Rev. Proc. 2015-13. For changes required

to be filed on a single Form 3115 under this section, the taxpayer must enter the designated automatic accounting method change numbers for all changes on the appropriate line on the Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(d) A taxpayer that changes to a method of accounting under this section 3. 12 for taxable years ending after the third taxable year ending after May 1, 2023 and is also required to change its method of accounting to properly capitalize its linear property or non-linear property costs under § 263(a) and/or § 263A under section 5. 08(3)(b)(ii) of Rev. Proc. 2023-15, must file a single Form 3115 for the same year of change for all these changes, provided that the taxpayer is not prohibited from filing an automatic change under the eligibility rules set out in section 5 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419. For changes required to be filed on a single Form 3115 under this paragraph, the taxpayer must enter the designated automatic accounting method change numbers for all changes on the appropriate line on the Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13 for information on making concurrent changes.

(7) Examples . The following examples illustrate this section 3. 12. In each example, it is assumed that the taxpayer (a) is a C corporation, on an accrual method of accounting and using a calendar taxable year, (b) is within the scope of Rev. Proc. 2023-15, (c) placed in service natural gas transmission property or distribution property that is described in section 4 of Rev. Proc. 2023-15 and is MACRS property, (d) did not make a general asset account election for any natural gas transmission property or distribution property placed in service by the taxpayer in any taxable year before the first taxable year that the taxpayer uses the NGSH Method, (e) is changing its methods of accounting for both linear property and non-linear property under the NGSH Method for the same taxable year, and (f) is not changing to the NGSH Method on a cut-off basis under section 6. 04 of Rev. Proc. 2023-15. Unless otherwise stated, it also is assumed that (a) the cost of the replacements before Year

1 were not capitalized under § 263(a), (b) the cost of the replacements before Year 1 would not have been capitalized if the taxpayer used the NGSH Method provided under sections 5. 02, 5. 03, 5. 04, 5. 06, and 5. 07 of Rev. Proc. 2023-15 for such prior taxable years, and (c) the taxpayer’s natural gas transmission and distribution property expenditures are not per se capital expenditures under section 5. 05(1)(a)-(f), (i), or (j) of Rev. Proc. 2023-15. Further, it is assumed that § 1. 168(i)-1(e)(3) (special rules for certain dispositions of assets in general asset accounts) does not apply for the first taxable year that the taxpayer uses the NGSH Method. Moreover, for purposes of these examples, “Year 1” refers to the taxpayer’s first taxable year ending after May 1, 2023, “Year 2” refers to the taxpayer’s second taxable year ending after May 1, 2023, and “Year 4” refers to the taxpayer’s fourth taxable year ending after May 1, 2023.

(a) Example 1 . (i) X is a local natural gas distribution company. Before Year 1, X owned and placed in service natural gas distribution property at a cost of $120 million before any dispositions or additions. Before Year 1, X replaced parts of such property that had an original cost of $10 million and incurred $12 million for the cost of such replacements. On its Federal income tax returns before Year 1, X recognized losses upon the dispositions of that $10 million of property, capitalized $12 million for the cost of the replacements of that property under § 263(a), and deducted depreciation of $800,000 on such $12 million. X files a Form 3115 with its Federal income tax return for Year 1 to change its methods of accounting to use the NGSH Method described in Rev. Proc. 2023-15. (ii) Because Year 1 is X ’s first taxable year ending after May 1, 2023, section 5. 08(2)(a)(i) and (3) (a) of Rev. Proc. 2023-15 apply. Pursuant to section 5. 08(3)(a) of Rev. Proc. 2023-15, the per se capital expenditure rules in section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 do not apply to the replacement cost of $12 million that X capitalized under § 263(a) on its Federal income tax returns before Year 1. Accordingly, this $12 million cost of the replacements is not treated as a per se capital expenditure under the NGSH Method. Therefore, at the beginning of Year 1, X is treated under Rev. Proc. 202315 as owning natural gas distribution property at a cost of $110 million ($120 million - $10 million). Under section 5. 08(2)(a)(i) of Rev. Proc. 2023-15, X must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $110 million of natural gas distribution property that X owns at the beginning of Year 1. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 1 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made on a modified cut

off method and, therefore, a § 481(a) adjustment is neither required nor permitted for the late general asset account election change.

(iii) On its Form 3115 to change to the NGSH Method provided under Rev. Proc. 2023-15, the net negative § 481(a) adjustment for this change is $11,200,000 (deduction of $12 million for the cost of the replacements before Year 1 less depreciation of $800,000 for such replacement assets before Year

1. and is deducted in computing X ’s taxable income for Year 1.

(b) Example 2 . (i) The facts are the same as in Example 1, except that X files a Form 3115 with its Federal income tax return for Year 2 to change its method of accounting to use the NGSH Method described in Rev. Proc. 2023-15, and, before Year 2, X deducted depreciation of $1,000,000 on the replacement cost of $12 million.

(ii) Because X filed its method change in Year 2, the special rule under section 5. 08(3)(a) of Rev. Proc. 2023-15 does not apply to the replacement cost of $12 million that X capitalized under § 263(a) on its Federal income tax returns before Year 1. Accordingly, section 5. 05(1)(g) and (h) of Rev. Proc. 202315 apply to the replacement cost of $12 million that X capitalized on its Federal income tax returns before Year 2. The total cost of $12 million for this replacement is a per se capital expenditure, and must be capitalized, under the NGSH Method.

(iii) At the beginning of Year 2, X is treated under the NGSH Method as owning natural gas distribution property at a cost of $122 million ($120 million $10 million + $12 million). Under section 5. 08(2)(a) (i) of Rev. Proc. 2023-15, X must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $122 million of natural gas distribution property that X owns at the beginning of Year 2. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 2 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made on a modified cut-off method and, therefore, a § 481(a) adjustment is neither required nor permitted for the late general asset account election.

(iv) On its Form 3115 to change to the NGSH Method under Rev. Proc. 2023-15, the net § 481(a) adjustment for this change is zero. Under its present method of accounting and under the NGSH Method (proposed method of accounting), X properly capitalized the $12 million for the cost of the replacements before Year 1 and claimed depreciation for such replacement assets before Year 2.

(c) Example 3 . (i) Y is a local natural gas distribution company. Before Year 1, Y owned and placed in service natural gas distribution property at a cost of $120 million before any dispositions or additions. Before Year 1, Y replaced parts of such property that had an original cost of $10 million and incurred $12 million for the cost of such replacements. On its Federal income tax returns before Year 1, Y recognized losses upon the dispositions of that $10 million of property and deducted $12 million for the cost of the replacements of such property under § 162(a). During Year 1, Y replaced a part of the natural gas distribution property that had an original cost of $2 million and incurred $3 million for the cost of such replace

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ments. If Y had capitalized the $15 million for the cost of the replacements, the total depreciation allowed or allowable for these assets would have been $1 million before Year 2. On its Federal income tax return for Year 1, Y recognized a loss upon the disposition of that $2 million of property and deducted $3 million for the cost of the replacements under § 162(a). Y files a Form 3115 with its Federal income tax return for Year 2 to change its method of accounting to use the NGSH Method described in Rev. Proc. 2013-15.

(ii) Because Y filed its method change for Year 2, section 5. 08(2)(a)(i) of Rev. Proc. 2023-15 applies to this change. However, the special rule under section 5. 08(3)(a) of Rev. Proc. 2023-15 would apply only if Y had filed its method change for Year 1. Accordingly, section 5. 05(1)(g) and (h) of Rev. Proc. 202315 apply to the replacement cost of $12 million that Y deducted under § 162(a) on its Federal income tax returns before Year 1, and to the replacement cost of $3 million that Y deducted under § 162(a) on its Federal income tax return for Year 1. Therefore, the total cost of $15 million for these replacements is a per se capital expenditure, and must be capitalized, under the NGSH Method.

(iii) At the beginning of Year 2, Y is treated under Rev. Proc. 2023-15 as owning natural gas distribution property at a cost of $123 million ($120 million $10 million + $12 million - $2 million + $3 million). Under section 5. 08(2)(a)(i) of Rev. Proc. 2023-15, Y must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $123 million of natural gas distribution property that Y owns at the beginning of Year 2. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 2 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made on a modified cutoff method and, therefore, a § 481(a) adjustment is neither required nor permitted for the late general asset account election.

(iv) On its Form 3115 to change to the NGSH Method of Rev. Proc. 2023-15, the net positive § 481(a) adjustment for this change is $14 million ($15 million for the cost of the replacements before Year 2 less depreciation allowed or allowable of $1 million for such replacement assets before Year 2) and is taken into account in computing Y ’s income in the manner provided in section 3. 12(4)(a) of this revenue procedure.

(d) Example 4 . (i) Z is a local natural gas distribution company. Before Year 4, Z owned and placed in service natural gas distribution property at a cost of $150 million before any dispositions or additions. Before Year 4, Z replaced parts of such property that had an original cost of $30 million and incurred $45 million for the cost of such replacements. On its Federal income tax returns before Year 4, Z recognized losses upon the dispositions of that $30 million of property, capitalized $45 million for the cost of the replacements under § 263(a), and deducted depreciation of $15 million on such $45 million. Z files a Form 3115 with its Federal income tax return for Year 4 to change its method of accounting to use the NGSH Method described in Rev. Proc. 2013-15. Assume Z is eligible to file Form 3115 for Year 4 under the automatic change procedures in Rev. Proc. 2015-13.

(ii) At the beginning of Year 4, Z owns natural gas distribution property at a cost of $165 million ($150 million - $30 million + $45 million). Because Year 4 is Z ’s fourth taxable year ending after May 1, 2023, sections 5. 08(2)(a)(iii) and 5. 08(3)(b) of Rev. Proc. 2023-15 apply. Accordingly, under section 5. 08(2)(a)(iii) of Rev. Proc. 2023-15, Z must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $165 million of natural gas distribution property that Z owns at the beginning of Year 4. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 4 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made using a modified cut-off method and, therefore, a § 481(a) adjustment is neither permitted nor required for the late general asset account election.

(iii) Because sections 5. 08(2)(a)(iii) and 5. 08(3) (b) of Rev. Proc. 2023-15 apply, Z ’s change to the NGSH Method described in Rev. Proc. 2023-15, applies only to natural gas transmission and distribution property expenditures paid or incurred by Z beginning in Year 4 and is made on a cut-off basis. Therefore, a § 481(a) adjustment is neither required nor permitted for the change to the NGSH Method described in Rev. Proc. 2023-15.

(e) Example 5 . (i) The facts are the same as in Example 4, except that, on its Federal income tax returns before Year 4, Z improperly deducted $45 million for the cost of the replacements under § 162(a). Such $45 million of replacement costs should have been capitalized under § 263(a). If Z had capitalized the $45 million for the cost of the replacements, the total depreciation allowed or allowable for such assets would have been $15 million before Year 4.

(ii) Because Year 4 is Z ’s fourth taxable year ending after May 1, 2023, sections 5. 08(2)(a)(iii) and 5. 08(3)(b) of Rev. Proc. 2023-15 apply. Pursuant to section 5. 08(3)(b) of Rev. Proc. 2023-15, Z must also change its method of accounting to capitalize under § 263(a) the $45 million for the cost of the replacements incurred before Year 4. The net positive § 481(a) adjustment for this coordinating change is $30 million ($45 million for the cost of the replacements before Year 4 less depreciation allowed or allowable of $15 million for such replacement assets before Year 4). Z takes this net positive § 481(a) adjustment of $30 million into account in computing Z ’s taxable income in the manner provided in section 3. 12(4)(a) of this revenue procedure. (iii) Z owns natural gas distribution property at a cost of $165 million ($150 million - $30 million + $45 million) at the beginning of Year 4. Accordingly, Z must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $165 million of natural gas distribution property that Z owns at the beginning of Year 4. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 4 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made using a modified cut-off method and, therefore, a § 481(a) adjustment is neither permitted nor required for the late general asset account election.

(iv) Because sections 5. 08(2)(a)(iii) and 5. 08(3) (b) of Rev. Proc. 2023-15 apply, Z ’s change to the NGSH Method provided under sections 5. 02, 5. 03, 5. 04, 5. 06, and 5. 07 of Rev. Proc. 2023-15, applies only to natural gas transmission and distribution property expenditures paid or incurred by Z beginning in Year 4 and is made on a cut-off basis. Therefore, a § 481(a) adjustment is neither required nor permitted for the change to the NGSH Method described in Rev. Proc. 2023-15.

(v) Pursuant to section 3. 12(6)(c) and section 5. 08(3)(b) of Rev. Proc. 2023-15 the change to capitalize the replacement costs of $45 million, the late general asset account election change, and the change to use the NGSH Method provided under Rev. Proc. 2023-15 must be included on the same Form 3115 filed by Z for Year 4.

(8) Option to treat method changes filed for Year 2 as filed for Year 1 for pur- poses of section 5.08(3)(a) of Rev. Proc. 2023-15 (a) In general . A taxpayer may choose to treat a method change filed for the taxpayer’s second taxable year ending after May 1, 2023 (Year 2), as filed for the taxpayer’s first taxable year ending after May 1, 2023 (Year 1), solely for purposes of applying the special rule under section 5.08(3)(a) of Rev. Proc. 2023-15. Specifically, a taxpayer changing to the safe harbor method for linear property or for both linear property and non-linear property, as applicable, for the taxpayer’s second taxable year ending after May 1, 2023, with a § 481(a) adjustment may choose not to apply the per se capital expenditure rules under section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 to amounts paid or incurred to replace or repair linear property or both linear property and non-linear property, as applicable, in taxable years ending on or before May 1, 2023. A taxpayer choosing to treat a method change filed for Year 2 as filed for Year 1 under this section 3. 12(8) must otherwise comply with all the provisions of Rev. Proc. 2023-15.

(b) Application . A taxpayer that changed to the safe harbor method for linear property or both linear property and non-linear property, as applicable, for Year 1, may not choose to treat a method change filed for Year 2 as filed for Year 1 under paragraph 3. 12(8) of this revenue procedure. Further, if a taxpayer chooses to treat a method change filed for Year 2 as filed for Year 1 under paragraph 3.12(8) of this revenue procedure, the taxpayer must do so for all members of a consolidated group changing to the NGSH Method.

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(c) Example . The examples in section 3. 12(7)(a) through (e) of this revenue procedure address taxpayers that do not choose to treat a method change filed for Year 2 as filed for Year 1 under this section 3. 12(8). The following example illustrates this section 3. 12(8). The assumptions set out in 3. 12(7) of this revenue procedure apply to this example.

(i) A is a local natural gas distribution company. Before Year 1, A owned and placed in service natural gas distribution property at a cost of $120 million before any dispositions or additions. Before Year 1, A replaced parts of such property that had an aggregate original cost of $10 million and incurred $12 million for the cost of the replacements. On its Federal income tax returns for taxable years before Year 1, A recognized losses upon the disposition of that $10 million of property, capitalized $12 million of the replacement costs of such property under § 263(a), and deducted depreciation of $800,000 on the $12 million of replacement costs. During Year 1, A replaced a part of the natural gas distribution property that had an original cost of $2 million and incurred $3 million for the cost of such replacements. On its Federal income tax return for Year 1, A recognized a loss upon the disposition of that $2 million of property, capitalized $3 million for the cost of such replacements under § 263(a), and deducted depreciation of $200,000 on the $3 million of replacement costs. A files a Form 3115 with its Federal income tax return for Year 2 to change its method of accounting to use the NGSH Method described in Rev. Proc. 2023-15 and chooses to treat its method change filed for Year 2 as filed for Year 1 under section 3.12(8) of this revenue procedure. Accordingly, A does not apply the per se capitalization rules of section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 to amounts paid or incurred to replace or repair linear property or both linear property and non-linear property, as applicable, in taxable years ending on or before May 1, 2023. (ii) Because A chooses to treat its method change filed for Year 2 as filed for Year 1 under paragraph 3. 12(8)(a) of this revenue procedure, the special transition rule under section 5. 08(3)(a) applies to amounts paid or incurred by A to replace or repair linear natural gas distribution or both linear property and non-linear property distribution property, as applicable, in taxable years ending on or before May 1, 2023. Accordingly, the per se capital expenditure rules under section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 do not apply to the replacement cost of $12 million that A capitalized under § 263(a) on its Federal income tax returns for taxable years ending on or before May 1, 2023. As a result, the replacement cost of $12 million is not required to be capitalized under the NGSH Method. However, the per se capital expenditure rules under section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 do apply to the replacement cost of $3 million that A capitalized on its Federal income tax return for Year 1. The total cost of $3 million for this replacement is a per se capital expenditure and must be capitalized under the NGSH Method.

(iii) Therefore, at the beginning of Year 2, A is treated under Rev. Proc. 2023-15 as owning natural gas distribution property with an original cost of $111

million ($120 million - $10 million - $2 million + $3 million). Under section 5. 08(2)(a)(i) of Rev. Proc. 2023-15, A must make a late general asset account election on its Form 3115 to include in general asset accounts all of the $111 million of natural gas distribution property that A owns at the beginning of Year 2. These general asset accounts also must include the total depreciation allowed or allowable before the beginning of Year 2 for such property as the beginning balances of the depreciation reserves. The late general asset account election change is made on a modified cut-off method and, therefore, a § 481(a) adjustment is neither required nor permitted for the late general asset account election change.

(iv) On its Form 3115 to change to the NGSH Method provided under Rev. Proc. 2023-15 for Year 2, the net negative § 481(a) adjustment for this change is $11,200,000 (deduction of $12 million for the cost of the replacements before Year 1 less depreciation of $800,000 for such replacement assets before Year 1). Because A property capitalized the $3 million for the cost of the replacements in Year 1 as per se capital expenditures under section 5. 05(1)(g) and (h) of Rev. Proc. 2023-15 and properly claimed depreciation in Year 1 for such replacement assets, A does not include in its § 481(a) adjustment any amounts related to the cost of replacements in Year

1. Accordingly, A deducts $11,200,000 in computing A ’s taxable income for Year 2.

(9) Designated automatic accounting method change number . The designated automatic accounting method change number for a change to the methods of accounting under this section 3. 12 is “269. ”

(10) Contact information . For further information regarding a change under this section, contact Kasey A. Place or Merrill Feldstein at (202) 317-5100 (not a tollfree number).