.451-3(h)(4) for the same year of change; and

(o) a change in method of accounting for payments within the scope of the specified good exception, as defined in § 1.451-8(a)(1)(ii), if the proposed method

of accounting is to include such payments in gross income under § 1.451-3 in one or more taxable years following the taxable year of receipt.

(4) Manner of making change . (a) Short Form 3115 . A taxpayer making a change under this section 16.08 to begin applying § 1.451-3 and/or § 1.451-8 for its first taxable year beginning on or after January 1, 2021 is required to complete the following information on Form 3115 (Rev. December 2022), and the requirement to file the duplicate copy, under section 6.03(1)(a) of Rev. Proc. 2015-13, is waived: (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. (vi) Schedule B. (b) Special rules relating to § 481(a) adjustment .

(i) Section 481(a) adjustment generally . (A) Members of a consolidated group . Changes under this section 16.08 with regard to taxpayers who are members of consolidated groups generally are governed by this section 16.08, rather than by § 1.1502-17(b)(2) (applicable to changes in the application of the timing rules of § 1.1502-13 in accounting for intercompany transactions (within the meaning of § 1.1502-13(b)(1)(i))). See § 1.1502-17(a) and (b)(1).

(B) Computing § 481(a) adjustments when the year of change is a year in which the taxpayer implements a change in accounting principle with a retained earnings adjustment . If the year of change is a year in which the taxpayer implements a change in accounting principle for AFS purposes, including a change in the method of applying an accounting principle for AFS purposes, and the change in accounting principle is implemented with a retained earnings adjustment that is taken into account during the year of change, the taxpayer is required to treat such adjustment as being taken into account in the taxable year prior to the year of change for purposes of computing the § 481(a) adjustment.

(ii) Netting of the § 481(a) adjustment .

(A) Required netting for changes made under § 1.451-3 related to inven- tory sales . A taxpayer that makes a change described in section 16.08(2)(a) (i)(C) or (D) of this revenue procedure and one or more changes described in section 16.08(2)(a)(i)(A), (B), and/or (G) of this revenue procedure for gross income from inventory sales for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section 7.03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(B) Required netting for changes made under § 1.451-8 related to inventory sales for taxpayers with an AFS . A taxpayer that makes a change described in section 16.08(2)(a)(ii)(D) or (E) of this revenue procedure and one or more changes described in section 16.08(2)(a)(ii)(A), (B), (C), and/or (G) of this revenue procedure for advance payments from the sale of inventory for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section 7.03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(C) Required netting for changes made under § 1.451-8 related to inventory sales for taxpayers without an AFS . A taxpayer that makes a change described in section 16.08(2)(b)(iii) or (iv) of this revenue procedure and one or more changes in method of accounting described in section 16.08(2)(b)(i) or (ii) of this revenue procedure for advance payments from the sale of inventory for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period described in section 7.03 of Rev. Proc. 2015-13 is determined based on the net § 481(a) adjustment.

(D) Required netting for non-auto- matic method changes under § 1.451-3 and/or § 1.451-8 related to inventory sales . The rules in section 16.08(4)(b)(iii) of this revenue procedure generally will apply to a non-automatic change under § 1.451-3 and/or § 1.451-8 for which the netting rules of section 16.08(4)(b)(iii) of this revenue procedure would otherwise apply if the taxpayer were eligible to make the change under section 16.08 of this revenue procedure.

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(iii) Special § 481(a) adjustment rules for cost offset method change(s) under § 1.451-3 and/or § 1.451-8 made with corresponding cost-offset related inven- tory method change(s) .

(A) Required netting rule for changes described in section 16.08(2)(a)(i)(E) . A taxpayer that makes more than one method change under section 16.08(2)(a)(i)(E) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules in section 16.08(4)(b) (iii)(D) of this revenue procedure.

(B) Required netting rule for changes described in section 16.08(2)(a)(ii)(F) . A taxpayer that makes more than one method change under section 16.08(2)(a)(ii)(F) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules in section 16.08(4)(b) (iii)(D) of this revenue procedure.

(C) Required netting rule for changes described in section 16.08(2)(b)(v) of this revenue procedure . A taxpayer that makes more than one method change under section 16.08(2)(b)(v) of this revenue procedure for the same year of change must provide a single net § 481(a) adjustment for all such changes. The § 481(a) adjustment period for this net § 481(a) adjustment is determined by applying the rules in section 16.08(4)(b)(iii)(D) of this revenue procedure.

(D) Special § 481(a) adjustment period . For purposes of sections 7.02 and 7.03 of Rev. Proc. 2015-13, the § 481(a) adjustment period for a cost offset change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure, whether the § 481(a) adjustment is positive or negative, is the same as the § 481(a) adjustment period for the corresponding cost-offset related inventory method change, as defined in section 5.06 of Rev. Proc. 2015-13. The rules of section 7.02 and 7.03 of Rev. Proc. 2015-13, including the short period rule and the accelerated adjustment period rules, apply to determine the § 481(a) adjustment period for the § 481(a) adjustment for the cost-offset

related inventory method change, which is used to determine the § 481(a) adjustment period for a positive or negative § 481(a) adjustment for the corresponding cost offset change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii) (F), or section 16.08(2)(b)(v) of this revenue procedure. If the taxpayer must net the § 481(a) adjustments for cost offset changes under section 16.08(4)(b)(iii)(A), (B), or (C) of this revenue procedure, as applicable, the § 481(a) adjustment period for any such net § 481(a) adjustment is the same as the § 481(a) adjustment period for the corresponding cost-offset related inventory method changes, determined by netting the § 481(a) adjustments from such corresponding cost-offset related inventory method changes. The requirement that the taxpayer net the § 481(a) adjustments for such corresponding cost-offset related inventory method changes is solely for purposes of determining the § 481(a) adjustment period for the net § 481(a) adjustment determined under section 16.08(4)(b)(iii)(A), (B), or (C), as applicable. This section 16.08(4) (b)(iii)(D) does not apply if, after applying the netting rules in section 16.08(4) (b)(iii)(A), (B), or (C), as applicable, the § 481(a) adjustment for the corresponding cost offset change(s) is zero. For example, if the taxpayer makes a cost-offset related inventory method change that is implemented on a cut-off basis and the § 481(a) adjustment for the taxpayer’s corresponding change described in section 16.08(2) (a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure is zero as a result, this section 16.08(4)(b)(iii)(D) does not apply. (iv) Special § 481(a) adjustment rules when eligibility waiver under section 16.08(5)(a) of this revenue procedure applies .

(A) Accelerated adjustment period for certain prior method changes . If a taxpayer uses the eligibility waiver under section 16.08(5)(a) of this revenue procedure to make a change described in section 16.08(2)(a)(i), (ii), or (2)(b) of this revenue procedure and has a remaining § 481(a) adjustment from a prior change for the same item that was made under section 16.10(2)(a)(iii), (iv), or (2)(b)(ii) of Rev. Proc. 2022-14 (or successor), the taxpayer must take the remaining balance

of such prior § 481(a) adjustment into account in computing taxable income in the taxable year of change.

(B) Special 1-year positive § 481(a) adjustment period when eligibility waiver under section 16.08(5)(a) of this revenue procedure applies . If a taxpayer uses the eligibility waiver under section 16.08(5) (a) of this revenue procedure to make a change described in section 16.08(2)(a) (i), (ii), or (2)(b) of this revenue procedure that results in a positive § 481(a) adjustment (current change) and also made a prior change for that same item under section 16.10(2)(a)(iii), (iv), or (2)(b) (ii) of Rev. Proc. 2022-14 (or successor) that resulted in a negative § 481(a) adjustment, the taxpayer must take the positive § 481(a) adjustment into account in full in computing taxable income for the taxable year of change.

(v) Examples . For each of the following examples, the taxpayer uses an accrual method of accounting, is on a calendar year, and has an AFS, as defined in § 1.451-3(a)(5). The taxpayer implements § 1.451-3 and, if applicable, § 1.451-8, beginning with its 2021 taxable year.

(A) Example 1 . Netting rules . A is engaged in a single trade or business of selling and servicing computers. A is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. A does not receive advance payments. For 2022, A makes multiple changes in method of accounting to apply § 1.451-3. Specifically, A changes its method of accounting for gross income from the sale of computers to apply the AFS income inclusion rule pursuant to section 16.08(2)(a)(i)(A) of this revenue procedure and to apply the AFS cost offset method pursuant to section 16.08(2)(a)(i)(C) of this revenue procedure. A also changes its method of accounting for gross income from computer services to apply the AFS income inclusion rule pursuant to section 16.08(2)(a)(i)(A) of this revenue procedure. Since A made a change described in section 16.08(2)(a)(i)(C) of this revenue procedure and a change described in section 16.08(2)(a)(i)(A) of this revenue procedure for gross income from computer sales for the same year of change, A must net the § 481(a) adjustments resulting from these changes in the manner required by section 16.08(4)(b)(ii)(A) of this revenue procedure. The § 481(a) adjustment resulting from A ’s change in method of accounting for income from computer services under section 16.08(2)(a)(i)(A) of this revenue procedure is not netted with the § 481(a) adjustments resulting from the computer sales method changes.

(B) Example 2 . Special § 481(a) adjustment period under section 16.08(4)(b)(iii) of this revenue procedure . The facts are the same as in Example 1 . For 2023, A changes its inventory method under section 12.01 of this revenue procedure and, as a result, also changes its cost offset method to comply with

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I.R.B. 1016, as applicable. For a taxable year beginning in 2022, the inflation-adjusted amount is $27,000,000. See Rev. Proc. 2021-45, 2021-48 I.R.B. 764;

(B) the taxpayer is making one or more changes described in section 16.08(2)(a) (i)(A), (B), (F), and/or (G) of this revenue procedure, and the § 481(a) adjustment required by each of the changes is zero. A taxpayer that meets this requirement is permitted to make the changes described in section 16.08(2)(a)(i)(A), (B), (F), and/ or (G) of this revenue procedure under the streamlined method change procedures. Notwithstanding any provisions of this section 16.08, a taxpayer making more than one change in method of accounting under section 16.08(2)(a)(i)(A), (B), (F), and/or (G) of this revenue procedure for the same year of change 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 16.08(7)(a) of this revenue procedure for more information on making concurrent changes; or

(C) the taxpayer is making one or more changes described in section 16.08(2)(a) (ii)(A), (B), (C), (G), and/or (H), or section 16.08(2)(b)(i), (ii), and/or (vi) of this revenue procedure, and the § 481(a) adjustment required by each of the changes is zero. A taxpayer that meets this requirement is permitted to make the changes described in section 16.08(2)(a)(ii)(A), (B), (C), (G), and/or (H), or section 16.08(2)(b)(i), (ii), and/or (vi) of this revenue procedure under the streamlined method change procedures. Notwithstanding any provisions of this section 16.08, a taxpayer making more than one change in method of accounting under section 16.08(2) for the same year of change 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 16.08(7)(a) of this revenue procedure for more information on making concurrent changes.

(ii) 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 16.08 using the streamlined method change procedures. Thus, a taxpayer using the streamlined method

§ 1.451-3(c)(5)(ii) pursuant to section 16.08(2)(a)(i) (E) of this revenue procedure. The cost-offset related inventory method change under section 12.01 of this revenue procedure results in a positive § 481(a) adjustment that is spread over four taxable years under section 7.01 and 7.03 of Rev. Proc. 201513. The cost offset method change under section 16.08(2)(a)(i)(E) of this revenue procedure results in a negative § 481(a) adjustment. Section 16.08(4) (b)(iii)(D) of this revenue procedure requires A to spread the negative § 481(a) adjustment over four taxable years consistent with the § 481(a) adjustment period for the concurrent cost-offset related inventory method change under section 12.01 of this revenue procedure.

(C) Example 3 . Prior positive § 481(a) adjust- ment . B is engaged in a single trade or business of selling computers. B is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. B does not receive advance payments. B ’s present method of accounting for gross income from computer sales is to recognize such gross income in the taxable year in which it receives payment from its customers. For the 2021 taxable year, B made a change in method of accounting for gross income from the sale of computers under section 16.10(2) (a)(iii)(A) of Rev. Proc. 2022-14 to apply the AFS income inclusion rule under § 1.451-3(b). This 2021 method change resulted in a positive § 481(a) adjustment. For the 2022 taxable year, B uses the eligibility waiver under section 16.08(5)(a) of this revenue procedure to make a change under section 16.08(2)(a)(i) (C) of this revenue procedure to apply the AFS cost offset method under § 1.451-3(c) for gross income from the sale of computers. This 2022 method change results in a negative § 481(a) adjustment, which is taken into account in full in computing taxable income for the 2022 taxable year. B ’s 2021 and 2022 changes in method of accounting are for the same item. Accordingly, pursuant to section 16.08(4) (b)(iv)(A) of this revenue procedure, B must take the remaining balance of the positive § 481(a) adjustment from its 2021 method change into account in computing taxable income for the 2022 taxable year.

(D) Example 4 . Current positive section § 481(a) adjustment . C is engaged in a single trade or business of selling computers. C is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. C does not receive advance payments. C ’s present method of accounting for gross income from computer sales is to recognize such gross income in the taxable year in which it receives payment from its customers. For the 2021 taxable year, C made a change in method of accounting for gross income from the sale of computers under section 16.10(2) (a)(iii)(A) of Rev. Proc. 2022-14 to apply the AFS income inclusion rule under § 1.451-3(b), and a change for gross income from the sale of computers under section 16.10(2)(a)(iii)(C) of Rev. Proc. 2022-14 to apply the AFS cost offset method under § 1.451-3(c). C was required to net the § 481(a) adjustments resulting from these two changes, and this resulted in a net negative § 481(a) adjustment for C ’s 2021 taxable year. For 2022, C makes a change in method of accounting for gross income from the sale of computers under section 16.08(2)(a)(i)(D) of this revenue procedure to no longer apply the cost offset method, which results in a positive § 481(a)

adjustment. C ’s 2021 and 2022 changes in method of accounting pertain to the same item. Accordingly, pursuant to section 16.08(4)(b)(iv)(B) of this revenue procedure, C must take the entire amount of its positive § 481(a) adjustment from its 2022 method change into account in computing taxable income for its 2022 taxable year.

(c) Streamlined method change proce- dures for certain taxpayers .

(i) Applicability . In the case of a taxpayer that did not apply § 1.451-3 and/ or § 1.451-8 for a taxable year beginning before January 1, 2021, the procedures described in this section 16.08(4)(c) may be used to make a change in method of accounting described in section 16.08(2)(i) (A), (B), (F), and/or (G), section 16.08(2) (a)(ii)(A), (B), (C), (G), and/or (H), or section 16.08(2)(i), (ii), and/or (vi) of this revenue procedure, for the taxpayer’s first taxable year beginning on or after January 1, 2021, provided the taxpayer meets the requirements in section 16.08(4)(c) of this revenue procedure. A taxpayer may not use the streamlined procedures for any change in method of accounting described in section 16.08(2) of this revenue procedure if the taxpayer is also making a change in method of accounting described in sections 16.08(2)(a)(i)(C), (D), and/or (E), sections 16.08(2)(a)(ii)(D), (E), and/ or (F), or sections 16.08(2)(b)(iii), (iv), and/or (v) of this revenue procedure for the same year of change. In addition, a taxpayer may not use the streamlined procedures if one or more of the inapplicability rules provided in section 16.08(3) of this revenue procedure applies to the change. A taxpayer that is otherwise permitted to use the streamlined method change procedures in this section 16.08(4) (c) may use these streamlined procedures 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”) for the year of change. 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). See § 448(c)(4). For a taxable year beginning in 2019, 2020, or 2021, the inflation-adjusted amount is $26,000,000. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827, Rev. Proc. 2019-44, 2019-47 I.R.B. 1093, or Rev. Proc. 2020-45, 2020-46

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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 16.08.

(d) Certain cost offset changes made on an amended return .

(i) In general . Notwithstanding section 6.03(1)(a) of Rev. Proc. 2015-13, a taxpayer making a change described in section 16.08(2)(a)(i)(E), section 16.08(2) (a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure, as applicable, which corresponds to a cost-offset related inventory method change filed under the non-automatic change procedures of Rev. Proc. 2015-13 for the same year of change may make the corresponding cost offset change described in section 16.08(2) (a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) on an amended federal income tax return for the cost offset year of change (as defined in section 16.08(4)(d)(ii) of this revenue procedure) provided:

(A) the taxpayer received consent for the cost-offset related inventory method change filed under the non-automatic change procedures for the year of change after the time the taxpayer was required to file the original Form 3115 for the corresponding cost offset change under section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii) (F), or section 16.08(2)(b)(v) of this revenue procedure, as applicable, in accordance with section 6.03(1)(a)(i)(A) of Rev. Proc. 2015-13 for the cost offset year of change; (B) the taxpayer timely signs and returns the Consent Agreement for the non-automatic corresponding cost-offset related inventory method change in accordance with section 11.03(2)(c)(i) of Rev. Proc. 2015-13, and timely implements such non-automatic change in accordance with section 11.03(2)(c)(ii)(A) or (B) of Rev. Proc. 2015-13;

(C) the taxpayer implements the corresponding cost offset method change described in section 16.08(2)(a)(i)(E), section 16.08(2)(a)(ii)(F), or section 16.08(2) (b)(v) of this revenue procedure, as applicable, on the same amended federal income tax return that the taxpayer implements the cost-offset related inventory method change described in section 16.08(4)(d)(i) (A) of this revenue procedure; and

(D) the taxpayer’s amended federal income tax return for the year of change

includes any adjustments to taxable income or tax liability resulting from the change(s) in method of accounting for the cost-offset related inventory method change(s) specified in the letter ruling and the corresponding cost offset method change(s).

(ii) Cost offset year of change . For purposes of this section 16.08(4)(d), a taxpayer’s cost offset year of change is the same year of change that the taxpayer received consent under the non-automatic change procedures for the cost-offset inventory related change.

(iii) Filing requirements . Notwith­ standing section 6.03(1)(a) of Rev. Proc. 2015-13, a taxpayer making a change under section 16.08(2)(a)(i)(E), section 16.08(2) (a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure in accordance with section 16.08(4)(d) of this revenue procedure must attach the original Form 3115 to the taxpayer’s timely filed amended federal income tax return for the cost offset year of change and must file the duplicate copy (with signature) of the Form 3115 with the IRS in Ogden, UT, no later than the date the taxpayer timely files the amended federal income tax return that implements the cost-offset related inventory method described in section 16.08(4)(d)(i)(A) of this revenue procedure, as provided in section 11.03(2)(c)(ii)(A) or (B) of Rev. Proc. 2015-13. (5) Eligibility rules inapplicable . (a) Eligibility rule temporarily inappli- cable for changes under sections 16.08(2) (a)(i), (2)(a)(ii), or (2)(b) of this reve- nue procedure . For a taxpayer that did not apply § 1.451-3, § 1.451-8, and/or § 1.1275-2(l), as applicable, for a taxable year beginning before January 1, 2021, the eligibility rule in section 5.01(1)(f) of Rev. Proc. 2015-13 does not apply to a change under section 16.08(2)(a)(i), (2)(a) (ii), or (2)(b) of this revenue procedure for a taxpayer’s first or second taxable year beginning on or after January 1, 2021. For 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(1)(f) of Rev. Proc. 2015-13 does not apply to a change under section 16.08(2) (a)(i), (2)(a)(ii), or (2)(b) of this revenue procedure for the taxpayer’s second taxable year beginning on or after January 1, 2021. For purposes of this section 16.08 of

this revenue procedure, “early application year” means the taxable year beginning before January 1, 2021, in which a taxpayer first applied § 1.451-3, § 1.451-8, and/or § 1.1275-2(l), as applicable.

(b) Certain cost offset method changes . The eligibility rule in section 5.01(1) (f) of Rev. Proc. 2015-13 does not apply to a change under section 16.08(2)(a)(i) (E), section 16.08(2)(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure. (c) Certain changes with § 481(a) adjustment of zero disregarded for eligi- bility rule . A change made under section 16.08(2)(a)(i)(A), (B), (F) and/or (G), section 16.08(2)(a)(ii)(A), (B), (C), (G) and/or (H), or section 16.08(2)(b)(i), (ii), and/or (v) of this revenue procedure will be disregarded for purposes of section 5.01(1)(f) of Rev. Proc. 2015-13 if the change meets the following requirements:

(i) the change was made for the taxpayer’s early application year, as defined in section 16.08(5)(a) of this revenue procedure or, in the case of a taxpayer that did not apply § 1.451-3 and/or § 1.451-8 for a taxable year beginning before January 1, 2021, for the taxpayer’s first taxable year beginning on or after January 1, 2021, and

(ii) the § 481(a) adjustment required to implement the change is zero.

Notwithstanding any provisions of this section 16.08, a taxpayer that makes more than one change in method of accounting described in this section 16.08(5)(c) for the same year of change is not permitted to net the § 481(a) adjustments from such changes to determine if the requirement in section 16.08(5)(c)(ii) of this revenue procedure is satisfied.

(e) Example . Application of section 5.01(1)(f) of Rev. Proc. 2015-13 . B, a calendar year taxpayer, is engaged in a single trade or business of selling computers. B is not under examination within the meaning of section 3.18 of Rev. Proc. 2015-13. B does not receive advance payments. B presently recognizes gross income from the sale of computers in the taxable year it begins manufacturing the computer without regard to whether there is a contract with a customer, and does not apply a cost offset method. For 2021, B makes a change in method of accounting for gross income from the sale of computers under section 16.10(2)(a)(iii)(A) of Rev. Proc. 2022-14 to apply the AFS income inclusion rule under § 1.451-3(b). Unless a waiver of eligibility applies, section 5.01(1) (f) of Rev. Proc. 2015-13 applies to prevent B from automatically changing its method of accounting for gross income from the sale of computers under section 16.08(2)(a)(i)(C) of this revenue procedure to apply the AFS cost offset method under § 1.451-3(c) for any

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Proc. 2015-13 for a taxpayer that makes one or more change(s) under section 16.08(2)(a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure and one or more cost-offset related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13, under this revenue procedure in the same year of change. Additionally, such taxpayer is required to implement the cost-offset related inventory method change(s) under this revenue procedure before it implements the corresponding change(s) under section 16.08(2)(a)(i)(E), (a)(ii)(F), or (b)(v) of this revenue procedure, as applicable. A taxpayer that makes a change under section 16.08(2)(a)(i)(C) and (E) and/or section 16.08(2)(a)(ii)(D) and (F), or section 16.08(2)(b)(iii) and (v) of this revenue procedure, as applicable, for the same year of change is required to implement the change under section 16.08(2)(a)(i) (C), 16.08(2)(a)(ii)(D), or 16.08(2)(b) (iii) of this revenue procedure, as applicable, before it implements any cost-offset related inventory method change(s), as defined in section 5.06 of Rev. Proc. 2015-13, and the change(s) under section 16.08(2)(a)(i)(E), 16.08(2)(a)(ii)(F), or 16.08(2)(b)(v) of this revenue procedure, as applicable.

(8) Limited applicability . Notwith­ standing the inapplicability rules in section 16.08(3) of this revenue procedure, the changes described in section 16.08(2) (a)(i)(A) and (B) of this revenue procedure are applicable only for a taxpayer’s first, second, or third taxable year beginning after December 31, 2020.

(9) Designated automatic accounting method change number . See the following table for the designated automatic method change number (DCN) for the changes in method of accounting under this section 16.08.

of the four taxable years succeeding the 2021 year of change (taxable year 2022 through 2025) because the 2021 change was for the same item. (6) Audit protection . (a) Streamlined procedures . A taxpayer making a change in method of accounting under this section 16.08 using the streamlined method change procedures provided in section 16.08(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 protec- tion exception temporarily inapplicable . Except as otherwise provided in section 16.08(6)(b)(ii) of this revenue procedure, for a taxpayer that does not apply § 1.4513, § 1.451-8, and/or § 1.1275-2(l), as applicable, for a taxable year beginning before January 1, 2021, section 8.02(1) of Rev. Proc. 2015-13 does not apply to a change in method of accounting made under section 16.08(2)(a)(i), (2)(a)(ii), or (2)(b) of this revenue procedure for a taxpayer’s first taxable year beginning on or after January 1, 2021. In addition, except as otherwise provided in section 16.08(4) of this revenue procedure, section 8.02(1) of Rev. Proc. 2015-13 continues to apply for purposes of determining the § 481(a) adjustment period provided in section 7.03(3)(b) of Rev. Proc. 2015-13. (iii) Exception . Section 16.08(6)(b)(i) of this revenue procedure does not apply to a taxpayer that uses the streamlined method change procedures under section 16.08(4)(c) of this revenue procedure. (iii) No audit protection for cer- tain cost offset changes . For a taxpayer under examination that makes a change in method of accounting under section 16.08(2)(a)(i)(E), section 16.08(a)(ii)(F), or section 16.08(2)(b)(v) of this revenue procedure, the taxpayer does not receive audit protection under section 8.01 of