SECTION 20. TAXABLE YEAR

INCURRED (§ 461)

In general . Applicable provisions of the Code, regulations and other guidance published in the Internal Revenue Bulletin may prescribe the manner in which a taxpayer takes into account a liability that has been incurred. For example, for a taxpayer with inventories and subject to § 263A, the taxpayer must include direct and indirect costs in inventory costs, which may be recovered through cost of goods sold. See § 1. 263A-1(e)(2)(i)(B). A taxpayer may not rely on any provision in this section 20 to take a current year deduction if another applicable provision requires the taxpayer to take the liability into account in a year other than the year incurred. .

01 Timing of incurring liabilities for employee compensation

(1) Self-insured employee medical ben- efits

(a) Description of change . (i) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for self-insured liabilities (including any amounts not covered by insurance, such as a “deductible” amount under an insurance policy) relating to employee medical expenses (including liabilities resulting from medical services provided to retirees whom the employer reimburses for the cost of medical services, or for whom the employer directly pays a third party medical provider, no later than the 15 ^th day of the 3 ^rd calendar month after the end of the taxable year of the retirement, and to employees and former employees who have filed claims under a workers’ compensation act) that are not paid from a welfare benefit fund within the meaning of § 419(e) to a method as follows:

(A) If the taxpayer has a liability to pay an employee for medical expenses incurred by the employee, the taxpayer will treat the liability as incurred in the taxable year in which the employee files the claim with the employer. See United States v. General Dynamics Corp., 481 U. S. 239 (1987), 1987-2 C. B. 134.

(B) If the taxpayer has a liability to pay a third party for medical services provided to its employees, the taxpayer will treat

the liability as incurred in the taxable year in which the services are provided.

(ii) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 01(1) if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(b) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 01(1)(a)(ii) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513, 2015-5 I. R. B. 419, for information on making concurrent changes.

(c) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 01(1) is “42. ” (2) Bonuses (a) Description of change (i) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to treat bonuses as incurred in the taxable year in which all events have occurred that establish the fact of the liability to pay a bonus and the amount of the liability can be determined with reasonable accuracy ( see § 1. 4461(c)(1)(ii)). Specifically, a taxpayer may change its method of accounting under this section 20. 01(2) to one of the following methods:

(A) If all the events that establish the fact of the liability to pay a bonus have occurred by the end of the taxable year in which the related services are provided, and the bonus is received by the employee no later than the 15 ^th day of the 3 ^rd calendar month after the end of the taxable year

in which the related services are provided, the taxpayer will treat the bonus liability as incurred in that taxable year. See Rev. Rul. 55-446, 1955-2 C.B. 531, as modified by Rev. Rul. 61-127, 1961-2 C. B. 36.

(B) If all the events that establish the fact of the liability to pay a bonus occur in the taxable year subsequent to the taxable year in which the related services are provided, the taxpayer will treat the bonus liability as incurred in such subsequent taxable year.

(ii) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 01(2) if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(b) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 01(2)(a)(ii) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513 for information on making concurrent changes.

(c) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 01(2) is “133. ” (3) Vacation pay, sick pay, and sever- ance pay

(a) Description of change (i) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to treat vacation pay, sick pay, and severance pay as incurred in the taxable year in which all events have occurred that establish the fact of the liability to pay vacation pay, sick pay, and severance pay and the amount of

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the liability can be determined with reasonable accuracy ( see § 1. 446-1(c)(1)(ii)). Specifically, a taxpayer may change its method of accounting under this section 20. 01(3) to one of the following methods: (A) If all the events that establish the fact of the liability to pay vacation pay, sick pay, and severance pay have occurred by the end of the taxable year in which the related services are provided, the vacation pay, sick pay, and severance pay vests in the taxable year the related services are provided, and the vacation pay, sick pay, and severance pay is received by the employee no later than the 15 ^th day of the 3 ^rd calendar month after the end of the taxable year in which the related services are provided, the taxpayer will treat the vacation pay, sick pay, and severance pay liability as incurred in the taxable year in which the related services are provided.

(B) If all the events that establish the fact of the liability to pay vacation pay, sick pay, and severance pay occur in the taxable year subsequent to the taxable year in which the related services are provided, the taxpayer will treat the vacation pay, sick pay, and severance pay liability as incurred in such subsequent taxable year.

(ii) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 01(3) if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(b) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 01(3)(a)(ii) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015

13 for information on making concurrent changes.

(c) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 01(3) is “134. ” (4) Commissions (a) Description of change (i) Applicability . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to treat commissions as incurred in the taxable year in which all events have occurred that establish the fact of the liability to pay a commission, and the amount of the liability can be determined with reasonable accuracy ( see § 1. 446-1(c)(1)(ii)). Specifically, a taxpayer may change its method of accounting under this section 20. 01(4) to one of the following methods:

(A) If all the events that establish the fact of the liability to pay a commission have occurred by the end of the taxable year in which the related services are provided, and the commission is received by the employee no later than the 15 ^th day of the 3 ^rd calendar month after the end of the taxable year in which the related services are provided, the taxpayer will treat the commission liability as incurred in that taxable year.

(B) If all the events that establish the fact of the liability to pay a commission occur in the taxable year subsequent to the taxable year in which the related services are provided, the taxpayer will treat the commission liability as incurred in such subsequent taxable year.

(ii) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 01(4) if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(b) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 01(4)(a)(ii) of this revenue pro

cedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513 for information on making concurrent changes.

(c) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 01(4) is “249. ” (5) Contact information . For further information regarding a change under this section, contact Maria Castillo Valle or Alicia Lee-Won at (202) 317-7003 (not a toll-free number)..

02 Timing of incurring liabilities for real property taxes, personal property taxes, state income taxes, and state fran- chise taxes

(1) Background . A taxpayer using an overall accrual method of accounting generally incurs a liability in the taxable year that all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability. See § 1. 446-1(c)(1)(ii). Under § 1. 461-4(g)(6), if the liability of the taxpayer is to pay a tax, economic performance occurs as the tax is paid to the government authority that imposed the tax.

(2) 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 to:

(i) treat liabilities (for which the all events test of § 461(h)(4) is otherwise met) for real property taxes, personal property taxes, state income taxes, or state franchise taxes as incurred in the taxable year in which the taxes are paid, under § 461 and § 1. 461-4(g)(6);

(ii) account for real property taxes, personal property taxes, state income taxes, or state franchise taxes under the recurring item exception method under § 461(h)(3) and § 1. 461-5(b)(1); or

(iii) revoke an election under § 461(c) (ratable accrual election).

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

(i) a taxpayer’s liability for a tax subject to the limitation on acceleration of accrual of taxes under § 461(d); or

(ii) a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 02 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(3) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 02(2)(b)(ii) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 201513, 2015-5 I. R. B. 419, for information on making concurrent changes.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 02 is “43. ” (5) Contact information . For further information regarding a change under this section, contact Christine Merson at (202) 317-5100 (not a toll-free number).. 03 Timing of incurring liabilities under a workers’ compensation act, tort, breach of contract, or violation of law .

(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 self-insured liabilities (including any amounts not covered by insurance, such as a “deductible” amount under an insurance policy) arising under any workers’ compensation act or out of any tort, breach of contract, or violation of law, to treating the liability for the workers’ compensation, tort, breach of contract, or violation of law as being

incurred in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and payment is made to the person to which the liability is owed. See § 461 and § 1. 461-4(g)(1) and (2). If the taxpayer has self-insured liabilities resulting from medical services provided to employees who have filed claims under a workers compensation act, the taxpayer may change its method of accounting for those liabilities under section 20. 01(1) of this revenue procedure (if the taxpayer is otherwise eligible).

(b) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 03 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(2) Concurrent automatic change . A taxpayer making both this change and change to either a method provided in section 20. 01(1) of this revenue procedure for self-insured employee medical expenses or a UNICAP method described in section 20. 03(1)(b) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115, in which case the taxpayer must enter the designated automatic accounting method change numbers for each change on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, for information on making concurrent changes.

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 03 is “44. ” (4) Contact information . For further information regarding a change under this section, contact Christine Merson at (202) 317-5100 (not a toll-free number).. 04 Timing of incurring certain liabili- ties for payroll taxes

(1) Description of change (a) Applicability . This change applies to:

(i) an employer using an overall accrual method of accounting that wants to change its method of accounting for:

(A) FICA and FUTA taxes to a method consistent with the holding in Rev. Rul. 96-51, 1996-2 C. B. 36. Rev. Rul. 96-51 permits an accrual method employer to take into account in Year 1, under the all events test of § 461, its otherwise deductible FICA and FUTA taxes imposed with respect to year-end wages properly accrued in Year 1, but paid in Year 2, if the requirements of the recurring item exception are met; and

(B) state unemployment taxes and, in the event the taxpayer is an employer within the meaning of the Railroad Retirement Tax Act (RRTA) ( see § 3231(a)), RRTA taxes to a method under which the taxpayer may take into account in Year 1 its otherwise deductible state unemployment taxes and railroad retirement taxes (if applicable) imposed with respect to year-end wages properly accrued in Year 1, but paid in Year 2, if the requirements of the recurring item exception are met (including the requirement that, as of the end of the taxable year, all events have occurred that establish the fact of the liability and the amount of the liability can be determined with reasonable accuracy, see § 1. 461-5(b));

(ii) an accrual method employer that utilizes a method of accounting for FICA and FUTA taxes that is consistent with the holding in Rev. Rul. 96-51 and wants to change its method of accounting for state unemployment taxes and, in the event the employer is an employer within the meaning of RRTA ( see § 3231(a)), RRTA taxes to a method under which the taxpayer may take into account in Year 1 its otherwise deductible state unemployment taxes and railroad retirement taxes (if applicable) imposed with respect to year-end wages properly accrued in Year 1, but paid in Year 2, if the requirements of the recurring item exception are met (including the requirement that, as of the end of the taxable year, all events have occurred that establish the fact of the liability and the amount of the liability can be determined with reasonable accuracy, see § 1. 4615(b)); or

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(iii) a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for FICA and FUTA taxes to the safe harbor method provided in Rev. Proc. 2008-25, 2008-1 C. B. 686. Rev. Proc. 2008-25 provides that for purposes of the recurring item exception, a taxpayer will be treated as satisfying the requirement in § 1. 461-5(b)(1)(i) for its payroll tax liability in the same taxable year in which all events have occurred that establish the fact of the related compensation liability and the amount of the related compensation liability can be determined with reasonable accuracy.

(b) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 20. 04 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable).

(2) Recurring item exception . A taxpayer that previously has not changed to or adopted the recurring item exception for FICA taxes, FUTA taxes, state unemployment taxes, and RRTA taxes (if applicable) must change to the recurring item exception method for FICA taxes, FUTA taxes, state unemployment taxes, and RRTA taxes (if applicable) as specified in § 461(h)(3) as part of this change.

(3) Concurrent automatic change . A taxpayer making both this change and a change to a UNICAP method described in section 20. 04(1)(b) of this revenue procedure under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable) for the same year of change should file a single Form 3115 for both changes, in which case the taxpayer must enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115. See section 6. 03(1)(b) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, for information on making concurrent changes.

(4) Designated automatic account- ing method change number . The designated automatic accounting method

change number for a change under section 20. 04(1)(a)(i) or (ii) of this revenue procedure is “45. ” The designated automatic accounting method change number for a change under section 20. 04(1)(a)(iii) of this revenue procedure is “113. ”

(5) Contact information . For further information regarding a change under this section, contact James Williford at (202) 317-5100 (not a toll-free number).. 05 Cooperative advertising (1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for cooperative advertising costs to a method consistent with the holding in Rev. Rul. 98-39, 1998-2 C. B. 198. Rev. Rul. 98-39 generally provides that, under the all events test of § 461, an accrual method manufacturer’s liability to pay a retailer for cooperative advertising services is incurred in the year in which the services are performed, provided the manufacturer is able to reasonably estimate this liability, and even though the retailer does not submit the required claim form until the following year.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 05 is “46. ” (3) Contact information . For further information regarding a change under this section, contact Clifford Sovich at (202) 317-5100 (not a toll-free number).. 06 Timing of incurring certain liabili- ties for services or insurance

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that is currently treating the mere execution of a contract for services or insurance as establishing the fact of the liability under § 461 and wants to change from that method of accounting for liabilities for services or insurance to comply with Rev. Rul. 20073, 2007-1 C. B. 350, that is, all the events needed to establish the fact of the liability occur when (a) the event fixing the liability, whether that be the required performance or other event occurs or (b) payment is due, whichever happens earliest.

(2) Designated automatic accounting method change number . The designated automatic accounting method change

number for a change under this section 20. 06 is “106. ” (3) Contact information . For further information regarding a change under this section, contact Sharon Horn at (202) 3177003 (not a toll-free number).. 07 Rebates and allowances (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 its liability for rebates and allowances to the recurring item exception method under § 461(h)(3) and § 1. 461-5.

(b) Inapplicability . This change does not apply to a taxpayer’s liability to pay a refund.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20. 07 is “135. ” (3) Contact information . For further information regarding a change under this section, contact Elizabeth Choi at (202) 317-5100 (not a toll-free number).. 08 Ratable accrual of real property taxes

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for real property taxes to the method described in § 461(c) and § 1. 461-1(c)(1) (ratable accrual election). This change applies to real property taxes that relate to a definite period of time. This change does not apply to a taxpayer’s first taxable year in which the taxpayer incurs real property taxes, in which case the change is made using the provisions of § 1. 461-1(c)(3)(i).

(2) Manner of making change and designated automatic accounting method change number

(a) Cut-off basis . This change is made on a cut-off basis and applies only to real property taxes accrued on or after the beginning of the year of change. Any real property taxes accrued prior to the year of change are accounted for under the taxpayer’s former method of accounting. See § 1. 461-1(c)(6), Examples (2) – (5) . Accordingly, a § 481(a) adjustment is neither permitted nor required.

(b) Short Form 3115 in lieu of a stan- dard Form 3115 . In accordance with

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(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20 .11 is “161 .” (3) Contact information . For further information regarding a change under this section, contact Aliza Schechet at (202) 317-7003 (not a toll-free number) . .12 Economic performance safe harbor for ratable service contracts .

(1) Description of change. This change applies to an accrual method taxpayer that wants to change its treatment of Ratable Service Contracts to conform to the safe harbor method provided by Rev . Proc . 2015-39, 2015-33 I .R .B . 195 . (2) Designated automatic account- ing method change number . The designated automatic accounting method change number for changes in methods of accounting under this section 20 .12 is “220 .”

(3) Contact information . For further information regarding a change under this section, contact Douglas Kim at (202) 317-7003 (not a toll-free number) . .13 Alternative Cost Method . (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for common improvement costs either to (1) use the Alternative Cost Method in accordance with Rev . Proc . 2023-9; or (2) discontinue using the alternative cost method under Rev . Proc . 92-29 (92-29 alternative cost method) and instead account for common improvement costs using an accrual method of accounting under § 461 .

(2) Applicability . This change applies to a taxpayer:

(a) that wants to change to the Alternative Cost Method described in Rev . Proc . 2023-9, for all of its qualifying projects within a trade or business, including taxpayers that want to change their method of allocating adjustments to the estimated cost of common improvements for all of their qualifying projects within a trade or business;

(b) that, on the first day of the first taxable year beginning after December 31, 2022, in the same trade or business, uses the 92-29 alternative cost method for one or more qualifying projects that are in progress and an accrual method under § 461 to account for common improvement

§ 1 .446-1(e)(3)(ii), the requirement in § 1.461-1(e)(3)(i) to file a standard Form 3115 is waived and, pursuant to section 6 .02(2) of Rev . Proc . 2015-13, a short Form 3115 is authorized with respect to a taxpayer making a change under this section 20 .08 . The taxpayer’s short Form 3115 (Rev . December 2022) must include all of the following information:

(i) the identification section of page 1 (above Part I);

(ii) the signature section at the bottom of page 1;

(iii) Part I, line 1(a); and (iv) the information described in § 1 .461-1(c)(3)(ii)( a ) through ( f ) .

(c) Section 461 election made with con- sent . The consent granted under section 9 of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, satisfies the consent required under § 461(c)(2)(B) and § 1 .461-1(c)(3)(ii) .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20 .08 is “149 .” (4) Contact information . For further information regarding a change under this section, contact Daniel Cassano at (202) 317-7011 (not a toll-free number) . .09 California Franchise Taxes . (1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting for California franchise taxes to a method consistent with the holding in Rev . Rul . 2003-90, 2003-2 C .B . 353 . Rev . Rul . 2003-90 provides that for taxable years beginning on or after January 1, 2000, a taxpayer that uses an accrual method of accounting incurs a liability for California franchise tax for federal income tax purposes in the taxable year following the taxable year in which the California franchise tax is incurred under the Cal. Rev. & Tax Code, as amended.

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20 .09 is “154 .” (3) Contact information . For further information regarding a change under this section, contact Sharon Horn at (202) 3177003 (not a toll-free number) . .10 Gift cards issued as a refund for returned goods .

(1) Description of change . (a) Applicability . This change applies 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 (as defined by section 4 .02 of Rev . Proc . 2011-17, 2011-5 I .R .B . 441) issued as a refund for returned goods to treat the transaction as (1) the payment of a cash refund in the amount of the gift card, and (2) the sale of a gift card in the amount of the gift card .

(b) Treatment of proceeds of the deemed sale . A taxpayer must treat the proceeds of the deemed sale of a gift card in accordance with the method of accounting it otherwise employs for sales of gift cards .

(2) Concurrent automatic change . A taxpayer making both this change 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 and enter the designated automatic accounting method change numbers for both changes on the appropriate line on that Form 3115 . See section 6 .03(1)(b) of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, for information on making concurrent changes .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 20 .10 is “156 .” (4) Contact information . For further information regarding a change under this section, contact Alicia Lee-Won at (202) 317-7003 (not a toll-free number) . .11 Timing of incurring liabilities under the recurring item exception to the economic performance rules .

(1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to conform to any of the holdings in Rev . Rul . 2012-1, 2012-2 I .R .B . 255, which clarifies the treatment of certain liabilities under the recurring item exception to the economic performance requirement under § 461(h)(3) by addressing the application of the “not material” and “better matching” requirements, and distinguishes contracts for the provision of services from insurance and warranty contracts .

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costs for one or more qualifying projects that are in progress (legacy rule). For purposes of this section, a qualifying project is in progress if the developer has sold at least one unit in the project in a prior taxable year (or in the case of a developer that uses the completed contract method, has completed at least one contract in the project in a prior taxable year) and holds units in the project available for sale during the taxable year. In this situation, the taxpayer is not required to change to the Alternative Cost Method for such qualifying projects in progress using an accrual method under § 461 as long as all new qualifying projects in the trade or business are accounted for using the Alternative Cost Method in accordance with Rev. Proc. 2023-9; or

(c) that, on the first day of the first taxable year beginning after December 31, 2022, wants to change from the 92-29 alternative cost method to an accrual method under § 461 for all of its qualifying projects in a trade or business.

(3) Inapplicability . (a) This change does not apply to a taxpayer that is using the

Alternative Cost Method described in Rev. Proc. 2023-9 that wants to change its method of allocating the estimated cost of common improvements among the benefitted units in the qualifying project (and in case of a taxpayer using the completed contract method described in § 1. 460-4(d) (CCM), a taxpayer that wants to change its method of allocating the estimated cost of common improvements among all the CCM contracts, as defined in section 4.03 of Rev. Proc. 2023-9, in the qualifying project).

(b) This change does not apply to a taxpayer that wants to change its method of accounting for determining the alternative cost limitation in section 5. 04 of Rev. Proc. 2023-9. The inapplicability rule described in this section 20. 13(3)(b) is effective for any taxable year following the first taxable year that begins after December 31, 2022.

(c) This change does not apply to a taxpayer that is presently using an impermissible method for incurring common improvement costs under § 461 and that wants to change its method of accounting for common improvement costs to the Alternative Cost Method described in Rev. Proc. 2023-9. The inapplicability

rule described in this section 20. 13(3)(c) is effective for any taxable year following the first taxable year that begins after December 31, 2022.

(4) Short Form 3115 in lieu of a stan- dard Form 3115 for certain taxpayers

(a) Applicability . The procedures described in section 20. 13(4)(b) may be used by a taxpayer to make a change in method of accounting described in section 20.13(2)(a) or (b) for the taxpayer’s first taxable year beginning after December 31, 2022, provided the taxpayer otherwise meets the requirements of this section 20. 13(4)(a). A taxpayer may use a short Form 3115 in lieu of a standard Form 3115 only if the § 481(a) adjustment required by such change is zero, and the taxpayer either: (1) is currently using the 92-29 alternative cost method for all qualifying projects and wants to change to the Alternative Cost Method in accordance with Rev. Proc. 2023-9 for all trades or businesses with such qualifying projects for the taxpayer’s first taxable year beginning after December 31, 2022; or (2) wants to apply the legacy rule described in section 20. 13(2)(b) of this revenue procedure to change to the Alternative Cost Method in accordance with Rev. Proc. 2023-9 for the taxpayer’s first taxable year beginning after December 31, 2022.

(b) Short Form 3115 . A taxpayer making a change under section 20. 13(4)(a) for the taxpayer’s first taxable year beginning after December 31, 2022, is required to complete only the following information on Form 3115 (Rev. 2018):

(i) The identification section of page 1 (above Part I);

(ii) The signature section at the bottom of page 1;

(iii) Part I, line 1(a); and (iv) For taxpayers using the legacy rule, Part II, line 16(a) identifying any qualifying projects in progress for which the taxpayer used the 92-29 alternative cost method and any qualifying projects in progress for which taxpayer will continue to use an accrual method of accounting.

(5) Section 481(a) adjustment . The taxpayer is required to compute a single § 481(a) adjustment for each trade or business for which a change described in section 20. 13(2)(a)-(c) is made.

(6) Eligibility rule temporarily inap- plicable . The eligibility rule in sec

tion 5. 01(1)(f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to the changes described in this section 20. 13 for the taxpayer’s first taxable year beginning after December 31, 2022.

(7) Examples . The following examples illustrate the application of the Alternative Cost Method in accordance with Rev. Proc. 2023-9.

(a) Example 1 . (i) Facts . Developer, a calendar year taxpayer that uses an overall accrual method of accounting, is in the business of developing residential subdivisions. As of December 31, 2022, Developer has two subdivision projects in progress in its only trade or business, Project A and Project B; both projects are separate qualifying projects, as defined in section 4. 01 of Rev. Proc. 2023-9. Developer sold the first lots in both projects during the 2022 taxable year. Developer requested consent to use the 92-29 alternative cost method for Project A in 2022. Developer has not requested consent to use the 92-29 alternative cost method for Project B.

(ii) Application of the Alternative Cost Method in accordance with Rev. Proc. 2023-9 for all qualifying projects . Developer wants to use the Alternative Cost Method for both qualifying projects. Developer must file a change in method of accounting using the automatic change in method of accounting procedures of this section 20. 13 to begin using the Alternative Cost Method for both qualifying projects and must calculate a single § 481(a) adjustment for such change.

(b) Example 2 . Application of the legacy rule . The facts are the same as in Example 1, except that Developer wants to use the Alternative Cost Method for Project A but not for Project B. Pursuant to section 20. 13 of this revenue procedure, Developer does not have to apply the Alternative Cost Method to Project B. However, if the Developer applies the Alternative Cost Method for Project A, then Developer must also apply the Alternative Cost Method to all new qualifying projects in its trade or business for taxable years beginning after December 31, 2022. Developer must also calculate the § 481(a) adjustment resulting from changing the method of accounting for the trade or business, if any.

(8) Designated automatic accounting method change number

(a) Change to the Alternative Cost Method in accordance with Rev. Proc. 2023-9 . The designated automatic accounting method change number for a change to the Alternative Cost Method in accordance with section 20. 13(2)(a) is “266. ”

(b) Legacy rule . The designated automatic accounting method change number for a taxpayer that wants to apply the legacy rule described in section 20. 13(2)(b) for the taxpayer’s first taxable year beginning after December 31, 2022, is “267. ”

(c) Change to an accrual method . The designated automatic accounting method change number for a change to an

Bulletin No. 2024–23 1427 June 3, 2024

accrual method in accordance with section 20.13(2)(c) for the taxpayer’s first taxable year beginning after December 31, 2022, is “268. ”

(9) Contact information . For further information regarding a change under this section 20. 13, contact Maria Castillo Valle at (202) 317-7003 (not a toll-free number).