SECTION 31. MARKET DISCOUNT

BONDS (§ 1278).

01 Revocation of § 1278(b) election (1) Description of change . This change applies to a taxpayer that wants to change its method of accounting for market discount bonds by revoking its § 1278(b) election. Under § 1278(b), a taxpayer may elect a method of accounting under which market discount is currently included in gross income for the taxable years to which the discount is attributable. See Rev. Proc. 92-67, 1992-2 C. B. 429, for the procedures to make a § 1278(b) election (including a deemed § 1278(b) election for certain taxable years). For purposes of this section 31. 01, a taxpayer also is treated as having made a deemed § 1278(b) election for a taxable year if, for one or more market discount bonds that were acquired by the taxpayer during that taxable year, the taxpayer includes in gross income on the tax return for that taxable year and on the tax return for the following taxable year the market discount attributable to each taxable year, other than as a result of a disposition of the bond or a partial principal payment on the bond. The procedures for revoking a § 1278 election were formerly provided in section 7 of Rev. Proc. 92-67.

(2) Revocation of election . The revocation of a § 1278(b) election (or a deemed § 1278(b) election) applies to all market discount bonds that are held by the taxpayer on the first day of the first taxable year for which the revocation is effective (year of change), and to all market discount bonds that are subsequently acquired by the taxpayer. If a § 1278(b) election (or a deemed § 1278(b) election) is revoked, then for purposes of § 1278(a), accrued market discount with respect to any bond previously subject to the election means accrued market discount as defined in § 1276(b) less any market discount included in income while the bond was subject to the § 1278(b) election (or the deemed § 1278(b) election).

(3) Manner of making change . This change is made on a cut-off basis and applies only to market discount accruing on or after the beginning of the year of change. Accordingly, a § 481(a) adjustment is neither permitted nor required. Market discount accruing on a bond prior to the year of change was currently

included in income and market discount accruing on the bond on and after the first day of the year of change is included in income generally upon disposition of the bond . See § 1276(a). Because a cut-off basis is prescribed for this change, the basis of any bond, adjusted for amounts previously included in income during the period of the election, is not affected by the revocation .

(4) Additional requirements . On a statement attached to the Form 3115, the taxpayer must provide:

(a) the reason(s) for revoking the § 1278(b) election (or deemed § 1278(b) election);

(b) a description of the method by which, and the date on which, the taxpayer made the § 1278(b) election (or deemed § 1278(b) election) that is being revoked; and

(c) a statement that, after the revocation, the taxpayer will not make a constant interest rate election for any bond that has been subject to the § 1278(b) election (or deemed § 1278(b) election) being revoked and for which a constant interest rate election was not effective in the year of acquisition .

(5) Audit protection . A taxpayer may receive audit protection, as provided in section 8 .01 of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, in connection with this change . Any audit protection applicable to this change under section 8 .01 of Rev . Proc . 2015-13 does not preclude the Commissioner from examining the method used by the taxpayer to determine the amount of accrued market discount under § 1276(b) for a taxable year prior to the year of change .

(6) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 31 .01 is “73 .” (7) Contact information . For further information regarding a change under this section, contact Matthew P . Howard at (202) 317-7053 (not a toll-free number) .

SECTION 32 . SHORT-TERM OBLIGATIONS (§ 1281)

.01 Interest income on short-term obli- gations .

(1) Description of change .

(a) This change applies to a taxpayer that wants to change its method of accounting to comply with § 1281 for interest income on short-term obligations .

(b) Under § 1281, a holder of certain short-term obligations, including a bank as defined in § 581, must include in gross income any accrued interest income on such obligations, regardless of the holder’s overall method of accounting . Section 1281 applies to all types of interest income, including acquisition discount, original issue discount (OID), and stated interest . See S . Rep . No . 99-313, 99 ^th Cong ., 2d Sess . 903 (1986), 1986-3 (Vol . 3) C .B . 903 . (c) Section 1283(a)(1) generally defines a short-term obligation as any bond, debenture, note, certificate, or other evidence of indebtedness that matures in one year or less from its issue date .

(d) Under §§ 1281(a) and 1283(c), a holder of a short-term obligation subject to § 1281 must include in gross income an amount equal to the sum of the daily portions of the acquisition discount or OID, whichever is applicable, on the obligation for each day during the taxable year that the obligation is held by the holder . See § 1283(b), as modified by § 1283(c), to determine the daily portions of acquisition discount or OID . In addition, § 1281(a) requires the holder to include in gross income any stated interest that is payable on the short-term obligation (other than stated interest taken into account to determine the amount of the acquisition discount or OID) as it accrues .

(2) Section 481(a) adjustment period . A taxpayer must take the entire § 481(a) adjustment into account in computing taxable income for the year of change .

(3) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 32 .01 is “74 .” (4) Contact information . For further information regarding a change under this section, contact Andrea Hoffenson at (202) 317-6945 (not a toll-free number) .

.02 Stated interest on short-term loans of cash method banks .

(1) Description of change . This change applies to a bank that uses the cash receipts and disbursements (cash) method of accounting as its overall account

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ing method and that wants to change its method of accounting from accruing stated interest on short-term loans made in the ordinary course of business to using the cash method for that interest. For example, see Security State Bank v. Com- missioner, 214 F. 3d 1254 (10 ^th Cir. 2000), aff’g 111 T. C. 210 (1998), acq ., 2001-1 C. B. xix; and Security Bank Minnesota v. Commissioner, 994 F. 2d 432 (8 ^th Cir. 1993), aff’g 98 T. C. 33 (1992), in which the courts held that § 1281 does not apply to short-term loans made by a cash method bank in the ordinary course of its business.

(2) Certain eligibility rule inapplica- ble . The eligibility rule in section 5. 01(1) (f) of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, does not apply to this change. (3) Section 481(a) adjustment period . A taxpayer making this change must take the entire § 481(a) adjustment into account in computing taxable income for the year of change.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 32. 02 is “75. ” (5) Contact information . For further information regarding a change under this section, contact Andrea Hoffenson at (202) 317-6945 (not a toll-free number).

EFFECTIVE DATE .

01 In general . Except as otherwise provided under this EFFECTIVE DATE section, this revenue procedure is effective for a Form 3115 filed on or after June 9, 2025, for a year of change ending on or after October 31, 2024, that is filed under the automatic change procedures of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, as clarified and modified by Rev. Proc. 2015-33, 2015-24 I.R.B. 1067, and as modified by Rev. Proc. 2021-34, 2021-35 I. R. B. 337, Rev. Proc. 2021-26, 2021-22 I. R. B. 1163, Rev. Proc. 2017-59, 2017-48 I. R. B. 543, and section 17. 02(b) and (c) of Rev. Proc. 2016-1, 2016-1 I. R. B. 1. 02 Transition rules . The following transition rules apply:

(1) Limited time period to convert a Form 3115 filed under the non-automatic change procedures in Rev. Proc. 2015-13 . If, before June 9, 2025, a taxpayer properly filed a Form 3115 under the non-au

tomatic change procedures in Rev. Proc. 2015-13 requesting the Commissioner’s consent for a change in method of accounting described in this revenue procedure, and the Form 3115 is pending with the national office on June 9, 2025, the taxpayer may choose to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 if the taxpayer is otherwise eligible to use this revenue procedure and the automatic change procedures in Rev. Proc. 201513. The taxpayer must notify the national office contact person (if unknown, fax the notification to 855-574-9031 or send the notification to the attention of Control Clerk, CC:ITA, Room 4512 at the address specified in section 9.08(6) of Rev. Proc. 2025-1, 2025-1 I. R. B. 1 (or its successor) for the Form 3115 of the taxpayer’s intent to make the change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 before the later of (a) July 9, 2025, or (b) the issuance of a letter ruling granting or denying consent for the change. The notification should indicate that the taxpayer chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 2015-13. If the taxpayer timely notifies the national office that it chooses to convert the Form 3115 to the automatic change procedures in Rev. Proc. 2015-13, the national office will send a letter to the taxpayer acknowledging its request and will return the user fee submitted with the Form 3115.

A taxpayer converting a Form 3115 to the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting described in this revenue procedure must resubmit a Form 3115 that conforms to the automatic change procedures, with a copy of the national office letter sent acknowledging the taxpayer’s request attached, to the IRS in Ogden, UT by the earlier of (a) the 30 ^th calendar day after the date of the national office’s letter acknowledging the taxpayer’s request, or (b) the date the taxpayer is required to file the duplicate copy of the Form 3115 under section 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13. See section 6. 03(3) of Rev. Proc. 2015-13 regarding additional required copies of Form 3115.

For purposes of the eligibility rules in section 5 of Rev. Proc. 2015-13, the duplicate copy of the timely resubmitted Form

3115 will be considered filed as of the date the taxpayer originally filed the converted Form 3115 under the non-automatic change procedures in Rev. Proc. 201513. This paragraph (1) does not extend the date the taxpayer must file the original (converted) Form 3115 under section 6. 03(1)(a)(i)(A) of Rev. Proc. 2015-13. A Form 3115 filed under the non-automatic change procedures in Rev. Proc. 2015-13 before June 9, 2025, for a change in method of accounting described in this revenue procedure, will be disregarded for purposes of the prior five-year change rules in sections 5. 04 and 5. 05 of Rev. Proc. 2015-13 if the taxpayer converts the Form 3115 pursuant to this paragraph (1).

(2) Forms 3115 for changes in methods of accounting that can no longer be filed under the automatic change procedures . Except as provided in subsection . 02(2) (a) of this EFFECTIVE DATE section, the following transition rules apply to the changes in methods of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13 because of changes made in this revenue procedure. Examples of such changes in methods of accounting are described in subsection . 01(10), (12), and (16) of the SIGNIFICANT CHANGES section of this revenue procedure.

(a) If before June 9, 2025, a taxpayer properly filed the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer may continue to make that change in method of accounting under the automatic change procedures in Rev. Proc. 2015-13 for the year of change. The taxpayer is not required to resubmit a duplicate copy of the Form 3115 to the IRS in Ogden, UT under section 6. 03(1) (a)(i)(B) of Rev. Proc. 2015-13.

(b) If before June 9, 2025, a taxpayer did not properly file the original, or the duplicate copy, of a Form 3115 under the automatic change procedures in Rev. Proc. 2015-13 for a change in method of accounting that can no longer be filed under the automatic change procedures in Rev. Proc. 2015-13, the taxpayer must make that change in method of accounting under the non-automatic change pro

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cedures in Rev. Proc. 2015-13. Notwithstanding § 1. 446-1(e)(3)(i), the taxpayer may file a Form 3115 to request the Commissioner’s consent to change the method of accounting under the non-automatic change procedures in Rev. Proc. 2015-13 for the taxpayer’s last taxable year ending before June 9, 2025, on or before the due date of the federal income tax return for that taxable year. Solely for purposes of this paragraph (2)(b), the due date of the taxpayer’s federal income tax return includes extensions, notwithstanding that the taxpayer may not have extended the due date.

(3) Transition rule for taxpayers that properly filed the duplicate copy of Form 3115 before June 9, 2025, for a change that continues to qualify under the auto- matic change procedures.

(a) Option to implement change as described in Rev. Proc. 2024-23 or under this revenue procedure . If, before June 9, 2025, a taxpayer properly filed the duplicate copy of the Form 3115, pursuant to section 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13, requesting consent to change its method of accounting for a change described in Rev. Proc. 2024-23, 202423 I.R.B. 1334, as modified prior to June 9, 2025, that continues to be eligible for the automatic change procedures in this revenue procedure, but has not filed its timely filed (including extensions) original Federal income tax return for the year of change implementing the change, the taxpayer may choose to implement the change as described in either Rev. Proc. 2024-23 or this revenue procedure, but not both.

(b) Procedures to implement change as described in Rev. Proc. 2024-23. A taxpayer who meets the requirements of paragraph (3)(a) and chooses to implement the change as described in Rev. Proc. 2024-23 is not required to resubmit a duplicate copy of the Form 3115 to the IRS in Ogden, UT. However, if requested by the Director, the taxpayer must provide written substantiation that the duplicate copy of the Form 3115 was filed before June 9, 2025, pursuant to section 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13. Such written substantiation may include proof of mailing or faxing, as appropriate, of the duplicate copy of the Form 3115.

(c) Procedures to implement the change as described in this revenue pro- cedure. A taxpayer who meets the requirements of paragraph (3)(a) and chooses to implement the change as described in this revenue procedure, must resubmit a duplicate copy (with signature) of the Form 3115 to the IRS in Ogden, UT for the year of change under this revenue procedure, pursuant to the requirements of section 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13. The resubmitted duplicate copy must include the following statement on the top of page 1 of the Form 3115: “FILED UNDER REV. PROC. 2025-23, AS PROVIDED IN SECTION . 02(3)(c) OF THE EFFECTIVE DATE SECTION OF REV. PROC. 2025-23”. For purposes of the eligibility rules in section 5 of Rev. Proc. 2015-13, the duplicate copy of the resubmitted Form 3115 will be considered filed as of the date the taxpayer originally filed the duplicate copy of the Form 3115 requesting the change under Rev. Proc. 2024-23. This paragraph (3) (c) does not extend the date the taxpayer must file either the resubmitted duplicate copy or original Form 3115 under section 6. 03(1)(a) of Rev. Proc. 2015-13. If requested by the Director, the taxpayer must provide written substantiation that the duplicate copy of the Form 3115 requesting the change under Rec. Proc. 2024-23 was filed before June 9, 2025, pursuant to section 6. 03(1)(a)(i)(B) of Rev. Proc. 2015-13. Such written substantiation may include proof of mailing or faxing, as appropriate, of the duplicate copy of the Form 3115.

EFFECT ON OTHER DOCUMENTS

.01 This revenue procedure amplifies and modifies Rev. Proc. 2024-23, 2024-23 I. R. B. 1334. Rev. Proc. 2024-23, as amplified and modified, is superseded in part. The second sentence in the subsection . 01 under the EFFECT ON OTHER DOCUMENTS section of Rev. Proc. 2024-23 remains in effect (that is, the second sentences in sections 14. 01 and 14. 02, and sections 14. 04, 14. 05, 14. 06, and 14. 07 of Rev. Proc. 2011-14, 2011-4 I. R. B. 330, remain in effect). All other sections of Rev. Proc. 2024-23 are superseded. .

02 Rev. Proc. 2011-46, 2011-42 I. R. B. 518, is modified as follows:

(1) Section 5.02(3)(a) is modified to remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences in its place:

(a) In accordance with § 1. 446-1(e)(3) (ii), the requirement under § 1. 446-1(e) (3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115 in section 3.07 of Rev. Proc. 2015-13, 2015-5 I. R. B. 419, the statement in lieu of a Form 3115 that is permitted under this paragraph 5. 02(3)(a) is considered a Form 3115 for purposes of the automatic change procedures in Rev. Proc. 2015-13. However, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived.

(2) Section 5.03(2)(a) is modified to remove the first two sentences in the Manner of Making Change section and to substitute the following three new sentences in its place:

(a) In accordance with § 1. 446-1(e) (3)(ii), the requirement under § 1. 4461(e)(3)(i) to file a Form 3115 is waived and a statement in lieu of a Form 3115 is authorized for this change. Notwithstanding the definition of Form 3115 in section 3. 07 of Rev. Proc. 2015-13, the statement in lieu of a Form 3115 that is permitted under this paragraph 5. 03(2) (a) is considered a Form 3115 for purposes of the automatic change procedures in Rev. Proc. 2015-13. However, the requirement to file the duplicate copy, under section 6. 03(1)(a) of Rev. Proc. 2015-13, is waived..

03 Rev. Rul. 2004-62, 2004-1 C. B. 1072, is modified to remove the second sentence in the CHANGE IN METHOD OF ACCOUNTING section and to substitute the following new two sentences in its place:

A taxpayer that wants to change its method of accounting to comply with this revenue ruling must follow the automatic change procedures in Rev. Proc. 201513, 2015-5 I. R. B. 419, (or successor) if the taxpayer is eligible to request such consent under the automatic change procedures therein. The eligibility rules in section 5. 01(1) of Rev. Proc. 2015-13 (or successor) apply to a change in method of accounting described in section 3. 04 of

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